Is corporate control effective when managers face investment timing decisions in incomplete markets?

Journal article

This paper presents a model of investment timing by risk averse managers facing incomplete markets and corporate control. Managers are exposed to idiosyncratic risks due to the dependence of their compensation on investment payoffs which are not spanned by other assets. We show that risk averse managers invest earlier than well-diversified shareholders would prefer, leading to significant agency costs. This effect can be mitigated if the manager is subject to corporate control. Our main findi...

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Authors: Henderson, V

• Publication status: Published
• Journal: JOURNAL OF ECONOMIC DYNAMICS and CONTROL
• Volume: 34
• Issue: 6
• Pages: 1062-1076
• Publication date: 2010-06-01
• DOI: 10.1016/j.jedc.2010.02.009
• ISSN: 0165-1889
• Language: English
• Keywords: Corporate control; Real options; Investment timing; Incomplete markets