Investment timing, asymmetric information, and audit structure: A real options framework

Takashi Shibata

Journal of Economic Dynamics and Control, 2009, vol. 33, issue 4, pages 903-921

Abstract: This paper examines investment timing by the manager in a decentralized firm in the presence of asymmetric information. In particular, we incorporate an audit technology in the agency model developed by Grenadier and Wang [2005. Investment timing, agency, and information. Journal of Financial Economics 75, 493-533]. The implied investment trigger in the agency problem with auditing is larger than in the full-information problem, and smaller than in the agency problem without auditing. Nevertheless, the audit technology does not necessarily reduce inefficiency in the total social welfare.

Keywords: Real; options; Asymmetric; information; Agency; conflicts; Audit (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:dyncon:v:33:y:2009:i:4:p:903-921

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