Effect of Disagreement on Corporate Financing Policy and Investment Level

Niu Weining

Asian Economic and Financial Review, 2017, vol. 7, issue 4, 349-357

Abstract: This study models firm’s financing policy and investment level when manager and outside investors has disagreement. It shows that the firm is more likely to over invest when the level of disagreement is high, and prefers debt financing; while under invests with lower disagreement level and tends to equity financing. Compared with self-financing, investment at firm level decreases, the over (under) investment level also declines and the threshold of disagreement rises when the firm chooses external financing. The numerical simulation also verifies the theoretical findings.

Keywords: Disagreement; Heterogeneous beliefs; Debt financing; Share issuance; Over investment; Under investment. (search for similar items in EconPapers)
Date: 2017
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