Investment and financing choices by time-inconsistent managers
Xin Xia and
The North American Journal of Economics and Finance, 2018, vol. 46, issue C, 29-48
This paper provides an analytically tractable continuous-time model in which a time-inconsistent manager can divert part of the firm’s cash flows as private benefits at the expense of outside shareholders. We endogenously determine the investment scale, investment threshold, optimal coupon and default threshold under managerial discretion. We demonstrate that time-inconsistent managers each have a trade-off between the timing and scale of investment.
Keywords: Agency conflicts; Investment; Financing policy; Time inconsistency (search for similar items in EconPapers)
JEL-codes: D92 G02 G32 G33 G34 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:46:y:2018:i:c:p:29-48
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