Dynamic agency and investment theory with time-inconsistent preferences

Bo Liu, Congming Mu and Jinqiang Yang

Finance Research Letters, 2017, vol. 20, issue C, 88-95

Abstract: We incorporate managers’ time-inconsistent preferences into the DeMarzo et al. (2012) model of dynamic agency and the q theory of investment. Our model provides an alternative explanation for underinvestment from the perspective of managers’ time inconsistency. It also shows that firms prefer delaying a cash payout due to managers’ time-inconsistent preferences, and the corresponding distorted investment and payout decisions significantly decrease a firm’s average q and marginal q.

Keywords: Principal-agency problem; q Theory; Under-investment; Time-inconsistent preferences; Cash payout (search for similar items in EconPapers)
JEL-codes: C73 D92 G11 G2 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:20:y:2017:i:c:p:88-95

DOI: 10.1016/j.frl.2016.09.017

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