Bandits and bounties: the intersection of information search and investment decisions

Anthony A. Meder, Steven Schwartz and Richard Young

Accounting Research Journal, 2019, vol. 32, issue 3, 313-325

Abstract: Purpose - This paper aims to describe two scenarios where the problem of information search interacts with the firm’s investment decisions. Investment decisions cannot be made separately from the need to acquire information. Design/methodology/approach - The scenarios are illustrated with easy-to-follow numerical examples. Vignettes put the numerical examples in their real-world context. Findings - In both scenarios, the firm should choose what might myopically appear as the lower net per value (NPV) alternative to efficiently deal with the information search problem. Originality/value - Long-term investments are an important topic in the study of both accounting and finance, but it is in the study of accounting where information issues related to long term investments come to the fore. The traditional textbook approach on whether to accept long-term investment opportunities is to use the NPV rule. However, as illustrated in this note, in many important situations where information search is crucial to investment choice, the NPV rule will not lead to efficient investment decisions.

Keywords: Investment; NPV; Information search; Investment efficiency; Status quo vs innovate (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:arjpps:arj-09-2016-0119

DOI: 10.1108/ARJ-09-2016-0119

Access Statistics for this article

Accounting Research Journal is currently edited by Professor Reza Monem

More articles in Accounting Research Journal from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().