SHAREHOLDERS' UNANIMITY WITH INCOMPLETE MARKETS

Eva Carceles-Poveda and Daniele Coen-Pirani

International Economic Review, 2009, vol. 50, issue 2, 577-606

Abstract: When markets are incomplete, shareholders typically disagree on the firm's optimal investment plan. This article studies the shareholders' preferences with respect to the firm's investment in a model with aggregate risk, incomplete markets and heterogeneous households who trade in firms' shares instead of directly accumulating physical capital. If the production function exhibits constant returns to scale and borrowing limits are not binding, a firm's shareholders unanimously agree on its optimal level of investment. In contrast, with binding borrowing constraints, constrained shareholders prefer a higher level of investment than unconstrained ones. Copyright © (2009) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 2009
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Working Paper: Shareholders Unanimity With Incomplete Markets (2004)
Working Paper: Shareholders Unanimity With Incomplete Markets
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