Economics at your fingertips  

Decision Processes, Agency Problems, and Information: An Economic Analysis of Capital Budgeting Procedures

Anthony Marino and John Matsusaka ()

Review of Financial Studies, 2005, vol. 18, issue 1, 301-325

Abstract: Corporations use a variety of processes to allocate capital. This article studies the benefits and costs of several common budget procedures from the perspective of a model with agency and information problems. Processes that delegate aspects of the decision to the agent result in too many projects being approved, while processes in which the principal retains the right to reject projects cause the agent to strategically distort his information about project quality. We show how the choice of a decision process depends on these two costs, and specifically on severity of the agency problem, quality of information, and project risk. Copyright 2005, Oxford University Press.

Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (49) Track citations by RSS feed

Downloads: (external link) (text/html)
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:

Ordering information: This journal article can be ordered from

Access Statistics for this article

Review of Financial Studies is currently edited by Itay Goldstein

More articles in Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

Page updated 2023-05-10
Handle: RePEc:oup:rfinst:v:18:y:2005:i:1:p:301-325