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Real Investment Decisions Under Information Constraints

Gérard Gaudet (), Pierre Lasserre and Ngo Long

CIRANO Working Papers from CIRANO

Abstract: We investigate investment behavior when there is asymmetry of information between owners (the principal) and managers (the agent). The model accepts the standard cost-of-adjustment model as a particular case and is directly compared with it. For all types, information asymmetry distorts the relationship between investment and the cost of capital, and the relationship between investment and the shadow value of capital. In particular, a regime of inaction appears over a certain cost range, in an observationnally different way than when fixed adjustment costs, or irreversibilities, cause a similar phenomenon. Uncertainty, in the form of an increase in the spread of agents' types, tends to reduce investment despite symmetric adjustment cost and perfect competition. The model clarifies the interpretation of Tobin's q under asymmetric information and explains some results of the mergers and acquisition literature. En présence d'asymétrie d'information entre propriétaires (le principal) et administrateurs (l'agent), la relation investissement coût du capital et la relation investissement valeur implicite du capital subissent une distorsion pour tous les types. Dans un modèle avec coût d'ajustement par ailleurs standard, il apparaît notamment un régime d'inaction pour une certaine gamme de coûts. Ce phénomène se présente sous une forme différente de ce qu'implique la présence de coûts fixes ou d'irréversibilités,0501s ressemble à ce qui survient lorsque le coût du capital est différent pour une hausse que pour une baisse du stock. L'incertitude, qui prend la forme d'un élargissement de la distribution des types, tend cependant à réduire l'investissement. Le modèle clarifie l'interprétation du q de Tobin sous asymétrie d'information et explique certains résultats de la littérature sur les fusions et acquisitions.

Keywords: Incentive contracts; Dynamic/Asymmetric information; Principal agent relationship; Investment; Cost of adjustment; Uncertainty, Contrats incitatifs; dynamique; information asymétrique; relation principal-agent; investissement; incertitude. (search for similar items in EconPapers)
JEL-codes: D82 G31 (search for similar items in EconPapers)
Date: 1995-07-01
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Working Paper: Real Investment Decisions Under Information Constraints (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:95s-33

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