Investments under vertical relations and agency conflicts: A real options approach
| Autor: | Dimitrios Zormpas |
|---|---|
| Rok vydání: | 2020 |
| Předmět: |
Economics and Econometrics
050208 finance business.industry 05 social sciences Audit Investment (macroeconomics) Investment management Microeconomics Information asymmetry Principal (commercial law) 0502 economics and business Agency (sociology) Business Market power 050207 economics Finance Externality |
| Zdroj: | International Review of Economics & Finance. 70:273-287 |
| ISSN: | 1059-0560 |
| DOI: | 10.1016/j.iref.2020.06.017 |
| Popis: | We examine the case of a firm holding the option to make an uncertain and irreversible investment. The firm is decentralized and there is information asymmetry between the owner and the investment manager regarding the price of an input (e.g. a key equipment) that needs to be purchased by an outside supplier with market power. We show that the total loss attributed to the information asymmetry has two components: i) the loss in the decentralized firm itself and ii) a negative externality that the outside input supplier endures. We show that the latter is not just a part, but likely the main component of the total loss. Last, we prove that the negative externality is reduced when the principal uses an audit technology in parallel with the bonus-incentive mechanism. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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