NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Investment Timing, Agency, and Information

Steven R. Grenadier, Neng Wang

NBER Working Paper No. 11148
Issued in February 2005
NBER Program(s):   AP

This paper provides a model of investment timing by managers in a decentralized firm in the presence of agency conflicts and information asymmetries. When investment decisions are delegated to managers, contracts must be designed to provide incentives for managers to both extend effort and truthfully reveal private information. Using a real options approach, we show that an underlying option to invest can be decomposed into two components: a manager's option and an owner's option. The implied investment behavior differs significantly from that of the first-best no-agency solution. In particular, greater inertia occurs in investment, as the model predicts that the manager will have a more valuable option to wait than the owner.

download in pdf format
   (360 K)

email paper

This paper is available as PDF (360 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11148

Published: Grenadier, Steven and Neng Wang. “Investment Timing, Agency and Information.” Journal of Financial Economics 75, 3 (2005): 493-533. citation courtesy of

Users who downloaded this paper also downloaded these:
Grenadier w9475 An Equilibrium Analysis of Real Estate
Grenadier and Wang w12042 Investment Under Uncertainty and Time-Inconsistent Preferences
Grenadier and Hall w5178 Risk-Based Capital Standards and the Riskiness of Bank Portfolios: Credit and Factor Risks
Myers and Majluf w1396 Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have
Bolton, Chen, and Wang w14845 A Unified Theory of Tobin's q, Corporate Investment, Financing, and Risk Management
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us