TY  - JOUR
AU  - Grenadier,Steven R.
AU  - Wang,Neng
TI  - Investment Timing, Agency, and Information
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11148
PY  - 2005
Y2  - February 2005
UR  - http://www.nber.org/papers/w11148
L1  - http://www.nber.org/papers/w11148.pdf
N1  - Author contact info:
Steven Grenadier
Graduate School of Business
Stanford University
Stanford, CA  94305
Tel: 650/725-0706
Fax: 650/725-6152
E-Mail: sgren@stanford.edu

Neng Wang
Columbia Business School
3022 Broadway, Uris Hall 812
New York, NY 10027
Tel: 212/854-3869
Fax: 212/662-8474
E-Mail: nw2128@columbia.edu
AB  - 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.
ER  -