Real Options in a Dynamic Agency Model, with Applications to Financial Development, IPOs, and Business Risk
Working Paper 13584
DOI 10.3386/w13584
Issue Date
We study investment options in a dynamic agency model. Moral hazard creates an option to wait and agency conflicts affect the timing of investment. The model sheds light, theoretically and quantitatively, on the evolution of firms' dynamics, in particular the decline of the failure rate and the decrease in the age of IPOs.