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| Author: | Bohlin, E. |
| Title: | A survey of managerial incentives and investment bias - common structure but different assumptions |
| Journal: | Journal of Business Finance and Accounting
1997 : MAR, VOL. 24:2, p. 197-248 |
| Index terms: | AGENCY THEORY CAPITAL BUDGETING INFORMATION INVESTMENT |
| Language: | eng |
| Abstract: | The agency framework is a formulation of a relationship between two parties, the principal and the agent, where the principal wants the agent to supply a productive input. This relationship is not frictionless. A simplified model is used to capture the information asymmetry leading to bias. Four possible fundamental bias drivers have been suggested: several input factors unobservable to principal, through signal jamming create a potential for investment bias; limited possibilities of risk spreading of human capital with managerial risk-aversion affect investment bias. The information asymmetries are primarily grouped into hidden action and private information; chain effects of exogenous frictions in capital markets may induce investment bias; non-verifiabilities of critical information pose problems of incentive and bias. |
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