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| Author: | Lambrecht, B.M. Myers, S.C. |
| Title: | Debt and managerial rents in a real-options model of the firm |
| Journal: | Journal of Financial Economics
2008 : AUG, VOL. 89:2, p. p. 209-231 |
| Index terms: | financial policy investments capital investment equity capital debt financing theories models |
| Freeterms: | agency governance |
| Language: | eng |
| Abstract: | This paper presents a theory of capital investment and debt and equity financing in a real-options model of a public corporation. According to the theory, managers are assumed to maximize the present value of their future compensation, subject to constraints from outside shareholders' property rights to the firm's assets. It's shown how bankruptcy costs can distort both investment and disinvestment. It is also shown how managers' personal wealth constraints can lead to delayed investment and increased reliance on debt financing. |
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