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- Publisher Website: 10.1093/rfs/hhg050
- Scopus: eid_2-s2.0-4344574907
- WOS: WOS:000222487900005
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Article: Capital budgeting in multidivision firms: Information, agency, and incentives
| Title | Capital budgeting in multidivision firms: Information, agency, and incentives |
|---|---|
| Authors | |
| Issue Date | 2004 |
| Citation | Review of Financial Studies, 2004, v. 17, n. 3, p. 739-767 How to Cite? |
| Abstract | We examine optimal capital allocation and managerial compensation in a firm with two investment projects (divisions) each run by a risk-neutral manager who can provide (i) (unverifiable) information about project quality and (ii) (unverifiable) access to value-enhancing, but privately costly resources. The optimal managerial compensation contract offers greater performance pay and a lower salary when managers report that their project is higher quality. The firm generally underinvests in capital and managers underutilize resources (relative to first-best). We also derive cross-sectional predictions about the sensitivity of investment in one division to the quality of investment opportunities in the other division, and the relative importance of division-level and firm-level performance-based pay in managerial compensation contracts. |
| Persistent Identifier | http://hdl.handle.net/10722/241891 |
| ISSN | 2023 Impact Factor: 6.8 2023 SCImago Journal Rankings: 17.654 |
| ISI Accession Number ID |
| DC Field | Value | Language |
|---|---|---|
| dc.contributor.author | Bernardo, Antonio E. | - |
| dc.contributor.author | Cai, Hongbin | - |
| dc.contributor.author | Luo, Jiang | - |
| dc.date.accessioned | 2017-06-23T01:56:02Z | - |
| dc.date.available | 2017-06-23T01:56:02Z | - |
| dc.date.issued | 2004 | - |
| dc.identifier.citation | Review of Financial Studies, 2004, v. 17, n. 3, p. 739-767 | - |
| dc.identifier.issn | 0893-9454 | - |
| dc.identifier.uri | http://hdl.handle.net/10722/241891 | - |
| dc.description.abstract | We examine optimal capital allocation and managerial compensation in a firm with two investment projects (divisions) each run by a risk-neutral manager who can provide (i) (unverifiable) information about project quality and (ii) (unverifiable) access to value-enhancing, but privately costly resources. The optimal managerial compensation contract offers greater performance pay and a lower salary when managers report that their project is higher quality. The firm generally underinvests in capital and managers underutilize resources (relative to first-best). We also derive cross-sectional predictions about the sensitivity of investment in one division to the quality of investment opportunities in the other division, and the relative importance of division-level and firm-level performance-based pay in managerial compensation contracts. | - |
| dc.language | eng | - |
| dc.relation.ispartof | Review of Financial Studies | - |
| dc.title | Capital budgeting in multidivision firms: Information, agency, and incentives | - |
| dc.type | Article | - |
| dc.description.nature | link_to_subscribed_fulltext | - |
| dc.identifier.doi | 10.1093/rfs/hhg050 | - |
| dc.identifier.scopus | eid_2-s2.0-4344574907 | - |
| dc.identifier.volume | 17 | - |
| dc.identifier.issue | 3 | - |
| dc.identifier.spage | 739 | - |
| dc.identifier.epage | 767 | - |
| dc.identifier.isi | WOS:000222487900005 | - |
| dc.identifier.issnl | 0893-9454 | - |