This paper is the first to analyze importance of monitoring costs in real options analysis. Monitoring costs, in this context, are tied to the process of making key investment or management decisions. Monitoring costs differ from previously considered types of frictions, as they make it optimal...

The paper deals with a modification of CAPM, which takes into account distinction between insiders as agents who actually determine the managerial decisions in the company, and outsiders, which are identifi ed as all other investors who do not have direct infl uence on managerial decisions. This...