Among the possible consequences of agency problems between corporate owners and managers is a tendency by managers to make investment decisions for their firms that are deliberately aimed at reducing firm risk, as a means to control managers’ personal wealth risk. The literature has suggested...

Corporate managers typically estimate the value of capital projects by discounting the project's expected future net cash flows at the cost of capital. The capital asset pricing model (CAPM) is generally used to estimate that cost. But, as anyone who has worked on the finance or business...