This paper contributes empirically to the ‘Excess Sensitivity' literature by arguing that results obtained by using investment-cash flow sensitivity as a metric to represent finance constraint of firms can be misleading. This is because cash flow apart from signaling change in net worth may...

We examine whether individuals can defy their decision power if it is beneficial for them to do so. In an experiment we let principals make a decision whether to make their own investment decision, or to let their agent make that decision. While the principal can work out that the agent benefits...

This paper studies how division managers' access to venture capital (VC) markets affects the internal capital allocation decision of a multi-division firm. Division managers may leave firms and seek venture financing if their project ideas are not funded by headquarters. A successful new venture...

An important debate in the literature relates to the use of investment-cash flow sensitivity (ICFS) to measure finance constraint faced by firms. This debate is grounded on four prominent issues: a priori sorting of firms, treatment of distressed firms, use of cash flow to represent only...

This paper analyzes the effects of the way information is produced and transmitted through an organizational structure on the business dynamics of a firm. Specifically, I study its effects on the agency problem, concluding that it proves to be an efficient and effective solution to overcome the...

We present simple a model adequate for investment decisions in duopolies under total hidden competition. In this competitive context all potential entrants remain unrevealed until they decide to move into the market. The value-functions and the optimal entry thresholds are derived

A major criticism against the use of investment-cash flow sensitivity to measure finance constraint of firms is that cash flows, besides capturing information on internal liquidity, also capture information on growth opportunities of firms. Moreover, some researchers also point to the...

This paper explores the link between IPO underpricing and financial markets. In my model the IPO is a mean for a capital constrained initial investor to exit and thereby to raise funds for a new investment opportunity. This investor is privately informed vis-a-vis outside investors about the...

We study a setting wherein a divisional manager undertakes personally costly effort to improve the profitability of an investment project. The manager's choice of innovation effort is subject to a holdup problem because of the ex post opportunism on the part of headquarters. We analyze and...

An enduring puzzle is why credit ratings are coarse indicators of issuer credit quality, with a relatively small number of ratings categories being used to describe credit qualities that lie in a continuum. We develop a theoretical model to explain why ratings are coarse even though coarseness...