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Article: Moral hazard in corporate investment and the disciplinary role of voluntary capital rationing

TitleMoral hazard in corporate investment and the disciplinary role of voluntary capital rationing
Authors
KeywordsNPV
Renegotiation-Proof
Principal-Agent
Capital Rationing
High Hurdle Rate
Issue Date1997
Citation
Management Science, 1997, v. 43, n. 6, p. 737-750 How to Cite?
AbstractThis paper compares three capital-budgeting rules, the NPV rule, a high hurdle rate and capital rationing, and explains why some firms may voluntarily impose capital rationing. Under both capital rationing and a high hurdle, a restrictive investment criterion is used to control managerial shirking. However, implementation of these budgeting rules requires a mechanism to prevent the firm from expanding the investment scale ex post. Capital rationing, in the form of a predetermined, fixed budget, differs from the high-hurdle-rate rule in that the former requires the firm to overcome the cost of raising additional capital before making further investment.
Persistent Identifierhttp://hdl.handle.net/10722/233755
ISSN
2015 Impact Factor: 2.741
2015 SCImago Journal Rankings: 4.384

 

DC FieldValueLanguage
dc.contributor.authorZhang, Guochang-
dc.date.accessioned2016-09-27T07:21:33Z-
dc.date.available2016-09-27T07:21:33Z-
dc.date.issued1997-
dc.identifier.citationManagement Science, 1997, v. 43, n. 6, p. 737-750-
dc.identifier.issn0025-1909-
dc.identifier.urihttp://hdl.handle.net/10722/233755-
dc.description.abstractThis paper compares three capital-budgeting rules, the NPV rule, a high hurdle rate and capital rationing, and explains why some firms may voluntarily impose capital rationing. Under both capital rationing and a high hurdle, a restrictive investment criterion is used to control managerial shirking. However, implementation of these budgeting rules requires a mechanism to prevent the firm from expanding the investment scale ex post. Capital rationing, in the form of a predetermined, fixed budget, differs from the high-hurdle-rate rule in that the former requires the firm to overcome the cost of raising additional capital before making further investment.-
dc.languageeng-
dc.relation.ispartofManagement Science-
dc.subjectNPV-
dc.subjectRenegotiation-Proof-
dc.subjectPrincipal-Agent-
dc.subjectCapital Rationing-
dc.subjectHigh Hurdle Rate-
dc.titleMoral hazard in corporate investment and the disciplinary role of voluntary capital rationing-
dc.typeArticle-
dc.description.natureLink_to_subscribed_fulltext-
dc.identifier.scopuseid_2-s2.0-0031153784-
dc.identifier.volume43-
dc.identifier.issue6-
dc.identifier.spage737-
dc.identifier.epage750-

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