The commitment of finance, duplicated monitoring, and the investment horizon

Thadden, Ernst-Ludwig von

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Document Type: Working paper
Year of publication: 1992
The title of a journal, publication series: CEPR Financial Markets Paper
Volume: 0027
Place of publication: London
Publishing house: Centre for Economic Policy Research (CEPR)
Publication language: English
Institution: School of Law and Economics > Microeconomics and Finance (von Thadden (2004-)
Subject: 330 Economics
Abstract: The paper presents a simple model of financial contracting for a long-term investment project in which early project termination may be an optimal response to information asymmetries. The paper characterizes when this constellation leads to inefficient short- term investment. It is shown that in this setting delegated monitoring is problematic because it creates a commitment problem for the investor. This yields a countervailing effect to the scale economies inherent in the delegation of monitoring. It is shown that contracting with more than one investor can provide an informational insurance to the firm which lengthens its planning horizon.

Dieser Datensatz wurde nicht während einer Tätigkeit an der Universität Mannheim veröffentlicht, dies ist eine Externe Publikation.

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