Citation

Discussion Paper Details

Please find the details for DP9926 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: The Dynamics of Investment, Payout and Debt

Author(s): Bart Lambrecht and Stewart C Myers

Publication Date: April 2014

Keyword(s): agency, financing policy, investment and payout

Programme Area(s): Financial Economics

Abstract: We present a dynamic agency model of investment, borrowing and payout decisions by a mature corporation operating in perfect financial markets. Risk-averse managers implement an inter-temporal strategy that maximizes their lifetime utility of managerial rents. They under-invest and smooth payout and rents. Debt is the shock-absorber for operating income and investment. Managers do not rebalance capital structure, so shocks to debt levels persist. Managers implement precautionary savings by paying down debt, even when interest is tax-deductible. We generate empirical predictions that differ from conventional agency models and from dynamic models based on financing frictions.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9926

Bibliographic Reference

Lambrecht, B and Myers, S. 2014. 'The Dynamics of Investment, Payout and Debt'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9926