Previous research has argued that debt financing affects equityholders’ investment decisions, producing substantial inefficiency. This paper shows that the size of this inefficiency depends on the degree of investment reversibility. In a dynamic model of financing and investment, the paper provides an upper bound for the inefficiency produced by debt financing. The upper bound is decreasing in ...

The payoff distribution pricing model (PDPM) of Dybvig [13] is a powerful tool for measuring the inefficiency of any investment strategy in a multiperiod setting. In this study, we extend the PDPM in three major ways. Firstly, we develop an operational formula for computing the inefficiency amount of a strategy. Secondly, we use six different investment horizons spanning from one month to five ...

This study attempts to measure the inefficiency associated with aggregate investment in a transitional economy. The inefficiency is decomposed into allocative and production inefficiency based on standard production theory. Allocative inefficiency is measured by disequilibrium investment demand. Institutional factors are then taken into consideration as possible explanatory variables of the dis...

Hold-up risks can be mitigated by creating asymmetric information about the investment using information control. In this paper, we study the investment level and welfare achievable with information control and the information structure that implements them. Our main result identifies a separation between information that creates ex-ante investment incentive and information that causes ex-post ...

We demonstrate how earlier approaches to model the impact that corporate social responsibility (CSR) has on investment inefficiency are likely be incorrect and propose use of stochastic frontier methodology this relationship. apply approach a sample European listed companies, providing robust evidence CSR performance is negatively associated with inefficiency. This result consistent claim high ...

We examine the effect of risk tolerance downstream firms (i.e., customers) on investment inefficiency upstream suppliers). Using pilot licensing status CEOs as a proxy for their inherent tolerance, we find that customer led by are associated with suppliers’ inefficiency, where is more pronounced when suppliers have less bargaining power over customers. Our dynamic analysis confirms causative re...

We analyze a dynamic market with a seller who can make a one-time investment that affects the returns of tradable assets. The potential buyers of the assets cannot observe the seller's investment prior to the trade or verify it in any way after the trade. The market faces two types of inefficiency: the ex-ante inefficiency, i.e., the seller's moral hazard problem, and the ex-post inefficiency, ...

The purpose of this study is to investigate the effective of investment inefficiency and cash holding on CEO turnover. This study applies logistic regression method estimator to investigate the relationship between examine the effective of investment inefficiency and cash holding on CEO turnover of 1,309 firm-year observations in Iran for the period of 2009-2019.  According to positive relati...

We analyze a dynamic market with a seller who can make a one-time investment that affects the returns of tradable assets. The potential buyers of the assets cannot observe the seller’s investment prior to trade, nor verify it in anyway after trade. The market faces two types of inefficiency: the ex-ante inefficiency, i.e., the seller’s moral hazard problem; and the ex-post inefficiency, i.e., i...