Journal ArticleDOI
Moral hazard and capital budgeting
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In this paper, the effect of moral hazard on capital budgeting is examined, and it is shown that moral hazard may change project rankings based on net present value under perfect information.Abstract:
In this paper, the effect of moral hazard on capital budgeting is examined. It is shown that moral hazard may change project rankings based on net present value under perfect information. It is also shown that in certain agency relationships moral hazard increases managerial contracting costs more for projects with slower paybacks, thus producing a bias in favor of projects with faster paybacks. This effect manifests itself only under specific conditions.read more
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Barriers within firms to energy-efficient investments
TL;DR: In this paper, the authors argue that government can simultaneously improve overall energy efficiency and increase private sector productivity by providing informational and organizational services that go beyond the traditional regulatory framework, and that the policy implication is that the government can also improve overall EE.
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The payback method of investment appraisal: A review and synthesis
TL;DR: The use of the payback method of investment appraisal has been the subject of considerable comment and criticism in the literature as mentioned in this paper, and it has been shown to be a traditional, popular, primary, and important method in both the UK and USA.
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An empirical examination of capital budgeting techniques: impact of investment types and firm characteristics
TL;DR: In this paper, the authors report the results of a survey of project evaluation techniques used in capital budgeting using the Friedman Two-Way ANOVA and the Mann-Whitney U test.
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Capital Budgeting and Political Risk: Empirical Evidence
Martin Holmen,Bengt Pramborg +1 more
TL;DR: In this paper, the use of the theoretically correct net present value (NPV) method decreases with the political risk in the host country, and that the using of the Payback method increases with political risk, concluding that in the presence of capital market imperfections, unsystematic and country-specific political risks may be important and as they are difficult to estimate (rendering high deliberation costs).
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Payback Without Apology
Glenn Boyle,Graeme Guthrie +1 more
TL;DR: In this article, the authors show that slow-payback projects should face a higher hurdle than fast-paybacks projects, just as investment folklore suggests, and that the widely disparaged use of payback for capital budgeting purposes can be an intuitive response to correctly perceived costs and benefits.
References
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Journal ArticleDOI
Moral Hazard and Observability
TL;DR: In this article, the role of imperfect information in a principal-agent relationship subject to moral hazard is considered, and a necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived.
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Risk Sharing and Incentives in the Principal and Agent Relationship
TL;DR: In this article, the authors studied arrangements concerning the payment of a fee by a principal to his agent for such an arrangement, or fee schedule, to be Pareto optimal, it must implicitly serve to allocate the risk attaching to the outcome of the agent's activity in a satisfactory way and to create appropriate incentives for the agent in his activity.
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Optimal incentive contracts with imperfect information
Milton Harris,Artur Raviv +1 more
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Monitoring Cooperative Agreements in a Repeated Principal-Agent Relationship
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Long-Term Contracts and Moral Hazard
TL;DR: In this paper, the authors extend the economic theory of agency to a simple class of multi-period situations and study the role of long-term contracts in controlling moral hazard problems.