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UBC Theses and Dissertations
Essays on investor-manager conflict and corporate financial decision-making Zhang, Guochang
Abstract
This thesis examines the role of financial policy in resolving investment conflicts between investors and managers. The method of analysis is an analytical one. The thesis first surveys two areas of research: agency-theoretical studies of corporate capital investment and capital structure theories. The main body of the thesis consists of three essays in which various capital budgeting situations are modelled and different aspects of corporate financial policy are analysed. Essay one models an investment problem of a multiple division firm and shows that capital rationing can be used to force managers to compete for investment capital and therefore reduce their incentive to shirk. The main result is that, if a firm’s investment opportunities are not highly profitable, investors may be better off with capital rationing even though rationing forces the firm to forgo some profitable projects. Essay two demonstrates that direct compensation may be ineffective in providing proper managerial incentives in the presence of the limited liability condition but managerial stock acquisition can be useful instead. The signalling and screening forms of contracting for stock acquisition are analysed and then compared. The analysis provides an explanation for the existence of insider stock ownership. Essay three considers situations where external monitoring is required to discipline managers. The need for monitoring changes the structure of corporate ownership and alters the nature of agency conflict. Within this context, debt is shown to be useful in improving firms’ investment efficiency because of its risk-shifting effect. Implications and empirical evidence are discussed at the end.
Item Metadata
Title |
Essays on investor-manager conflict and corporate financial decision-making
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Creator | |
Publisher |
University of British Columbia
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Date Issued |
1992
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Description |
This thesis examines the role of financial policy in resolving investment conflicts between
investors and managers. The method of analysis is an analytical one. The thesis first surveys
two areas of research: agency-theoretical studies of corporate capital investment and capital
structure theories.
The main body of the thesis consists of three essays in which various capital budgeting
situations are modelled and different aspects of corporate financial policy are analysed. Essay
one models an investment problem of a multiple division firm and shows that capital rationing
can be used to force managers to compete for investment capital and therefore reduce their
incentive to shirk. The main result is that, if a firm’s investment opportunities are not highly
profitable, investors may be better off with capital rationing even though rationing forces the
firm to forgo some profitable projects. Essay two demonstrates that direct compensation may
be ineffective in providing proper managerial incentives in the presence of the limited liability
condition but managerial stock acquisition can be useful instead. The signalling and screening forms of contracting for stock acquisition are analysed and then compared. The analysis
provides an explanation for the existence of insider stock ownership. Essay three considers situations where external monitoring is required to discipline managers. The need for monitoring
changes the structure of corporate ownership and alters the nature of agency conflict. Within
this context, debt is shown to be useful in improving firms’ investment efficiency because of
its risk-shifting effect. Implications and empirical evidence are discussed at the end.
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Extent |
2340037 bytes
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Genre | |
Type | |
File Format |
application/pdf
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Language |
eng
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Date Available |
2008-12-16
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Provider |
Vancouver : University of British Columbia Library
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Rights |
For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use.
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DOI |
10.14288/1.0086571
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URI | |
Degree | |
Program | |
Affiliation | |
Degree Grantor |
University of British Columbia
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Graduation Date |
1992-05
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Campus | |
Scholarly Level |
Graduate
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Aggregated Source Repository |
DSpace
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Item Media
Item Citations and Data
Rights
For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use.