بازارهای داخلی سرمایه، ساختمان امپایر و ساختار سرمایه

Internal funds generated by assets in place are available to finance the bulk of new investment by nonfinancial firms. Self-interested management has incentives to misallocate these funds in order to increase their control rents. There are two ways to impact future discretionary investment. First, using debt diverts funds to creditors and away from management. Second, having in place more assets that do not provide internal financing reduces the funds subject to managerial discretion. Investment in such assets and debt financing are inversely related in controlling self-interested management. As a result, firms borrow more and own proportionally more assets that provide internal funds as the average profitability of these assets, or that of future investment, increases. Firms may borrow less while increasing investment in the less valuable assets that do not supply internal financing as the expected profitability of these assets increases.

Existing theoretical literature often assumes that management may invest suboptimally. Overinvestment occurs when managers enjoy private benefits of control that make negative NPV projects enticing. Underinvestment occurs when the benefits of new investment accrue to bondholders. Existing empirical literature documents that internal funds are available to finance the majority of new investment by nonfinancial firms. This paper investigates how both long-term debt and the judicious selection of projects that do not provide internal funds can jointly reduce the problems of over- and under-investment while at the same time ensuring adequate internal resources are available for follow-on investment. The analysis is based on the idea that as fixed debt obligations reduce the cash flow available for empire building, so does investment in assets that do not provide financing for future investment via the internal capital market. Investment in these assets amounts to a managerial commitment to refrain from empire building and may be desirable even if such assets are expected to be less valuable than competing ones whose cash flow is subject to managerial discretion. All else the same, higher investment in assets whose cash flows are not available for future investment may reduce overinvestment but exacerbate underinvestment. But, so does increased use of debt. Hence, investment and financing are inversely related in controlling suboptimal investment cost. A testable implication of the model is that among firms which have in place proportionally fewer assets with long gestation periods, those using more debt should be expected to have better operating performance than those with lower levels of debt. Also, it is shown that optimal debt choice precludes future suboptimal investment on average. Concurrently, optimal allocation to the project that provides funds for new investment via the internal market is shaped by several factors. Specifically, it increases with its value advantage over the alternate project that does not provide internal funds, the cash flow variability of the alternate project, and the NPV of the project in which suboptimal investment may occur, but declines as the variability of its own cash flow increases. Comparative statics suggest that firms which finance future investment internally and their management may invest suboptimally borrow more and have in place more “cash-cows” when the expected profitability of these assets or future investment increases. The statics also suggest that such firms may borrow less while having in place more assets with “long-term” payoffs as the average profitability of these assets increases.