سرمایه گذاری پویا و ساختار سرمایه تحت درگیری مدیر سهامداران

This paper investigates the interactions between the investment and financing decisions of a firm under manager–shareholder conflicts arising from asymmetric information. In particular, we extend the manager–shareholder conflict problem in a real options model by incorporating debt financing. We show that manager–shareholder conflicts over investment policy increase not only the investment and default triggers but also coupon payments, which lead to a decrease in the equity value. Moreover, given the presence of manager–shareholder conflicts, debt financing increases investment and decreases total social welfare. As a result, there is a trade-off between the efficiency of investment and total social welfare with debt financing. These results fit well with the findings of previous empirical work in this area.

Modigliani and Miller (1958) argue that financing and investment decisions are completely separable in a perfectly competitive market. Since their seminal work, the corporate finance literature has studied the interaction between investment and financing decisions with various market frictions. In most modern corporations, for example, shareholders delegate the investment decision to managers, thereby taking advantage of their special skills and expertise. In this situation, asymmetric information is likely. Asymmetric information is the situation where managers privately observe a portion of the underlying state variable not observed by shareholders. Managers with private information thus have an incentive to provide false reports and then divert to themselves free cash flow. Consequently, asymmetric information leads to manager–shareholder conflicts.1 The real options model has become a standard framework for investment timing decisions in corporate finance. Dixit and Pindyck (1994) provide an excellent overview of the standard real options approach. In the standard real options model, however, there are two major limitations. First, the standard approach is within an all-equity financing framework. Second, there is no manager–shareholder conflict because the firm, by assumption, is owner-managed. Several studies have already begun the task of separately incorporating either debt financing or manager–shareholder conflicts due to asymmetric information in the real options model. Dynamic models that allow for the interaction between investment and financing decisions include Brenan and Schwartz (1984), Mauer and Triantis (1994), and Sundaresan and Wang, 2006 and Sundaresan and Wang, 2007. Alternatively, dynamic models under manager–shareholder conflicts resulting from asymmetric information include Bjerksund and Stensland (2000), Grenadier and Wang (2005), Nishihara and Shibata (2008), and Shibata (2009). 2 Under asymmetric information, shareholders must design a contract to provide incentives for managers to truthfully reveal private information. The implied investment timing then differs significantly from that in the standard full information real options model. Although these strategies turn out to be suboptimal, they reduce the shareholders’ losses resulting from asymmetric information. Without any incentive mechanism that induces the manager to reveal private information truthfully, shareholders suffer further distortions. Grenadier and Wang (2005) develop the agency model by designing a contract to give only a bonus to truthfully reveal manager's private information. Shibata (2009) extends the agency model developed by Grenadier and Wang (2005) by incorporating the audit technology with the penalty in order to reveal manager's private information. In the Shibata model, there are assumed to be limited-liability constraints on penalties when the manager is fined by detecting a false report with auditing. In these two models, the investment expenditure is financed by all-equity when the investment is exercised. To our best knowledge, there has been little examination of debt financing over investment policy under manager–shareholder conflicts arising from asymmetric information. Recently, Morellec (2004) and Childs and Mauer (2008) examined the interaction between investment and financing decisions under manager–shareholder conflicts arising from managerial discretion, not asymmetric information. 3 Thus, we focus on the manager–shareholder conflicts arising from asymmetric information under debt financing. We then explore several important questions. First, how does debt financing influence the manager's investment decision? Second, how does the manager's informational advantage affect coupon payments, leverage and default decisions, and debt and equity values? Finally, how large are the total social losses with all-equity financing and debt financing? Our paper examines the interactions between investment and financing decisions under manager–shareholder conflicts resulting from asymmetric information in a real options framework. In particular, we extend the manager–shareholder conflict problem in the real options model developed by Grenadier and Wang (2005) and Shibata (2009) by incorporating debt financing. Our paper differs from these models in two ways. First, we extend the agency model developed by Shibata (2009) by removing the limited-liability constraints on penalties when the manager is fined by detecting a false report with auditing. Second, when the investment is exercised, the investment expenditure is financed by debt financing. Our paper provides several important results. First, manager–shareholder conflicts over investment policy increase not only the investment and default triggers but also coupon payments. Under the agency problem due to asymmetric information, the shareholder must give the incentive to the manager (give the manager's bonus and/or do the costly audit) to truthfully reveal manager's private information. Then these additional costs lead to the increase in the investment trigger as well as the coupon payment. Intuitively, the larger the manager's bonus to reveal private information, the larger the coupon payment via increasing the debt financing. This result is the same as in the static model of John and John (1994, Proposition 5). Second, relating to the above result, manager–shareholder conflicts decrease the equity value at the present time. This is because the investment trigger in the agency problem is larger than in the no-agency problem. These results are exactly the same in Grenadier and Wang (2005) and Shibata (2009). However, manager–shareholder conflicts increase the debt and equity values at the time of investment. This is because an increase in the investment trigger leads to the increase in the equity value, while an increase in the coupon payment leads to the increase in the debt value. Intuitively, the larger the investment cost is, the larger the equity value is. Also, the larger the coupon payment is, the larger the debt value is. These results are the same as those in the seminal work by Myers and Majluf (1984), and fit well with the findings of empirical studies (see Korajczyk et al., 1991 and Jung et al., 1996). Third, given the presence of manager–shareholder conflicts, debt financing leads to an increase in investment (i.e., a decrease in the investment trigger). This result is obtained by the tax benefit of debt. This is exactly the same as in the no-agency problem due to full information. We show that the tax benefit of debt is obtained even under agency problem. Fourth, given the presence of manager–shareholder conflicts, debt financing leads to a decrease in total social welfare (i.e., an increase in the total social loss). This result is obtained by the fact that the tax benefits of debt are exactly the same between both no-agency and agency problems. Thus, there is a trade-off in the efficiency of investment and total social welfare with debt financing. Fifth, the no-agency investment triggers and coupon payments can be approximated by making the penalty for a manager's false report sufficiently large. Thus, the equity (shareholder's) value in the agency problem converges to the one in the no-agency problem, as the penalty is increased without limit (although unlimited penalties are only of theoretical interest). The results for unlimited penalties are the same as in the seminal static work by Baron and Besanko (1984). Interestingly, however, an increase in the penalty does not necessarily decrease the total social loss, although it always increases the equity value. These results imply that a shareholder's (individual) rationality does not necessarily lead to total social rationality. The remainder of the paper is organized as follows. Section 2 describes the setup of the model and derives the solution in the no-agency (full information) problem. Section 3 formulates the optimization problem and provides the optimal contracts in the agency problem. Section 4 discusses the model implications of the agency problem. Section 5 concludes.

This paper extends the agency problem arising from manager–shareholder conflicts in a real options model by incorporating debt financing. Manager–shareholder conflicts over investment policy increase not only the investment and default triggers but also coupon payments. Even under debt financing, the manager–shareholder conflicts decrease the equity value at the present time, as the same as under all-equity financing. Compared with an all-equity financing framework, with debt financing investment timing is earlier while the total social loss is larger. Thus, there is a trade-off in the efficiency of investment and total social welfare. Our results fit well with the findings of previous work. Some extensions of the model would prove interesting. For example, since liquidation is costly for all agents in our model, it would be interesting to include strategic debt service. After investment is undertaken with debt financing, the shareholder (or manager) would renegotiate with the bondholder to renege on the contractual coupon payments when the firm is close to or in financial distress. There would then be another agency conflict with bondholders. Thus, it would be interesting to consider the implied investment triggers under two different agency conflicts.