Investment and financing for cash flow discounted with group diversity

Luo，Pengfei1; Yang，Zhaojun2

2020

10.1111/irfi.12295

International Review of Finance   影响因子和分区

1369-412X

1468-2443

We consider a firm's investment and financing decisions made by a group of agents on behalf of shareholders, of which each individual utilizes a different discount rate following a given probability distribution for the valuation of equity. We measure group diversity by the variance of the distribution. The price of debt is determined by an equilibrium method in a competitive market. We show that a greater group diversity increases the project value, accelerates investment and postpones default. The value of the investment option increases but the optimal leverage decrease with the group diversity. The inefficiency from asset substitution increases but that from debt overhang decreases with the group diversity. Our predictions are documented by empirical evidences.

agency costs group diversity investment and financing time inconsistent weighted discounting

SSCI

英语

通讯

Guangdong Planning Office of Philosophy and Social Science for the 13th Five-Year Plan[GD19CYJ23]

Business & Economics

Business, Finance

WOS:000506900800001

WILEY

2-s2.0-85077876155

Scopus

1.School of Finance and Statistics,Hunan University,Changsha,China
2.Department of Finance,Southern University of Science and Technology,Shenzhen,China

Luo，Pengfei,Yang，Zhaojun. Investment and financing for cash flow discounted with group diversity[J]. International Review of Finance,2020.

Luo，Pengfei,&Yang，Zhaojun.(2020).Investment and financing for cash flow discounted with group diversity.International Review of Finance.

Luo，Pengfei,et al."Investment and financing for cash flow discounted with group diversity".International Review of Finance (2020).