Corporate Control and Underinvestment

Thomas Poulsen

    Research output: Contribution to journal › Journal article › Research › peer-review

    Abstract

    This paper reports a study of how the benefits that large shareholders derive from their control of a firm affect the equity issue and investment decisions of the firm. I introduce an explicit agency cost structure based on the benefits of control of the largest shareholder. In a simple extension of the model developed by Myers and Majluf (J Financial Econ 13:187–221, 1984), I show that underinvestment is aggravated when there are benefits of being in control and these benefits are diluted if equity is issued to finance an investment project. Using a large panel of US data, I find that the concerns of large shareholders about the dilution of ownership and control cause firms to issue less equity and to invest less than would otherwise be the case. I also find that it makes no significant difference whether new shares are issued to old shareholders or new shareholders.
    Original languageEnglish
    JournalJournal of Management & Governance
    Volume17
    Issue number1
    Pages (from-to)131-155
    Number of pages25
    ISSN1385-3457
    DOIs
    Publication statusPublished - 2013

    Bibliographical note

    Published online: 13 April 2011

    Cite this

    Poulsen, Thomas. / Corporate Control and Underinvestment. In: Journal of Management & Governance. 2013 ; Vol. 17, No. 1. pp. 131-155.
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    Poulsen, T 2013, 'Corporate Control and Underinvestment', Journal of Management & Governance, vol. 17, no. 1, pp. 131-155. https://doi.org/10.1007/s10997-011-9171-8

    Corporate Control and Underinvestment. / Poulsen, Thomas.

    In: Journal of Management & Governance, Vol. 17, No. 1, 2013, p. 131-155.

    Research output: Contribution to journal › Journal article › Research › peer-review

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    Poulsen T. Corporate Control and Underinvestment. Journal of Management & Governance. 2013;17(1):131-155. https://doi.org/10.1007/s10997-011-9171-8

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