SSRN Home Search and Download Papers Browse Abstract and Paper Submission Subscribe to Networks View Briefcase Top Papers Top Authors Top Institutions

 

Abstract

 
 

References (53)

Beta

 


 



Shareholder-Manager Disagreement, Animal Spirits, and Corporate Investment

Anjan V. Thakor
Olin Business School, Washington University in St. Louis and ECGI

Toni M. Whited
Simon Graduate School of Business, University of Rochester


August 12, 2006


Abstract:     
We develop a theoretical model in which disagreement between management and shareholders creates a link between investment and the stock market. We show that the stock price decreases in the level of disagreement. Because management uses the stock price to infer the level of disagreement, the firm's investment is positively correlated with its stock price, even when investment is not financed by an equity issue. Empirically, we find that Tobin's q is negatively related to a proxy for disagreement. This proxy is unrelated to traditional indicators of asymmetric information. Using simple estimation of an investment Euler equation, we find first that a high stock price and a low level of disagreement act together to increase investment today relative to investment tomorrow. We conclude that disagreement drives corporate investment to a much greater extent than either asymmetric information or managerial entrenchment.

Keywords: Disagreement, Investment, Stock Price, Financial Flexibility, Managerial Entrenchment

JEL Classifications: G31, E22, G32, G34

Working Paper Series

Date posted: August 16, 2006 ; Last revised: August 16, 2006

Suggested Citation

Whited, Toni M. and Thakor, Anjan V., Shareholder-Manager Disagreement, Animal Spirits, and Corporate Investment (August 12, 2006). Available at SSRN: http://ssrn.com/abstract=924105


Export to: Export Citation What's this?

Contact Information

Toni M. Whited (Contact Author)
Simon Graduate School of Business, University of Rochester ( email )
Rochester, NY 14627
United States
Anjan V. Thakor
Olin Business School, Washington University in St. Louis and ECGI ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
Feedback to SSRN (Beta)


Paper statistics
Abstract Views: 476
Downloads: 110
Download Rank: 77,147
References: 53

© 2010 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright
This page was served by apollo1 in 0.172 seconds.