The Influence of Moral Hazard on Investment in Financially Constrained and Unconstrained Firms

17 Pages Posted: 19 Oct 2013 Last revised: 20 Feb 2014

See all articles by Michael O'Connor Keefe

Michael O'Connor Keefe

Victoria University of Wellington

Robert L. Kieschnick

University of Texas at Dallas

Date Written: December 20, 2013

Abstract

We extend Tirole (2006) to link together two seemingly different cases – firms facing potential free cash flow problems versus firms facing financial constraints. The model predicts a large number of disparate findings in the empirical literature and so demonstrates its usefulness.

Keywords: Investment, moral hazard, financial constraints, free cash flow

JEL Classification: G32, D82

Suggested Citation

O'Connor Keefe, Michael and Kieschnick, Robert L., The Influence of Moral Hazard on Investment in Financially Constrained and Unconstrained Firms (December 20, 2013). Finance Research Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2342062 or http://dx.doi.org/10.2139/ssrn.2342062

Michael O'Connor Keefe (Contact Author)

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

Robert L. Kieschnick

University of Texas at Dallas ( email )

800 W. Campbell Rd, SM31
Richardson, TX 75080
United States
972-883-6273 (Phone)

HOME PAGE: http://www.utdallas.edu/~rkiesch/

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