Agency, Information and Corporate Investment

90 Pages Posted: 25 Jun 2001 Last revised: 24 Jul 2001

See all articles by Jeremy C. Stein

Jeremy C. Stein

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2001

Abstract

This essay surveys the body of research that asks how the efficiency of corporate investment is influenced by problems of asymmetric information and agency. I organize the material around two basic questions. First, does the external capital market channel the right amount of money to each firm? That is, does the market get across-firm allocations right, so that the marginal return to investment in firm i is the same as the marginal return to investment in firm j? Second, do internal capital markets channel the right amount of money to individual projects within firms? That is, does the internal capital budgeting process get within-firm allocations right, so that the marginal return to investment in firm i's division A is the same as the marginal return to investment in firm i's division B? In addition to discussing the theoretical and empirical work that bears most directly on these questions, the essay also briefly sketches some of the implications of this work for broader issues in both macroeconomics and the theory of the firm.

Suggested Citation

Stein, Jeremy C., Agency, Information and Corporate Investment (June 2001). NBER Working Paper No. w8342. Available at SSRN: https://ssrn.com/abstract=274552

Jeremy C. Stein (Contact Author)

Harvard University - Department of Economics ( email )

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HOME PAGE: http://post.economics.harvard.edu/faculty/stein/stein.html

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