Investment Policy, Financial Policies and the Market for Corporate Control
37 Pages Posted: 30 Aug 2001
Date Written: August 2001
This paper analyses interactions among investment policy, financial policies, and the market for corporate control. Both hedging and financing policies affect a firm's investment policy, thus changing costs of over- and under-investment. Both policies allow management to offer credible promises to limit deviations from value maximization in investment policy, thus reducing the threat of control challenges. Our analysis reveals that the relation between corporate risk management and the sources of value within the firm - assets in place or growth options - is more complex than prior discussions have recognized. It also suggests reinterpretation of some of the empirical evidence on corporate risk management.
Keywords: Financial Policies, Investment Policy, Market for Corporate Control
JEL Classification: G31, G32, G34
Suggested Citation: Suggested Citation