Investment Policy, Financial Policies and the Market for Corporate Control

37 Pages Posted: 30 Aug 2001

See all articles by Erwan Morellec

Erwan Morellec

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Clifford W. Smith

Simon Graduate School of Business, University of Rochester

Date Written: August 2001

Abstract

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

Morellec, Erwan and Smith, Clifford W., Investment Policy, Financial Policies and the Market for Corporate Control (August 2001). Simon School of Business Working Paper No. FR 01-14. Available at SSRN: https://ssrn.com/abstract=281538 or http://dx.doi.org/10.2139/ssrn.281538

Erwan Morellec (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

College of Management
Extranef Quartier UNIL-Dorigny
1015 Lausanne, CH-1015
Switzerland

HOME PAGE: http://sfi.epfl.ch/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Clifford W. Smith

Simon Graduate School of Business, University of Rochester ( email )

Carol Simon Hall 3-202C
Rochester, NY 14627
United States
585-275-3217 (Phone)
585-442-6323 (Fax)

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