Open AccessReal Option, Debt Agency Conflicts and Corporate Investment Decisions
Author(s) -
Cheng Peng,
Huiling Zhou,
Huan Chang
Publication year - 2019
Publication title -
journal of business theory and practice
Language(s) - English
Resource type - Journals
eISSN - 2372-9759
pISSN - 2329-2644
DOI - 10.22158/jbtp.v7n2p76
Subject(s) - bankruptcy , debt , investment (military) , business , agency (philosophy) , finance , open ended investment company , distortion (music) , economics , monetary economics , return on investment , microeconomics , law , amplifier , philosophy , epistemology , cmos , electronic engineering , production (economics) , politics , political science , engineering
This paper studies enterprise investment decisions under debt agency conflicts by the method of real option. It is different from the existed literatures that this paper considers not only the influence of investment goals alienation on investment decisions without bankruptcy agency, but also analyzes the investment decisions distortion under bankruptcy agency conflicts. The study result shows that enterprises with debt usually exist overinvestment; on the one hand, the overinvestment comes from excessive pursuing of the tax benefits under the investment goals alienation, on the other hand, it comes from the protection for shareholders’ investment risk under strategic default bankruptcy. What’s more, under the lower debt level, the former is the dominant mechanism for investment decisions distortion; while under the higher debt level, the influence of the later is prominent.