Open AccessOverinvestment and underinvestment problems: determining factors, consequences and solutions
Author(s) -
Maurizio La Rocca,
Tiziana La Rocca,
Alfio Cariola
Publication year - 2007
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv5i1p7
Subject(s) - corporate governance , relevance (law) , shareholder , phenomenon , investment (military) , value (mathematics) , business , economics , production (economics) , point (geometry) , capital (architecture) , investment decisions , industrial organization , finance , microeconomics , physics , geometry , mathematics , archaeology , quantum mechanics , machine learning , politics , political science , computer science , law , history
The potential conflicts of interest between managers, stockholders and debtholders influence capital structure, corporate governance activities and investment policies, which, in turn, could give rise to inefficient managerial decisions and “suboptimal” investments that generally fall under the categories of problems of underinvestment and overinvestment. This paper intends to discuss these problems by identifying their causes, determining factors and the consequences on the value production processes, as well as to point out possible solutions to them. After having confronted the effects and their implications on firm governance activities by clarifying the relevance of the phenomenon and showing the main empirical data that emerged in the prevailing researches, we summarize the main financial proposals found in literature that can diminish their impact