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Moral Hazard , Investment , and Firm Dynamics
| Content Provider | Semantic Scholar |
|---|---|
| Author | Ai, Hengjie Li, Rui |
| Copyright Year | 2011 |
| Abstract | We present a dynamic general equilibrium model with heterogeneous rms. Owners of the rms delegate investment decisions to managers, whose consumption and investment decisions are private information. We solve the optimal contracts and characterize the implied general equilibrium. Our calibrated model has implications on the cross-sectional distribution and time-series dynamics of rmsinvestment, manager compensation and dividend payout policies. Risk sharing requires that managersequity shares decrease with rm sizes. This in turn implies that it is harder to prevent private bene t in larger rms, where managers have lower equity stake under the optimal contract. Consequently, small rms invest more, pay less dividends, and grow faster than large rms. Despite the heterogeneity in rms decision rules and the failure of Gibrats law, we show that the size distribution of rms in our model resembles a power law distribution with a slope coe¢ cient about 1.06, as in the data. We would like to thank Ravi Bansal, Dean Corbae, Steven Durlauf, Kenichi Fukushima, Adriano Rampini, Vish Viswanathan, Noah Williams, Tao Zha and seminar participants at the Fuqua School of Business at Duke University, Federal Reserve Bank of Atlanta, University of Calgary, University of Minnesota, and University of WisconsinMadison for useful conversations on the topic. We also thank Song Ma for his excellent research assistance. All errors are our own. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://blogs.wpcarey.asu.edu/financeconference/wp-content/uploads/2012/02/08_Ai-Li.pdf |
| Alternate Webpage(s) | https://blogs.wpcarey.asu.edu/financeconference/wp-content/uploads/2012/02/08_Ai-Li.pdf |
| Language | English |
| Access Restriction | Open |
| Subject Keyword | Contract agreement Cross-sectional data Genetic Heterogeneity Kind of quantity - Equilibrium Large MALL gene Moral hazard Personally identifiable information Rule (guideline) Stagefright (bug) Steven Anson Coons Stevens-Johnson Syndrome Tao Framework Time series Vish (game) |
| Content Type | Text |
| Resource Type | Article |
