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Shareholder-Manager Disagreement and Corporate Investment

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  • Anjan V. Thakor
  • Toni M. Whited

Abstract

We develop a simple theoretical argument that generates testable predictions about how disagreement affects corporate investment and find strong empirical support for these predictions. Investment is negatively related to a proxy for disagreement, after controlling for Tobin's q, and after dealing with the fact that Tobin's q and our disagreement proxy contain measurement error. This proxy is unrelated to traditional indicators of asymmetric information. We also find that variation in disagreement is an important component of the portion of the variation in Tobin's q that matters for investment, and that disagreement affects investment and Tobin's q more if the firm has greater financial flexibility. Copyright 2010, Oxford University Press.

Suggested Citation

  • Anjan V. Thakor & Toni M. Whited, 2010. "Shareholder-Manager Disagreement and Corporate Investment," Review of Finance, European Finance Association, vol. 15(2), pages 277-300.
    • Handle: RePEc:oup:revfin:v:15:y:2010:i:2:p:277-300
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    File URL: http://hdl.handle.net/10.1093/rof/rfq011
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    Cited by:

    1. Koussis, Nicos & Martzoukos, Spiros H., 2022. "Credit line pricing under heterogeneous risk beliefs," International Journal of Production Economics, Elsevier, vol. 243(C).

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