Ambiguity, limited commitment, and the q theory of investment

Wu, W; Niu, Y; Wu, Y; Xu, H

Ambiguity, limited commitment, and the q theory of investment

Wu, W Niu, Y Wu, Y Xu, H

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Publisher:: Elsevier
Publication Type:: Journal Article
Citation:: The North American Journal of Economics and Finance, 2022, 60, (-), pp. 101639
Issue Date:: 2022-04-01

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Field	Value	Language
dc.contributor.author	Wu, W
dc.contributor.author	Niu, Y
dc.contributor.author	Wu, Y
dc.contributor.author	Xu, H
dc.date.accessioned	2023-06-02T20:49:46Z
dc.date.available	2023-06-02T20:49:46Z
dc.date.issued	2022-04-01
dc.identifier.citation	The North American Journal of Economics and Finance, 2022, 60, (-), pp. 101639
dc.identifier.issn	1062-9408
dc.identifier.uri	http://hdl.handle.net/10453/170585
dc.description.abstract	We consider the principal shareholders agent manager problem in connection with investment and CEO compensation under two types of limited commitment where the principal worries about model uncertainty and exhibits ambiguity averse with respect to the true probability Consistent with maxmin criterion a robust principal makes decisions under some endogenous worst case In the case of limited commitment on the manager side the firm invests less and average q and marginal q are always lowered in the presence of ambiguity However in the case of limited commitment on the shareholder side ambiguity induces under investment and over investment simultaneously and has different implications for average q and marginal q Moreover the robust compensation contract features time varying compensation no matter whether the limited commitment constraints bind or not which is contrary to the conventional wisdom Finally the optimal sensitivity of continuation utility increases with ambiguity aversion 2022
dc.language	en
dc.publisher	Elsevier
dc.relation.ispartof	The North American Journal of Economics and Finance
dc.relation.isbasedon	10.1016/j.najef.2022.101639
dc.rights	info:eu-repo/semantics/closedAccess
dc.subject	1402 Applied Economics, 1403 Econometrics, 1502 Banking, Finance and Investment
dc.subject.classification	Economics
dc.title	Ambiguity, limited commitment, and the q theory of investment
dc.type	Journal Article
utslib.citation.volume	60
utslib.for	1402 Applied Economics
utslib.for	1403 Econometrics
utslib.for	1502 Banking, Finance and Investment
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/DVC (International)
utslib.copyright.status	closed_access	*
dc.date.updated	2023-06-02T20:49:45Z
pubs.issue	-
pubs.publication-status	Published
pubs.volume	60
utslib.citation.issue	-

Abstract:

We consider the principal shareholders agent manager problem in connection with investment and CEO compensation under two types of limited commitment where the principal worries about model uncertainty and exhibits ambiguity averse with respect to the true probability Consistent with maxmin criterion a robust principal makes decisions under some endogenous worst case In the case of limited commitment on the manager side the firm invests less and average q and marginal q are always lowered in the presence of ambiguity However in the case of limited commitment on the shareholder side ambiguity induces under investment and over investment simultaneously and has different implications for average q and marginal q Moreover the robust compensation contract features time varying compensation no matter whether the limited commitment constraints bind or not which is contrary to the conventional wisdom Finally the optimal sensitivity of continuation utility increases with ambiguity aversion 2022

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