SIZE MATTERS: HOW OVER-INVESTMENTS RELAX LIQUIDITY CONSTRAINTS IN RELATIONAL CONTRACTS

Englmaier, Florian und Fahn, Matthias (2019): SIZE MATTERS: HOW OVER-INVESTMENTS RELAX LIQUIDITY CONSTRAINTS IN RELATIONAL CONTRACTS. In: Economic Journal, Bd. 129, Nr. 624: S. 3092-3106

Abstract

The corporate finance literature documents that managers tend to over-invest in their companies. A number of theoretical contributions have aimed at explaining this stylised fact and most have focused on a fundamental agency problem between shareholders and managers. This article shows that over-investments are not necessarily the (negative) consequence of agency problems between shareholders and managers but instead might be a second-best optimal response to address problems of limited commitment and limited liquidity. If a firm has to rely on relational contracts to motivate its workforce and if it faces a volatile environment, then investments into general, non-relationship-specific capital can increase the efficiency of a firm's labour relations.

• Dokumententyp: Zeitschriftenartikel
• Fakultät: Volkswirtschaft
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• ISSN: 0013-0133
• Sprache: Englisch