Jan 26, 2017
from 01:00 PM to 02:00 PM
|Where||Room W4.03, Cambridge Judge Business School|
|Contact Name||Kat Ndrepepaj|
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Bart Lambrecht, Professor of Finance, Cambridge Judge Business School
Director of the Cambridge Endowment for Research in Finance (CERF)
Professor Lambrecht is a Research Fellow of the CEPR. He is an Associate Editor of both the Journal of Banking and Finance and the Review of Finance, and a member of the editorial board of the Journal of Business Finance & Accounting. He is an Associate of the Real Options Group. He is a member of the Cambridge Finance Management Board, of the advisory board of the Cambridge INET Institute, and of the Cambridge Corporate Governance Network.
The Dynamics of Investment, Payout and Debt (joint paper with Stewart Myers)
We develop a dynamic agency model of a public corporation. Managers underinvest because of risk aversion and a binding governance constraint. They smooth rents and payout. They do not exploit interest tax shields fully. The interactions of investment, debt and payout decisions can change drastically depending on managers' preferences. Managers with power utility set investment, debt and payout proportional to the firm's net worth, generating a constant debt ratio. With exponential utility, investment decisions are separated from decisions about debt and payout. More profitable firms become cash cows and less profitable firms accumulate debt, as in a pecking order model.