Manager's Effort Level and Corporate Investment and Financing Policies under Heterogeneous Beliefs

Abstract

Abstract:

The paper builds a framework to analyze the relationship between the investment and financing policies of a company and the level of efforts made by the company's manager when heterogeneous beliefs exist in the company.It concludes that when heterogeneous beliefs exist between the manager and outside investors and also among outside investors,if optimistic outside investors hold a larger proportion of stakes,then the more optimistic they are and the more heterogeneous their beliefs are,the lower level of effort the manager will make and the smaller investment will be made;in contrast,if pessimistic outside investors hold a larger proportion of stakes,then the more pessimistic they are and the more heterogeneous their beliefs are,the higher level of effort the manager will make and the larger investment will be made.Equity financing can bring more wealth to the manager,but higher level of effort is required.Numerical simulation results confirm the theoretical findings.The research implications provide important reference for manager to make reasonable financial policies and for investors to make scientific investment decisions.

Key words: heterogeneous beliefs, effort level, investment amount, financing policy

Niu Weining, Liu Shancun, Yu Mei. Manager's Effort Level and Corporate Investment and Financing Policies under Heterogeneous Beliefs[J]. , 2017, 29(6): 3-12.

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