Investment spending in Austria : asymmetric information versus managerial discretion
eng: The European Community has recognized in recent years that corporate governance, and in conjunction, the quality of management decisions with respect to company investments in capital equipment, research and development, and mergers are imminent in understanding slow growth, lagging productivi...
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| Ort / Verlag / Datum: | 1997 |
| Erscheinungsjahr: | 1997 |
| Sprache: | Englisch |
| Schlagworte: | |
| Beschreibung: | 115 Bl.; graph. Darst. |
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| Zusammenfassung: | eng: The European Community has recognized in recent years that corporate governance, and in conjunction, the quality of management decisions with respect to company investments in capital equipment, research and development, and mergers are imminent in understanding slow growth, lagging productivity, and loss of markets to foreign competition. One explanation for deficient macroeconomic performance of nations (or regions) focuses upon omnipresent principal agency conflicts that arise between shareholders (principal) and managers (agency). Two hypotheses concerning the investment decision process of the firm have received particular attention in the literature: the asymmetric information hypothesis (AIH) and the managerial discretion hypothesis (MDH). The AIH states that asymmetric information between an agent (i.e. the management) and the principal (i.e. the investor) can result in lower than optimal investment levels as investors having less information about the true value of the firm than the managers put excessive risk premia on issued shares. Consequently, there is a strictly positive probability that the firm would forego, a profitable investment opportunity because of cash constraints. The MDH postulates that managers maximize their own utility and not shareholder wealth if they have the discretion to do so. The result is that firms subject to growth maximizing managers invest beyond the levels where the return on investment is larger than the cost of capital, that is managers overinvest. Two panel data sets for Austrian enterprises for the periods 1991-1995 and 1975-1994, respectively, are divided not only by conventional splitting criteria such as retention behavior, size, or age, but also including information about the governance structure of companies, i.e. ownership and pyramiding, and internal rates of return to test for the validity of the asymmetric information and the managerial discretion hypothesis concerning fixed investment spending. Descriptive statistics and accelerator model regressions reveal no signs of increased agency costs due to bank involvement, underinvestment in family owned firms due to capital market failures, dilution of control in the course of economic expansion of the firm via other firms, good performance of directly foreign owned firms, and managerial discretion in old and unprofitable state firms. These findings relate directly to the ongoing corporate governance discussion worldwide. One important implication of this study is that the category of ownership matters. It does make a difference to the investment and financing process of the firm as to whether the company is state, bank or family controlled. The coexistence of both phenomena, over- and underinvestment, in an economy at the same time in different classes of firms implies important policy recommendations. Priority in restructuring capital markets and governance systems should be given to the alleviation of cash flow transfers from mature, overinvesting firms to small, young, and high return companies. |
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| AC Nummer: | AC02318269 |
| Hierarchiestufe: | Monografie |
| Erscheinungsform: | Buch |
| Inhalt: | Text |
| Medientyp: | Analog |
| Datenträger: | Analog |
Deficit Spending and Stabilization Behaviour in Austria 
The economics of public spending 
'Deficit-spending' in Österreich 
The investment development path of Austria