Real Options in a Dynamic Agency Model, with Applications to Financial Development, Ipos, and Business Risk
35 Pages Posted: 5 Nov 2007 Last revised: 15 Aug 2021
Date Written: November 2007
We study investment options in a dynamic agency model. Moral hazard creates an option to wait and agency conflicts affect the timing of investment. The model sheds light, theoretically and quantitatively, on the evolution of firms' dynamics, in particular the decline of the failure rate and the decrease in the age of IPOs.
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