The Influence of Moral Hazard on Investment in Financially Constrained and Unconstrained Firms
17 Pages Posted: 19 Oct 2013 Last revised: 20 Feb 2014
Date Written: December 20, 2013
We extend Tirole (2006) to link together two seemingly different cases – firms facing potential free cash flow problems versus firms facing financial constraints. The model predicts a large number of disparate findings in the empirical literature and so demonstrates its usefulness.
Keywords: Investment, moral hazard, financial constraints, free cash flow
JEL Classification: G32, D82
Suggested Citation: Suggested Citation