Working Paper: NBER ID: w13584
Authors: Thomas Philippon; Yuliy Sannikov
Abstract: 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.
Keywords: real options; dynamic agency model; financial development; IPOs; business risk
JEL Codes: D82; D86; D92; E22; G31; G32; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Improvements in financial markets (G19) | Decrease in likelihood of firm failure (G32) |
| Improvements in financial markets (G19) | Increase in probability of firms exercising growth options (D25) |
| Improvements in financial markets (G19) | Decrease in age at which firms go public (G24) |
| Decrease in likelihood of firm failure (G32) | Increase in probability of firms going public earlier (G24) |
| Improvements in financial contracts (G19) | Decrease in failure rates (L15) |
| Improvements in financial contracts (G19) | Increase in likelihood of exercising growth options (D25) |