The investment opportunity set: determinants, consequences and measurement

Sanjay Kallapur · Mark A. Trombley

127 citations0/0 files storedManagerial Finance

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Corporate Finance and Governance Capital Investment and Risk Analysis Financial Reporting and Valuation Research

Abstract

Explains the concept of the investment set (IOS: i.e. chances to invest for expansion, new products, cost reduction etc.) and its effects on firm value. Reviews previous research on the theoretical relationships between IOS and optimal contracting resulting from shareholder/debtholder conflict, agency costs and performance measurement problems; and empirical research on its links with company policy on financing, dividends and compensation. Goes on to discuss research on measuring IOS by using various proxies; and summarizes the main findings.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1977Determinants of corporate borrowing 1996Agency costs of free cash flow, corporate finance, and takeovers 1995Earnings, Book Values, and Dividends in Equity Valuation*1982The Value of Waiting to Invest 1992The investment opportunity set and corporate financing, dividend, and compensation policies 2008Executive compensation 1966Theory of the Firm

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