SHAREHOLDERS' UNANIMITY WITH INCOMPLETE MARKETS* |
| |
| Authors: | Eva Carceles‐Poveda Daniele Coen‐Pirani |
| |
| Institution: | 1. State University of New York, Stony Brook, U.S.A.;2. Carnegie Mellon University, U.S.A.;3. Thanks to Rui Castro, Per Krusell, Guido Menzio, Marla Ripoll, Steve Spear, and to seminar participants at the University of Montreal, 2004 SED meetings in Florence, Rochester Wegmans Conference for helpful conversations and comments. Thanks also to an anonymous referee for comments that led to a substantial improvement in the exposition of the article. The usual disclaimer applies. Please address correspondence to: Daniele Coen‐Pirani, Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213‐3890, U.S.A. Phone: 412 268‐6143. Fax: 412 268‐7064. E‐mail: . |
| |
| Abstract: | When markets are incomplete, shareholders typically disagree on the firm's optimal investment plan. This article studies the shareholders' preferences with respect to the firm's investment in a model with aggregate risk, incomplete markets and heterogeneous households who trade in firms' shares instead of directly accumulating physical capital. If the production function exhibits constant returns to scale and borrowing limits are not binding, a firm's shareholders unanimously agree on its optimal level of investment. In contrast, with binding borrowing constraints, constrained shareholders prefer a higher level of investment than unconstrained ones. |
| |
| Keywords: | |
|
|
