Matthias Fahn, Florian Englmaier,
"Size Matters: How Over-Investments Relax Liquidity Constraints in Relational Contracts"
, in The Economic Journal, Vol. 129, Nummer 624, Seite(n) 3092?3106, 11-2019
Size Matters: How Over-Investments Relax Liquidity Constraints in Relational Contracts
Sprache des Titels:
The corporate finance literature documents that managers tend to over-invest in their companies. A number of theoretical contributions have aimed at explaining this stylised fact and most have focused on a fundamental agency problem between shareholders and managers. This article shows that over-investments are not necessarily the (negative) consequence of agency problems between shareholders and managers but instead might be a second-best optimal response to address problems of limited commitment and limited liquidity. If a firm has to rely on relational contracts to motivate its workforce and if it faces a volatile environment, then investments into general, non-relationship-specific capital can increase the efficiency of a firm?s labour relations.