English, Article, Journal or magazine article edition: Investment, protection, ownership, and the cost of capital Charles P. Himmelberg; R. Glenn Hubbard; Inessa Love

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Bookmark: http://trove.nla.gov.au/version/18162
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Investment, protection, ownership, and the cost of capital
Author
  • Charles P. Himmelberg
  • R. Glenn Hubbard
  • Inessa Love
Physical Description
  • preprint
Notes
  • We investigate the cost of capital in a model with an agency conflict between inside managers and outside shareholders. Inside ownership reflects the classic tradeoff between incentives and risk diversification, and the severity of agency costs depends on a parameter representing investor protection. In equilibrium, the marginal cost of capital is a weighted average of terms reflecting both idiosyncratic and systematic risk, and weaker investor protection increases the weight on idiosyncratic risk. Using firm-level data from 38 countries, we estimate the predicted relationships among investor protection, inside ownership, and the marginal cost of capital. We discuss implications for the determinants of firm size, the relationship between Tobin's Q and ownership, and the effect of financial liberalizations.
  • Investor protection, ownership, investment, cost of capital, agency costs
  • RePEc:nbb:reswpp:200205-6
Language
  • English
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