Abstract We extend an equilibrium business cycle/asset pricing model of production and capital accumulation by introducing a time‐varying risk rare disasters. It predicts that investment is much more volatile than output, which provides theoretical support for the empirical data. Furthermore, model‐generated stationary distribution investment‐output ratio fits data remarkably well. Both them exhibit negative skewness, means there small probability this can be very low. Given observations...

Abstract We extend dynamic agency and investment theory by incorporating model uncertainty. As concerns regarding uncertainty induce a trade‐off between incentives ambiguity sharing, the principal tends to delay cash payout agent. find lowers firm value, average q marginal , where is defined as ratio physical asset's market value its replacement value. Furthermore, leads insufficient investment, which provides an alternative explanation for under‐investment. Finally, optimal pay‐performance...

Abstract Cross‐affiliation emerges as a new and fast‐developing means to promote collaboration in financial research. We find that the average number of affiliations reported per author top‐three finance journals increases steadily from 1.1 1.3 1995 2016. Scale‐free power laws characterize resulting highly‐skewed distributions top journal publications worldwide institutions. propose an explanation scale‐invariance, based on network model featuring nonlinear growth linear preferential...

Abstract This paper explores investment and exit decisions under uncertainty when the entrepreneur has anticipatory utility, which leads to time‐inconsistency problem. Our model predicts that utility ambiguous effects on strategy, depends form of project’s payoff. Under a lump‐sum payoff, an with will under‐invest. However, she prefers over‐investing if project delivers flow Moreover, is more reluctant abandon existing project. Finally, our provides theoretical support alternative...

This paper introduces time-inconsistent preferences into the standard model of capacity choice and investigates its influences on entrepreneurial firms' investment decisions asset returns. With preferences, firm's expansion decision becomes more conservative. In addition, we find value reduction caused by is substantial in growth opportunities than assets place. For returns, show that time inconsistency lowers beta firm through channel since place not affected preferences. Finally, impacts...

Abstract We extend an equilibrium business cycle/asset pricing model of production and capital accumulation by introducing wealth‐dependent time preferences. First, we find that the aggregate consumption is no longer proportional to output volatility always lower than output. Second, expected real growth rate increasing in stock, which leads a twin‐peak shape world wealth distribution as shown data. With respect financial markets, show equity risk premium reduced endogenous discounting...