Investment, Compensation, and Risk Aversion

In this article, Erwan Morellec of the University of Rochester models the effect of managerial risk aversion on manager’s decision making. He shows that risk-averse mangers are more likely to invest early. In his words: “to speed up investment, leading to significant erosion of the value of the option to invest.” Why is this? Again quoting: “By investing, the manager transforms … [ Read more ]