Positive hurdle rates without asymmetric information


Journal Article

We present a simple model where a firm will commit to a strictly positive hurdle rate on investment proposals by managers even though the two parties are symmetrically informed about the investments' profitability. Facing a positive hurdle rate, a manager who derives partial benefits from the investment profits will have more incentive to collect information about the projects. The optimal hurdle rate trades off the benefit of more information with the cost of foregoing ex post positive Net Present Value (NPV) projects. © 2004 Elsevier Inc. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Chen, Q; Jiang, W

Published Date

  • April 1, 2004

Published In

Volume / Issue

  • 1 / 2

Start / End Page

  • 106 - 112

International Standard Serial Number (ISSN)

  • 1544-6123

Digital Object Identifier (DOI)

  • 10.1016/j.frl.2004.03.001

Citation Source

  • Scopus