Chapter 3
Corporate Investment Policy
Michael J. Brennan* University of California, Los AngelesLondon Business School* Goldyne and Irwin Hearsh Professor of Banking and Finance, University of California, Los Angeles, and Professor of Finance, London Business School I am grateful to John Cochrane, George Constantinides, Avinash Dixit, Milt Harris, Pedro Santa Clara and Eduardo Schwartz for comments and suggestions.
Abstract
This chapter is concerned with the classical applied problem of capital allocation by a corporation whose securities are traded in competitive and frictionless markets. Under reasonable assumptions that are discussed, this amounts to choosing projects whose market value exceeds their cost, so that the problem becomes one of ...
