Incremental Cash Flows, Information Sets and Conflicts of Interest

Documento de Trabajo nro. 220

33 Pages Posted: 19 Oct 2007

Date Written: July 2002

Abstract

This paper attempts to make of the standard incremental cash flow model (SICFM) a functional vehicle for coping with conflicts of interest. After outlining the model, residual rights to cash flows are linked to residual risks. Then, the underlying information sets to cash flows are brought to light, stressing the nurturing factors behind conflicts of interest: bounded rationality, asymmetric information, opportunistic behavior and transaction costs. Next, decision rights and organization forms are included into the frame of the paper. Finally, the core subject section shows how incremental cash flows come in handy to root out conflicts of interest, firstly by disclosing the residual information sets that divide managers, stockholders and creditors and, secondly, by advocating the design of ex~ante restrictive covenants on the uses and sources of incremental expected cash flows.

Keywords: cash flow, conflict of interest, information set, residual rights

JEL Classification: G30, G32, G34

Suggested Citation

Apreda, Rodolfo, Incremental Cash Flows, Information Sets and Conflicts of Interest (July 2002). Documento de Trabajo nro. 220, Available at SSRN: https://ssrn.com/abstract=1022634 or http://dx.doi.org/10.2139/ssrn.1022634

Rodolfo Apreda (Contact Author)

University of CEMA ( email )

Department of Finance Room 612
Buenos Aires, C1054AAP
Argentina
5411 6314 3000 (Phone)
5411 4803 0429 (Fax)