A. V. Bukhvalov. Asymmetry between Insiders and Outsiders: Aspects of Valuation Duality
V.6, N4, 2008
The paper deals with a modification of CAPM, which takes into account distinction between insiders as agents who actually determine the managerial decisions in the company, and outsiders, which are identifi ed as all other investors who do not have direct infl uence on managerial decisions. This is more general approach than that of agency problem since we move our focus from informational asymmetry to institutional one. Traditional agency problem implies agency costs and, hence, contributes to lowering of company value. In our setting both positive and negative effects are possible. We use a new interpretation of the Mayers’ model, which is an extension of CAPM where nonmarketable assets are taken into account. We treat company’s assets, both created and destroyed by its insiders in their activity as nonmarketable assets. There are few empirical studies along similar lines because of obvious diffi culties in data identifi cation. Nevertheless it is possible to show the usefulness of the model at the theoretical level. A number of new settings, which need their further development, have been formulated. Some conclusions concerning strategic investment decisions, including diversifi cation, have been derived.
Keywords: CAPM, nonmarketable assets, valuation, valuation duality, corporate governance, real options.