Typically, shareholders are not sure whether boards act in their interest, or have been captured by management. They are also less well informed than boards about firm investment opportunities and operating conditions. We develop a model, consistent with these observations, in which...

This paper documents the short- and long-term balance sheet effect of cash flows. We show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use. Although, in the long run, investment exhibits substantial...