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The Effects Of Including Bankruptcy On Dynamic Investment Decisions

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  • Novak, Frank S.
  • Schnitkey, Gary D.

Abstract

This article evaluates the effects of including the costs of bankruptcy in a dynamic model of off-farm investment decisions using a stochastic dynamic programming (SDP) model which incorporates the stochastic dynamic nature of investment returns and the interrelationships between financial structure and investment decisions. Our results suggest that in the presence of bankruptcy, optimal investment decisions are affected by financial structure and financial market conditions. Ignoring bankruptcy costs in determining investment decisions results in a high probability of bankruptcy.

Suggested Citation

  • Novak, Frank S. & Schnitkey, Gary D., 1994. "The Effects Of Including Bankruptcy On Dynamic Investment Decisions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(2), pages 1-12, December.
    • Handle: RePEc:ags:jlaare:30752
    DOI: 10.22004/ag.econ.30752
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    References listed on IDEAS

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    1. John M. Antle, 1983. "Incorporating Risk in Production Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(5), pages 1099-1106.
    2. Antle, John M., 1983. "Incorporating Risk In Production Analysis," 1983 Annual Meeting, July 31-August 3, West Lafayette, Indiana 279106, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Taylor, C. Robert, 1984. "A Flexible Method For Empirically Estimating Probability Functions," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 9(1), pages 1-11, July.
    4. Kliebenstein, James & Barrett, D. A. & Heffernan, W. D. & Kirtley, C. L., 1980. "An Analysis of Farmers' Perceptions of Benefits Received from Farming," Staff General Research Papers Archive 10641, Iowa State University, Department of Economics.
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