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Financial Constraints and Investment Decisions

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  • Saltari, Enrico
  • Travaglini, Giuseppe

Abstract

In what follows we show that liquidity constraints can affect a firm's investment even when the constraints are not currently effective. This happens when, at any given time, the firm believes that internal finance is likely to become a constraint in the future. In these circumstances, the value of the firm becomes a non-monotonic functional form of the fundamental. Thus, in a dynamic setting, the potential barrier to internal liquidity expansion exerts a global effect on the firm's investment policy, lowering its desired investment profile. Copyright 2001 by Scottish Economic Society.

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Bibliographic Info

Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 48 (2001)
Issue (Month): 3 (August)
Pages: 330-44

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Handle: RePEc:bla:scotjp:v:48:y:2001:i:3:p:330-44

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Cited by:
  1. Saltari, E. & Travaglini, G., 2012. "A note on optimal capital stock and financing constraints," Economic Modelling, Elsevier, vol. 29(4), pages 1177-1180.
  2. Saltari, Enrico & Giuseppe, Travaglini, 2011. "Optimal capital stock and financing constraints," MPRA Paper 35094, University Library of Munich, Germany.
  3. Saltari, Enrico & Travaglini, Giuseppe, 2006. "The effects of future financing constraints on capital accumulation: Some new results on the constrained investment problem," Research in Economics, Elsevier, vol. 60(2), pages 85-96, June.
  4. Cobham, Alex, 2001. "EMU, Monetary Policy and the Role of Financial Constraints," EIFC - Technology and Finance Working Papers 6, United Nations University, Institute for New Technologies.
  5. Domenico Sarno, 2007. "Financial structure and Southern Italy firms’ growth," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 2, May.

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