Twice constrained investment under uncertainty: A mixed time model
AbstractThis paper explores the investment decision of a firm facing both an irreversibility constraint and a financial constraint on investment. I show that, for all but the fastest growing firms, the planned investment delaying impact of an irreversibility constraint dominates the planned investment accelerating impact of a financing constraint. This result is especially likely to hold in a reality where firms have a variety of strategies not modeled here, from holding cash reserves to taking on debt, that can mitigate the financing constraint.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Research in Economics.
Volume (Year): 64 (2010)
Issue (Month): 2 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622941
Investment Uncertainty Irreversible Financing constraint;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
- Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
- Andrea Caggese, 2003.
"Financing Constraints, Irreversibility, and Investment Dynamics,"
FMG Discussion Papers
dp440, Financial Markets Group.
- Caggese, Andrea, 2007. "Financing constraints, irreversibility, and investment dynamics," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 2102-2130, October.
- Andrea Caggese, 2001. "Financing Constraints, Irreversibility, and Investment Dynamics," Working Papers 53, Barcelona Graduate School of Economics.
- Andrea Caggese, 2001. "Financing constraints, irreversibility and investment dynamics," Economics Working Papers 1008, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2006.
- Hans-Werner Sinn, 1991.
"The Vanishing Harberger Triangle,"
NBER Working Papers
3225, National Bureau of Economic Research, Inc.
- Pindyck, Robert S, 1988.
"Irreversible Investment, Capacity Choice, and the Value of the Firm,"
American Economic Review,
American Economic Association, vol. 78(5), pages 969-85, December.
- Robert S. Pindyck, 1986. "Irreversible Investment, Capacity Choice, and the Value of the Firm," NBER Working Papers 1980, National Bureau of Economic Research, Inc.
- Pindyck, Robert S., 1986. "Irreversible investment, capacity choice, and the value of the firm," Working papers 1802-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- King, Mervyn A, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 21-35, January.
- Richard Holt, 2004.
"Investment and Dividends under Irreversibility and Financial Constraints,"
ESE Discussion Papers
55, Edinburgh School of Economics, University of Edinburgh.
- Holt, Richard W. P., 2003. "Investment and dividends under irreversibility and financial constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 27(3), pages 467-502, January.
- David F. Bradford, 1979.
"The Incidence and Allocation Effects of a Tax on Corporate Distributions,"
NBER Working Papers
0349, National Bureau of Economic Research, Inc.
- Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, vol. 15(1), pages 1-22, February.
- Auerbach, Alan J, 1979.
"Wealth Maximization and the Cost of Capital,"
The Quarterly Journal of Economics,
MIT Press, vol. 93(3), pages 433-46, August.
- Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
- Bertola, Giuseppe, 1998. "Irreversible investment," Research in Economics, Elsevier, vol. 52(1), pages 3-37, March.
- Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
- McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
- Glenn W. Boyle & Graeme A. Guthrie, 2003. "Investment, Uncertainty, and Liquidity," Journal of Finance, American Finance Association, vol. 58(5), pages 2143-2166, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.