Dynamic Investment Models and the Firm's Financial Policy
AbstractThe aim of this paper is to characterize the empirical implications for dynamic investment models of the hierarchy of finance model of corporate finance and to test these implications using firm level data. The model we estimate is based on the Euler equation for optimal capital accumulation in the presence of convex adjustment costs. The theoretical model explicitly allows for debt finance and considers the implications of allowing firms to accumulate financial assets. The empirical investigation uses UK company panel data to estimate dynamic investment models by GMM and to test the derived implications.
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Bibliographic InfoPaper provided by European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ in its series CEPR Financial Markets Paper with number 0013.
Date of creation: Feb 1990
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Other versions of this item:
- Bond, Stephen & Meghir, Costas, 1994. "Dynamic Investment Models and the Firm's Financial Policy," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 197-222, April.
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