The Sigmoidal Investment Function
AbstractBased on the investment theory of Abel and Eberly (1994), we develop an analytical model of adjustment costs, which produces a sigmoidal investment function. We also estimate the piecewise linear investment function, which includes as special cases linear models, models with one threshold, the original model of Abel and Eberly, which has two thresholds, and sigmoidal models. Empirical evidence clearly supports the sigmoidal model. The threshold estimate of Tobinfs q is 0.91. The investment ratio does not respond at value of Tobinfs q below 0.91, but begins to react sensitively as Tobinfs q passes 0.91.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 08-36.
Length: 44 pages
Date of creation: Nov 2008
Date of revision:
Tobinfs q; financial constraints; irreversibility of investment; unlisted; Japanese firms; piecewise linear function;
Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
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