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Costly External Finance and Investment Efficiency in a Market Equilibrium Model Author info | Abstract | Publisher info | Download info | Related research | Statistics Jan Zabojnik ()
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The corporate finance literature suggests that a financially constrained firm invests less than an identical unconstrained firm. This does not imply that financial frictions cause firms to invest less than they would in a frictionless economy. When firms compete for investment funds, an increase in financial frictions can lead individual firms to increase their investment levels. A greater than the frictionless level of investment is likely in low productivity firms, in cash-rich firms, and in firms with cheap external capital. Government programs that make capital cheaper for small firms may lead to lower levels of investment for all firms and decrease efficiency.
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number
1160.
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Length: 32 pages
Date of creation: Mar 2008Date of revision:
Publication status: Forthcoming in Economic InquiryHandle: RePEc:qed:wpaper:1160Contact details of provider: Postal: Kingston, Ontario, K7L 3N6 Phone: (613) 533-2250 Fax: (613) 533-6668 Email: Web page: http://www.econ.queensu.ca/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Mark Babcock).
Keywords: Financial Frictions ; Investment distortions ; Other versions of this item:
Find related papers by JEL classification: O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy G20 - Financial Economics - - Financial Institutions and Services - - - General
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