Financing Constraints and Corporate Growth
AbstractThis paper analyses the dynamic investment and growth prospects of a financially constrained firm. Three types of financing constraints are examined: internal finance, debt ceiling and exponential interest costs. To study the growth dynamics of firms subject to the above constraints, numerical solutions, for assigned parameter values, are provided using the reverse shooting Runge-Kutta algorithm. The simulation results suggest that the firm"s real and financial variables are highly correlated for constrained firms, as the optimal policy of these businesses is to over-invest in capital in the initial years, and then deplete this excess capacity in future periods. This, however, results in slower rates of growth for the constrained firm, and for entities facing a debt ceiling, greater rates of fluctuation in their rates of expansion
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 25.
Date of creation: 11 Aug 2004
Date of revision:
Financing Constraints; Corporate Growth;
Find related papers by JEL classification:
- D9 - Microeconomics - - Intertemporal Choice
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
- NEP-CFN-2004-08-16 (Corporate Finance)
- NEP-FIN-2004-08-16 (Finance)
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.:
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