Takao Kobayashi (Faculty of Economics, University of Tokyo) Risa Sai (Graduate School of Economics, University of Tokyo)
Abstract
Bertola/Caballero (1994) and Abel/Eberly (1996) extended Jorgenson's classical model of firms' optimal investment. By introducing investment frictions, they were able to capture the role of future anticipations in investment decisions as well as the lumpy and intermittent nature of investment dynamics. We extend Jorgenson's model to the other direction of financing frictions. We construct a model of an equity-only firm, who must pay a linear financing cost for issuing new shares. We show that the firm's optimal investment-financing is a two-trigger policy in which the firm finances investment by issuing new shares (supplementing internal funds) when the shadow price of capital hits the upper trigger value. When the shadow price hits the lower trigger value, she sells a portion of her capital stock and buys back shares (or pays dividends). Values of the shadow price of capital between the two trigger values define a range of "inaction", in which the firm does neither issue nor buy back shares and invests all of her internal funds for expansion.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. 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.
Publisher Info
Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number
CIRJE-F-627.
References listed on IDEAS 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.: