Financial Constraints and Investment Decisions
In what follows we show that liquidity constraints can affect a firm's investment even when the constraints are not currently effective. This happens when, at any given time, the firm believes that internal finance is likely to become a constraint in the future. In these circumstances, the value of the firm becomes a non-monotonic functional form of the fundamental. Thus, in a dynamic setting, the potential barrier to internal liquidity expansion exerts a global effect on the firm's investment policy, lowering its desired investment profile. Copyright 2001 by Scottish Economic Society.
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Volume (Year): 48 (2001)
Issue (Month): 3 (August)
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