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News and firm entry: The role of the waiting option

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  • Antonova, Anastasiia
  • Matvieiev, Mykhailo

Abstract

Firm entry and capital investment both vary over the business cycle. This paper analyzes the role of the firm entry delay option (waiting option) in the joint dynamics of firm entry and investment in a news-driven RBC model. We introduce the waiting option by restricting the number of potential firm entrants and demonstrate that the combination of news shocks and the waiting option effect yields empirically plausible joint dynamics of firm entry and investment over the business cycle. In contrast, the model without the waiting option produces excessively volatile firm entry. We rationalize our findings using an analytical real-option model of firm entry.

Suggested Citation

  • Antonova, Anastasiia & Matvieiev, Mykhailo, 2025. "News and firm entry: The role of the waiting option," Journal of Economic Dynamics and Control, Elsevier, vol. 171(C).
    • Handle: RePEc:eee:dyncon:v:171:y:2025:i:c:s0165188924002264
    DOI: 10.1016/j.jedc.2024.105034
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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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