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Financially constrained capital investments: The effects of disembodied and embodied technological progress

  • Feichtinger, Gustav
  • Hartl, Richard F.
  • Kort, Peter M.
  • Veliov, Vladimir M.

Empirical studies stress the significance of financing constraints in business investment. Especially high tech investment is likely to be affected by capital market imperfections. The reason is that their returns are highly uncertain so that it is difficult to get outside finance for this kind of investment. This paper studies the combined effect of technological progress and the capital market being imperfect on the firm's investment behavior. We show that it is crucial to make a distinction between embodied and disembodied technological progress. Embodied technological progress affects only the capital goods built after the technological breakthrough while disembodied technological progress influences the productivity of all capital goods installed. It is shown that where disembodied technological progress leads to a positive anticipation phase before the technological breakthrough occurs, a negative anticipation phase will occur before an embodied technological breakthrough. During this negative anticipation phase the firm builds up a stock of liquid financial assets in order to be able to finance increased investments in the improved capital goods from after the technological breakthrough.

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Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 44 (2008)
Issue (Month): 5-6 (April)
Pages: 459-483

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Handle: RePEc:eee:mateco:v:44:y:2008:i:5-6:p:459-483
Contact details of provider: Web page: http://www.elsevier.com/locate/jmateco

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  1. Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M. & Veliov, Vladimir M., 2005. "Environmental policy, the porter hypothesis and the composition of capital: Effects of learning and technological progress," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 434-446, September.
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  9. Feichtinger, G. & Hartl, R.F. & Kort, P.M. & Veliov, V.M., 2006. "Anticipation effects of technological progress on capital accumulation : A vintage capital approach," Other publications TiSEM 9a8debb0-5030-46fa-b89e-b, Tilburg University, School of Economics and Management.
  10. BOUCEKKINE, Raouf & POMMERET, Aude, . "Energy saving technical progress and optimal capital stock: the role of embodiment," CORE Discussion Papers RP 1703, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  18. Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M. & Veliov, Vladimir M., 2006. "Capital accumulation under technological progress and learning: A vintage capital approach," European Journal of Operational Research, Elsevier, vol. 172(1), pages 293-310, July.
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