IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

On the Relationship Between Financial Status and Investment in Technological Flexibility

Listed author(s):
  • Marcel Boyer
  • Armel Jacques
  • Michel Moreaux

We study the interactions between equity financing and strategic technological flexibility choices of firms facing a threat of costly bankruptcy. We show that a firm's level of financial hardship is an important determinant of the level and type of investment it chooses to make, either a less costly inflexible technology or a more expansive flexible technology. We show that the level of financial hardship has a non-monotonic effect : as the level of equity financing increases, the choice of technology may change and the level of investment may first increase and then decrease or vice-versa, depending on the differential investment cost, the bankruptcy cost, and whether or not the less costly technology is the best reply for an all equity (no debt) firm. The level of external financing (debt) may be used strategically as a non-cooperative collusion way to increase the expected profits of both firms. A firm may also use debt as a commitment device to increase its own expected profit. Nous étudions les interactions entre le financement par actions et les choix de flexibilité technologique des entreprises menacées de faillites coûteuses. Nous montrons que le niveau de crise financière traversée par l'entreprise est un déterminant important dans le choix du niveau et du type d'investissement qu'elle va faire, soit une technologie inflexible moins coûteuse, soit une technologie flexible plus coûteuse. Nous montrons que le niveau de difficulté financière a un effet non monotone : au fur et à mesure que le niveau de financement par actions augmente, le choix technologique peut se modifier et le niveau d'investissement peut tout d'abord augmenter pour diminuer ensuite, ou vice versa, dépendant du différentiel du coût d'investissement, du coût de faillite, et selon que la technologie plus ou moins coûteuse est ou non la meilleure solution pour une entreprise sans dette. Le niveau de financement extérieur (endettement) peut être utilisé stratégiquement comme moyen de collusion non coopérative pour accroître les profits attendus des deux entreprises. Une entreprise peut également utiliser l'endettement comme un outil d'engagement pour accroître son propre profit attendu.

If you experience problems downloading a file, check if you have the proper application to view it first. 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.

File URL:
Download Restriction: no

Paper provided by CIRANO in its series CIRANO Working Papers with number 2002s-14.

in new window

Length: 44 pages
Date of creation: 01 Feb 2002
Handle: RePEc:cir:cirwor:2002s-14
Contact details of provider: Postal:
1130 rue Sherbrooke Ouest, suite 1400, Montréal, Quéc, H3A 2M8

Phone: (514) 985-4000
Fax: (514) 985-4039
Web page:

More information through EDIRC

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.:

in new window

  1. Boyer, M. & Jacques, A. & Moreaux, M., 1998. "Observability, Commitment and Flexibility," Papers 98.504, Toulouse - GREMAQ.
  2. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  3. Ellingsen, Tore, 1995. "On flexibility in oligopoly," Economics Letters, Elsevier, vol. 48(1), pages 83-89, April.
  4. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, July.
  5. Dasgupta, Sudipto & Shin, Jhinyoung, 1999. "Information sharing, information free-riding and capital structure in oligopolies," International Journal of Industrial Organization, Elsevier, vol. 17(1), pages 109-135, January.
  6. Vives, Xavier, 1989. "Technological competition, uncertainty, and oligopoly," Journal of Economic Theory, Elsevier, vol. 48(2), pages 386-415, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cir:cirwor:2002s-14. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.