Investment and Dividends under Irreversibility and Financial Constraints
Research finds that firms' investment and dividend policies are distorted by irreversibility and finance constraints. Whereas the existing literature examines these features separately, this paper considers their interaction. The main theoretical result concerns the separation of the investment and payout thresholds. he ordering of investment and distribution activities is endogenously determined and depends on the levels of capacity and cash balances in a manner consistent with a life- cycle interpretation of firm behaviour. The concavity of he revenue function is capital stock and the complementarily of the constraints drive these results. Important ramifications for empirical work on investment are discussed.
|Date of creation:||Jul 2000|
|Date of revision:|
|Contact details of provider:|| Postal: 31 Buccleuch Place, EH8 9JT, Edinburgh|
Web page: http://www.econ.ed.ac.uk/
More information through EDIRC
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.:
- Guiso, Luigi & Parigi, Giuseppe, 1996.
"Investment and Demand Uncertainty,"
CEPR Discussion Papers
1497, C.E.P.R. Discussion Papers.
- Robert S. Pindyck, 1986.
"Irreversible Investment, Capacity Choice, and the Value of the Firm,"
NBER Working Papers
1980, National Bureau of Economic Research, Inc.
- Pindyck, Robert S, 1988. "Irreversible Investment, Capacity Choice, and the Value of the Firm," American Economic Review, American Economic Association, vol. 78(5), pages 969-85, December.
- Pindyck, Robert S., 1986. "Irreversible investment, capacity choice, and the value of the firm," Working papers 1802-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Caballero, Ricardo J., 1999.
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 12, pages 813-862
- Alan Carruth & Andy Dickerson & Andrew Henley, 1998.
"What Do We Know About Investment Under Uncertainty?,"
Studies in Economics
9804, School of Economics, University of Kent.
- Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000. " What Do We Know about Investment under Uncertainty?," Journal of Economic Surveys, Wiley Blackwell, vol. 14(2), pages 119-53, April.
- Bertola, Giuseppe, 1998. "Irreversible investment," Research in Economics, Elsevier, vol. 52(1), pages 3-37, March.
- Robert S. Pindyck & Andrés Solimano, 1993.
"Economic Instability and Aggregate Investment,"
in: NBER Macroeconomics Annual 1993, Volume 8, pages 259-318
National Bureau of Economic Research, Inc.
- Pindyck, Robert S. & Solimano, Andres, 1993. "Economic instability and aggregate investment," Policy Research Working Paper Series 1148, The World Bank.
- Pindyck, Robert S. & Solimano, Andrés., 1993. "Economic instability and aggregate investment," Working papers 3552-93., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Robert S. Pindyck & Andres Solimano, 1993. "Economic Instability and Aggregate Investment," NBER Working Papers 4380, National Bureau of Economic Research, Inc.
- R. Glenn Hubbard, 1997.
"Capital-Market Imperfections and Investment,"
NBER Working Papers
5996, National Bureau of Economic Research, Inc.
- Eberly, Janice C. & Van Mieghem, Jan A., 1997. "Multi-factor Dynamic Investment under Uncertainty," Journal of Economic Theory, Elsevier, vol. 75(2), pages 345-387, August.
- Hamermesh, Daniel S. & Pfann, Gerard Antonie, 1996.
"Adjustment Costs in Factor Demand,"
CEPR Discussion Papers
1371, C.E.P.R. Discussion Papers.
- Andrew B. Abel & Janice C. Eberly, 1996. "Optimal Investment with Costly Reversibility," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 581-593.
- Milne, Alistair & Robertson, Donald, 1996. "Firm behaviour under the threat of liquidation," Journal of Economic Dynamics and Control, Elsevier, vol. 20(8), pages 1427-1449, August.
- Hellmann, Thomas & Stiglitz, Joseph, 2000. "Credit and equity rationing in markets with adverse selection," European Economic Review, Elsevier, vol. 44(2), pages 281-304, February.
- Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February.
- Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
- Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
- Scaramozzino, Pasquale, 1997. "Investment Irreversibility and Finance Constraints," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 89-108, February.
When requesting a correction, please mention this item's handle: RePEc:edn:esedps:55. 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: (Gina Reddie)
If references are entirely missing, you can add them using this form.