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The Sigmoidal Investment Function

Author

Listed:
  • Yuzo Honda

    (Osaka University)

  • Kazuyuki Suzuki

    (Meiji University)

Abstract

Based on the investment theory of Abel and Eberly (1994), we develop an analytical model of adjustment costs, which produces a sigmoidal investment function. We also estimate the piecewise linear investment function, which includes as special cases linear models, models with one threshold, the original model of Abel and Eberly, which has two thresholds, and sigmoidal models. Empirical evidence clearly supports the sigmoidal model. The threshold estimate of Tobin fs q is 0.91. The investment ratio does not respond at value of Tobin fs q below 0.91, but begins to react sensitively as Tobin fs q passes 0.91.

Suggested Citation

  • Yuzo Honda & Kazuyuki Suzuki, 2008. "The Sigmoidal Investment Function," Discussion Papers in Economics and Business 08-36, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  • Handle: RePEc:osk:wpaper:0836
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0836.pdf
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    Keywords

    Tobin fs q; financial constraints; irreversibility of investment; unlisted; Japanese firms; piecewise linear function;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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