Optimal Investment Under Financial Constraints PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Optimal Investment Under Financial Constraints PDF full book. Access full book title Optimal Investment Under Financial Constraints by Paul Povel. Download full books in PDF and EPUB format.
Author: Paul Povel
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
Get Book Here
Book Description
We study how a firm's optimal investment varies with two different measures of financial constraints: the firm's internal funds and the extent of asymmetric information between the firm and outside investors. We derive the financial contract between firm and investor endogenously; in our model, a debt contract is optimal. Decreases in internal funds and more asymmetric information both worsen the financial situation of the firm. However, they differ in their effects on the firm's investment because they change the marginal cost of debt finance in different ways. More asymmetric information generally leads to lower investment, and investment becomes more sensitive to changes in internal funds. The relationship between internal funds and investment, in contrast, is U-shaped: depending on the level of a firm's internal funds, a decrease in internal funds may lead to decreased, unchanged, or even increased investment. Our results explain seemingly contradictory findings in the recent empirical literature.
Author: Paul Povel
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
Get Book Here
Book Description
We study how a firm's optimal investment varies with two different measures of financial constraints: the firm's internal funds and the extent of asymmetric information between the firm and outside investors. We derive the financial contract between firm and investor endogenously; in our model, a debt contract is optimal. Decreases in internal funds and more asymmetric information both worsen the financial situation of the firm. However, they differ in their effects on the firm's investment because they change the marginal cost of debt finance in different ways. More asymmetric information generally leads to lower investment, and investment becomes more sensitive to changes in internal funds. The relationship between internal funds and investment, in contrast, is U-shaped: depending on the level of a firm's internal funds, a decrease in internal funds may lead to decreased, unchanged, or even increased investment. Our results explain seemingly contradictory findings in the recent empirical literature.
Author: Reena Varma Mithal
Publisher:
ISBN:
Category :
Languages : en
Pages : 220
Get Book Here
Book Description
Author: L. C. G. Rogers
Publisher: Springer Science & Business Media
ISBN: 3642352022
Category : Mathematics
Languages : en
Pages : 163
Get Book Here
Book Description
Readers of this book will learn how to solve a wide range of optimal investment problems arising in finance and economics. Starting from the fundamental Merton problem, many variants are presented and solved, often using numerical techniques that the book also covers. The final chapter assesses the relevance of many of the models in common use when applied to data.
Author: Robert K. Dixit
Publisher: Princeton University Press
ISBN: 1400830176
Category : Business & Economics
Languages : en
Pages : 484
Get Book Here
Book Description
How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made. In so doing, they answer important questions about investment decisions and the behavior of investment spending. This new approach to investment recognizes the option value of waiting for better (but never complete) information. It exploits an analogy with the theory of options in financial markets, which permits a much richer dynamic framework than was possible with the traditional theory of investment. The authors present the new theory in a clear and systematic way, and consolidate, synthesize, and extend the various strands of research that have come out of the theory. Their book shows the importance of the theory for understanding investment behavior of firms; develops the implications of this theory for industry dynamics and for government policy concerning investment; and shows how the theory can be applied to specific industries and to a wide variety of business problems.
Author: Patrick Bolton
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 47
Get Book Here
Book Description
We develop a model of investment timing under uncertainty for a financially constrained firm. Facing external financing costs, the firm prefers to fund its investment through internal funds, so that the firm's optimal investment policy and value depend on both its earnings fundamentals and liquidity holdings. We show that financial constraints significantly alter the standard real options results, with the financial flexibility conferred by internal funds acting as a complement, and at times as a substitute, to the real flexibility given by the optimal timing of investment. We show that: 1) the investment hurdle is highly nonlinear and non-monotonic in the firm's internal funds; 2) in contrast to predictions implied by standard corporate savings models, a financially constrained firm may behave in a risk seeking sense (and thus firm value may be convex in liquidity) due to the interaction between financial and real (growth/abandonment) flexibility; 3) with multiple rounds of growth options, a value-maximizing financially constrained firm may choose to over-invest via accelerated investment timing in earlier stages in order to mitigate under-investment problems in later stages.
Author: Rozalia Pal
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
Get Book Here
Book Description
In this paper we describe a model of optimal investment of various types of financially constrained firms. We show that the resulting relationship between internal funds and investment is non-monotonic. In particular, the magnitude of the cash flow sensitivity of the investment is lower for firms with credit rationing compared to firms that are able to obtained short-term external financing. The inverse relationship is driven by the leverage multiplier effect. A positive cash flow shock increases the short-term borrowing capacity of the firm, which in turn has a positive effect on investment and firm's growth. Moreover, the leverage multiplier effect is the highest for firms relying on short-term credits and it is lower for firms that are able to obtain long-term financing. Analysing a large euro area data set we find strong empirical support for our theoretical predictions. The results also help to explain some contrasting findings in the financial constraints literature.
Author: Jason G. Cummins
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 44
Get Book Here
Book Description
Author: Mark W.J. Blok
Publisher: Springer Science & Business Media
ISBN: 3642484018
Category : Business & Economics
Languages : en
Pages : 199
Get Book Here
Book Description
This book contributes to the scientific field of optimal control theory applied to dynamic models of the firm. It discusses optimal investment, financing and production policies of the firm, that have to deal with a variety of aspects, such as financial constraints, start-up costs, business cycles, increasing returns to scale, production life cycles and experience curves. In contrast to many other publications on this subject, here, in combination with an analytical approach, the dynamic optimization problems are solved numerically with the aid of a powerful computer and specific programs for optimizing non-linear functions of a finite number of variables and non-linear constraints.
Author: Jiacheng Fan
Publisher:
ISBN:
Category : Investment analysis
Languages : en
Pages : 0
Get Book Here
Book Description
Author: Feyzullah Egriboyun
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
