Investment, Uncertainty, and Liquidity
We analyze the dynamic investment decision of a firm subject to an endogenous financing constraint. The threat of future funding shortfalls lowers the value of the firm's timing options and encourages acceleration of investment beyond the first-best optimal level. As well as highlighting another way by which capital market frictions can distort investment behavior, this result implies that (1) the sensitivity of investment to cash flow can be greatest for high-liquidity firms and (2) greater uncertainty has an ambiguous effect on investment. Copyright (c) 2003 by the American Finance Association.
Year of publication: |
2003
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Authors: | Boyle, Glenn W. ; Guthrie, Graeme A. |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 58.2003, 5, p. 2143-2166
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Publisher: |
American Finance Association - AFA |
Saved in:
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