Investment, Underinvestment and Imperfect Capital Markets
This paper characterizes precisely the optimal capital policy for a firm facing a non-price rationing constraint in the market for investment funds. With this particular capital market imperfection firms may generally 'overinvest' relative to a perfect market case, rather than underinvest as conventional wisdom suggests. Underinvestment occurs, if at all, in the initial stages of an optimal policy.
Year of publication: |
1976
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Authors: | Appelbaum, Elie ; Harris, Richard |
Institutions: | Economics Department, Queen's University |
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