This study investigates irreversible investment decisions when the exercise payoff is scale-dependent; thus, it is endogenously determined by the firm's risk management. We find that the scale-dependency gives rise to a speculative risk management strategy: a positive relationship between the...

This paper studies a model of irreversible investment decisions in which the exercise payoff is endogenously determined by the firm's risk management choice. By obtaining the explicit solution of a non-linear free boundary problem with a stochastic control, we present the implications for the...