We analyze how the availability of internal funds affects a firm's investment. We show that under fairly standard assumptions, the relation is U-shaped: investment increases monotonically with internal funds if they are large but decreases if they are very low. We discuss the tradeoff that...

This Paper examines how the investment of financially constrained firms varies with their level of internal funds. We develop a theoretical model of optimal investment under financial constraints. Our model endogenizes the costs of external funds and allows for negative levels of internal funds....

We analyze how the availability of internal funds affects a firm's investment in the presence of capital market imperfections. Using a model that endogenizes the cost of external funds and allows for negative levels of internal funds, we show that under otherwise standard assumptions, investment...

We study financial contracting when both an entrepreneur's investment and the resulting revenue are unobservable to an outside investor. The optimal contract must induce the entrepreneur both to choose a particular investment and to repay the investor; what complicates the problem is that once...