Investment, Irreversibility, and Financial Imperfections

Richard Holt

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: Research finds that firms' investment decisions are distorted by irreversibility and finance constraints. Whereas the existing literature examines the effects of these features separately, this paper studies their interaction. The impact of these constraints on a firm's incentive to invest is characterised using option pricing techniques. Financial constraints reduce the initial capacity, raise the marginal value product of capital and the value of the option to invest.

Keywords: irreversible investment; financial constraints (search for similar items in EconPapers)
JEL-codes: D92 E22 G31 (search for similar items in EconPapers)
Pages: 12
Date: 2000-12
New Economics Papers: this item is included in nep-cfn and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:edn:esedps:54

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