Investment, Uncertainty, and Liquidity
Year: 2003
Type: article
Abstract: 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.
Source: The Journal of Finance
Authors: Glenn W. Boyle, Graeme A. Guthrie
Institutions: Victoria University of Wellington, University of Otago
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2127150968