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Discussion Papers In Economics And Business. 2012, 12-07

The effects of external financing costs on investment timing and sizing decisions

Graduate School of Economics and Osaka School of International Public Policy (OSIPP), Osaka University

英語

text

2012-04

http://www2.econ.osaka-u.ac.jp/library/global/dp/1207.pdf

We develop a dynamic model in which a firm exercises an option to expand productionon either a small or large scale with cash reserves and costly external funds. We show thatthe financing costs greatly distort the firm's financing and investment behavior and resultin a policy contingent on the dynamics of the cash flow and reserves. Most notably, weprove that an intermediate level of cash reserves is likely to accelerate investment in thesmall-scale project by interactions among financing costs, investment timing, and investmentsizing. Our results fill the gap between two types of results: (i) empirical findings ina U-shaped relation between the investment volume and internal funds, and (ii) empiricalpredictions of a U-shaped relation between the investment timing and internal funds.

13467

The effects of external financing costs on investment timing and sizing decisions

Graduate School of Economics and Osaka School of International Public Policy (OSIPP), Osaka University

英語

2012-04

Discussion Papers In Economics And Business

12-07

https://hdl.handle.net/11094/13467

http://www2.econ.osaka-u.ac.jp/library/global/dp/1207.pdf