Empirical studies stress the significance of financing constraints in business investment. Especially high tech investment is likely to be affected by capital market imperfections. The reason is that their returns are highly uncertain so that it is difficult to get outside finance for this kind of investment. This paper studies the combined effect of technological progress and the capital market being imperfect on the firm's investment behavior. We show that it is crucial to make a distinction between embodied and disembodied technological progress. Embodied technological progress affects only the capital goods built after the technological breakthrough while disembodied technological progress influences the productivity of all capital goods installed. It is shown that where disembodied technological progress leads to a positive anticipation phase before the technological breakthrough occurs, a negative anticipation phase will occur before an embodied technological breakthrough. During this negative anticipation phase the firm builds up a stock of liquid financial assets in order to be able to finance increased investments in the improved capital goods from after the technological breakthrough.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 44 (2008) Issue (Month): 5-6 (April) Pages: 459-483 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF
For technical questions regarding this item, or to correct its listing, contact: (Heidi Boesdal).
Related research
Keywords:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)