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The effects of time-to-build and regulation on investment timing and size

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  • Jeon, Haejun

Abstract

This study investigates the effects of the delay of revenue generation on a firm’s investment timing and size decisions. Time-to-build and regulation are considered as internal and external factors that impede the firm’s instant revenue generation, respectively. We show that in the absence of regulation, uncertainty in time-to-build always advances the timing of investment; however, the capacity size is independent of time-to-build. We also show that in the absence of time-to-build, the presence of regulation increases the expected capacity size and the uncertainty of regulation amplifies this effect. When both time-to-build and regulation exist, uncertainty in the delay of revenue generation by the two factors can advance the investment timing and increase the size, improving firm value.

Suggested Citation

  • Jeon, Haejun, 2024. "The effects of time-to-build and regulation on investment timing and size," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006732
    DOI: 10.1016/j.irfa.2024.103741
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    More about this item

    Keywords

    Time-to-build; Investment lags; Regulation; Capacity; Real options;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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