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Investment lumpiness and the role of net worth: evidence from Europe

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  • Jamel E. Chichti
  • Walid Mansour

Abstract

This paper examines investment lumpiness under incentive restrictions. When financial frictions enter the picture into the neoclassical framework, investment is no longer smooth due to the lump-sum costs that the firm incurs when raising costly external finance. Whited (2006) shows that the firm finds it optimal to not invest to avoid paying such costs. Investment is accordingly characterised by lumpiness. We estimate a binomial logit model for the investment spike (i.e., large investment) using a sample of nine OECD European countries. We find that our proxies for net worth and future growth opportunities impact positively the probability of investment spike. The paper further xtends the analysis to encompass some behavioural aspects.

Suggested Citation

  • Jamel E. Chichti & Walid Mansour, 2012. "Investment lumpiness and the role of net worth: evidence from Europe," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 3(3/4), pages 145-162.
    • Handle: RePEc:ids:ijbeaf:v:3:y:2012:i:3/4:p:145-162
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    Citations

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    Cited by:

    1. Hechem Ajmi & Salina Kassim & Hassanuddeen Abdul Aziz & Walid Mansour, 2019. "A Literature Review of Financial Contracting Theory from the Islamic and Conventional Overviews: Contributions, Gaps, and Perspectives استعراض أدبيات نظرية التعاقد المالي من المنظور الإسلامي والتقليدي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 32(2), pages 25-42, January.
    2. Mansour, Walid, 2014. "Information asymmetry and financing constraints in GCC," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 19-29.

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