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The effect of highly liquidable assets on productive-assets investment and disinvestment

Author

Listed:
  • Gema Pastor-Agustin
  • Marisa Ramirez-Aleson
  • Manuel Antonio Espitia-Escuer

Abstract

In the q theory approach, the firm faces convex costs of adjustment and equals the marginal valuation of a unit of capital, with the marginal cost of investment. In the irreversible investment literature, the firm must consider future opportunities and costs because capital expenditures are at least partly sunk. Within this context, we explore if the existence of highly liquidable assets in the company influences decisions of investment and disinvestment in productive assets and if its influence is different over each decision. We develop an investment model which allows the liquid assets stock to influence on the adjustment costs of productive assets. The developed model is then applied to a 1,044 panel data of Spanish companies. Results evidence that highly liquidable assets are relevant on investment models. Moreover, high levels of liquidable assets stimulate investment and disincentive disinvestment in productive assets.

Suggested Citation

  • Gema Pastor-Agustin & Marisa Ramirez-Aleson & Manuel Antonio Espitia-Escuer, 2010. "The effect of highly liquidable assets on productive-assets investment and disinvestment," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 2(5), pages 352-368.
    • Handle: RePEc:ids:ijecbr:v:2:y:2010:i:5:p:352-368
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