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Investments and financial structure with imperfect financial markets: an intertemporal discrete-time framework

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  • Marco Mazzoli

Abstract

This paper deals with the problem of simultaneity between the firm's investments and financial structure, in a context of dynamic optimization, characterised by two main assumptions: first of all, diverging incentives for managers and shareholders, secondly, financial markets imperfections generating a risk premium on the borrowed finance. A ''discrete-time'' framework has been introduced in order to better model the relevance of timing in the co-ordination process between financial and investment decisions, assumed to take place simultaneously. The simple model proposed here may provide some intuitive interpretation for a number of phenomena such as the propagation of financial shocks into the real economy and the countercyclical mark-ups.

Suggested Citation

  • Marco Mazzoli, 2000. "Investments and financial structure with imperfect financial markets: an intertemporal discrete-time framework," Heterogeneity and monetary policy 0008, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
    • Handle: RePEc:mod:modena:0008
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    References listed on IDEAS

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    1. Kurz, Mordecai, 1994. "On the Structure and Diversity of Rational Beliefs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(6), pages 877-900, October.
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    3. Mazzoli,Marco, 1998. "Credit, Investments and the Macroeconomy," Cambridge Books, Cambridge University Press, number 9780521584111, October.
    4. Kurz, Mordecai, 1994. "On Rational Belief Equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(6), pages 859-876, October.
    5. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    6. Michel Poitevin, 1989. "Collusion and the Banking Structure of a Duopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 263-277, May.
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    More about this item

    Keywords

    investments; financing policy.;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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