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The delaying effect of financing constraints on investment

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  • van de Laar, M.M.

    (Macro, International & Labour Economics, RS: FSE MGSoG)

  • Letterie, W.A.

    (Organisation,Strategy & Entrepreneurship)

Abstract

We develop a simple model in which a firm considers a number of investment projects. Because of limited financial resources, the firm can undertake at most one project. In line with the literature on real options we stress features like irreversibility, uncertainty and the possibility of postponing the investment decision and show under which conditions limited availability of funds tends to increase the value of waiting.
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Suggested Citation

  • van de Laar, M.M. & Letterie, W.A., 2003. "The delaying effect of financing constraints on investment," Research Memorandum 001, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    • Handle: RePEc:unm:umamet:2003001
    DOI: 10.26481/umamet.2003001
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    References listed on IDEAS

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    1. Scaramozzino, Pasquale, 1997. "Investment Irreversibility and Finance Constraints," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 89-108, February.
    2. Luigi Guiso & Giuseppe Parigi, 1999. "Investment and Demand Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 185-227.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    4. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    5. Stulz, ReneM., 1982. "Options on the minimum or the maximum of two risky assets : Analysis and applications," Journal of Financial Economics, Elsevier, vol. 10(2), pages 161-185, July.
    6. Johnson, Herb, 1987. "Options on the Maximum or the Minimum of Several Assets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(3), pages 277-283, September.
    7. Vivek Ghosal & Prakash Loungani, 2000. "The Differential Impact of Uncertainty on Investment in Small and Large Businesses," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 338-343, May.
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    Cited by:

    1. Rienties, B.C. & Woltjer, G.B., 2004. "Regular online assessment, motivation and learning," Research Memorandum 030, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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