Business Investment and Economic Depreciation

Journal of Accounting, Finance, and Economics 5(1), 2015, 84-100

30 Pages Posted: 12 Sep 2007 Last revised: 25 May 2017

See all articles by George Blazenko

George Blazenko

Simon Fraser University (SFU) - Finance Area

Andrey D. Pavlov

Simon Fraser University (SFU) - Finance Area

Wing Him Yeung

Lakehead University

Date Written: October 1, 2014

Abstract

We show economic depreciation decreases value maximizing investment hurdle rates and encourages both maintenance and growth. Economic depreciation without maintenance decreases the upside potential of future growth opportunities upon stochastically improved profitability. Managers forestall this decrease with maintenance and expansion investments even with modest current returns. While economic depreciation encourages maintenance and growth for existing businesses, it impedes new venture start in the first instance.

Keywords: Depreciation, Corporate Investment, Maintenance, Real Options

JEL Classification: D92, G31

Suggested Citation

Blazenko, George W. and Pavlov, Andrey D. and Yeung, Wing Him, Business Investment and Economic Depreciation (October 1, 2014). Journal of Accounting, Finance, and Economics 5(1), 2015, 84-100, Available at SSRN: https://ssrn.com/abstract=1012981 or http://dx.doi.org/10.2139/ssrn.1012981

George W. Blazenko (Contact Author)

Simon Fraser University (SFU) - Finance Area ( email )

Burnaby, British Columbia V5A 1S6
Canada

Andrey D. Pavlov

Simon Fraser University (SFU) - Finance Area ( email )

Vancouver, British Columbia V5A 1S6
Canada
604 291 5835 (Phone)
604 291 4920 (Fax)

Wing Him Yeung

Lakehead University ( email )

955 Oliver Road
Thunder Bay, Ontario P7B 5E1
Canada

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