Cash Flow Immediacy and the Value of Investment Timing

Posted: 22 Jun 2003

See all articles by Glenn Boyle

Glenn Boyle

University of Canterbury - Economics and Finance; Sapere Research Group

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance

Abstract

In a model with stochastic interest rates, irreversible investment, and two investment dates, the value of investment delay has two components: the expected gain from committing now to investment at a future date and the potential gain from the ability to reverse this commitment. Holding net present value constant, we show that the values of both these components are increasing in the proportion of project cash-flows that accrue in the more distant future. Our results emphasize the importance of the interaction between cash-flow immediacy and interest rate uncertainty for the optimal investment policy.

JEL Classification: G31

Suggested Citation

Boyle, Glenn and Guthrie, Graeme, Cash Flow Immediacy and the Value of Investment Timing. Journal of Financial Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=364560

Glenn Boyle

University of Canterbury - Economics and Finance ( email )

Private Bag 4800
Christchurch
New Zealand

Sapere Research Group ( email )

Level 9, Pencarrow House
1 Willeston St
Wellington, 6140
New Zealand

Graeme Guthrie (Contact Author)

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6140
New Zealand
64 4 463 5763 (Phone)

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