Investment, Uncertainty, and Liquidity

Posted: 22 Oct 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

Multiple version iconThere are 2 versions of this paper

Abstract

We analyze the dynamic investment decision of a firm subject to an endogenous financing constraint. The threat of future funding shortfalls lowers the value of the firm's timing options and encourages acceleration of investment beyond the first-best optimal level. As well as highlighting another way by which capital market frictions can distort investment behavior, this result implies that (1) the sensitivity of investment to cash flow can be greatest for high-liquidity firms and (2) greater uncertainty has an ambiguous effect on investment.

Suggested Citation

Boyle, Glenn and Guthrie, Graeme, Investment, Uncertainty, and Liquidity. Journal of Finance, Vol. 58, pp. 2143-2166, October 2003. Available at SSRN: https://ssrn.com/abstract=447373

Glenn Boyle (Contact Author)

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

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

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

Register to save articles to
your library

Register

Paper statistics

Abstract Views
791
PlumX Metrics