News and firm entry: The role of the waiting option

Anastasiia Antonova and Mykhailo Matvieiev

Journal of Economic Dynamics and Control, 2025, vol. 171, issue C

Abstract: Firm entry and capital investment both vary over the business cycle. This paper analyzes the role of the firm entry delay option (waiting option) in the joint dynamics of firm entry and investment in a news-driven RBC model. We introduce the waiting option by restricting the number of potential firm entrants and demonstrate that the combination of news shocks and the waiting option effect yields empirically plausible joint dynamics of firm entry and investment over the business cycle. In contrast, the model without the waiting option produces excessively volatile firm entry. We rationalize our findings using an analytical real-option model of firm entry.

Keywords: Waiting option; Firm entry; News shocks; Real business cycle (search for similar items in EconPapers)
JEL-codes: E22 E30 E32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:171:y:2025:i:c:s0165188924002264

DOI: 10.1016/j.jedc.2024.105034

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