The effects of time-to-build and regulation on investment timing and size

Haejun Jeon

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: This study investigates the effects of the delay of revenue generation on a firm’s investment timing and size decisions. Time-to-build and regulation are considered as internal and external factors that impede the firm’s instant revenue generation, respectively. We show that in the absence of regulation, uncertainty in time-to-build always advances the timing of investment; however, the capacity size is independent of time-to-build. We also show that in the absence of time-to-build, the presence of regulation increases the expected capacity size and the uncertainty of regulation amplifies this effect. When both time-to-build and regulation exist, uncertainty in the delay of revenue generation by the two factors can advance the investment timing and increase the size, improving firm value.

Keywords: Time-to-build; Investment lags; Regulation; Capacity; Real options (search for similar items in EconPapers)
JEL-codes: D25 G31 G38 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006732

DOI: 10.1016/j.irfa.2024.103741

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