Costly External Finance and Investment Efficiency in a Market Equilibrium Model

Jan Zabojnik

No 273636, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: The corporate finance literature suggests that a financially constrained firm invests less than an identical unconstrained firm. This does not imply that financial frictions cause firms to invest less than in a frictionless economy. When firms compete for investment funds, an increase in financial frictions can lead individual firms to increase their investment levels. A greater than the frictionless level of investment is likely in low productivity firms, in cash-rich firms, and in firms with cheap external capital. Government programs that make capital cheaper for small firms may lead to lower levels of investment for all firms and decrease efficiency.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 34
Date: 2008-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/273636/files/qed_wp_1160.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:273636

DOI: 10.22004/ag.econ.273636

Access Statistics for this paper

More papers in Queen's Economics Department Working Papers from Queen's University - Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().