Investment and Dividends under Irreversibility and Financial Constraints

Richard Holt

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: Research finds that firms' investment and dividend policies are distorted by irreversibility and finance constraints. Whereas the existing literature examines these features separately, this paper considers their interaction. The main theoretical result concerns the separation of the investment and payout thresholds. The ordering of investment and distribution activities is endogenously determined and depends on the levels of capacity and cash balances in a manner consistent with a life- cycle interpretation of firm behaviour. The concavity of the revenue function is capital stock and the complementarily of the constraints drive these results. Important ramifications for empirical work on investment are discussed.

JEL-codes: D92 E22 G31 G33 G35 (search for similar items in EconPapers)
Date: 1999-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.econ.ed.ac.uk/papers/id55_esedps.pdf Revised version, July 2000 (application/pdf)

Related works:
Journal Article: Investment and dividends under irreversibility and financial constraints (2003)
Working Paper: Investment and Dividends under Irreversibility and Financial Constraints (2000)
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:edn:esedps:49

Access Statistics for this paper

More papers in Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh 31 Buccleuch Place, EH8 9JT, Edinburgh. Contact information at EDIRC.
Bibliographic data for series maintained by Research Office ().