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. he 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 he revenue function is capital stock and the complementarily of the constraints drive these results. Important ramifications for empirical work on investment are discussed.

Keywords: investment; dividend policy; irreversibility; financial constraints (search for similar items in EconPapers)
JEL-codes: D92 E22 G31 G33 G35 (search for similar items in EconPapers)
Pages: 39
Date: 2000-07
New Economics Papers: this item is included in nep-cfn and nep-mac
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Citations: View citations in EconPapers (2)

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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 (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:esedps:55

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