The impact of asymmetric ambiguity on investment and financing decisions

Jean-Laurent Viviani (), Anh Lai and Waël Louhichi
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Waël Louhichi: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, ESSCA Research Lab - ESSCA - ESSCA – École supérieure des sciences commerciales d'Angers = ESSCA Business School

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Abstract: The goal of this paper is to investigate the impact of asymmetric ambiguity on corporate investment and financing strategies. Asymmetric information comes from the fact that insiders know the probability of the growth prospects of the firm while outsiders do not. Also, we assume that there are two types of firms (good and bad types) that differ in the quality of their forecasting of future cash flows. Our numerical simulations reveal that firms with more accurate forecasting of cash flows have an interest in speeding up investment in order to make it more difficult for bad firms to mimic their actions. Moreover, we show that the presence of asymmetric ambiguity leads to costly cash holding. These findings may help firms when making their investment and financing decisions under asymmetric ambiguity.

Keywords: financing decisions; corporate investment; asymmetric ambiguity (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

Published in Economic Modelling, 2018, 69, pp.169-180. ⟨10.1016/j.econmod.2017.09.020⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01683841

DOI: 10.1016/j.econmod.2017.09.020

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