Optimal Investment by Financially Xenophobic Managers

Jason Cummins () and Ingmar Nyman ()

No 02/4, Economics Working Paper Archive at Hunter College from Hunter College Department of Economics

Abstract: Case studies show that corporate managers seek financial independence to avoid interference by outside financiers. We incorporate this financial xenophobia as a fixed cost in a simple dynamic model of financing and investment. To avoid refinancing in the future, the firm alters its behavior depending on the extent of its financial xenophobia and the realization of a revenue shock. With a sufficiently adverse shock, the firm holds no liquidity. Otherwise, the firm precautionarily saves and holds both liquidity and external finance. Investment always responds to neoclassical fundamentals, but responds to cash flow only when the firm holds no liquidity.

Keywords: Investment; Corporate Cash Holdings; Liquidity; Cash Flow (search for similar items in EconPapers)
JEL-codes: D21 E22 G31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2000, Revised 2001
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://econ.hunter.cuny.edu/wp-content/uploads/sit ... HunterEconWP02-4.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:htr:hcecon:02/4

Access Statistics for this paper

More papers in Economics Working Paper Archive at Hunter College from Hunter College Department of Economics 695 Park Avenue, New York, NY 10065. Contact information at EDIRC.
Bibliographic data for series maintained by Jonathan Conning ().