Modeling the Effects of Financial Constraints on Firm’s Investment

Abstract: The paper develops a model of firm´s investment under uncertainty with financial market imperfections and analyzes the effects of financial constraints on firm´s investment. Firm´s investment is an increasing function of the firm´s marginal q, however the investment function is characterized by an upper bound that depends on the firm´s borrowing capabilities. The firm´s marginal q is the sum of the expected value of the marginal profitability of the physical capital stock and of a positive external finance premium. In the presence of financial market imperfections the firm forms expectations about future financial conditions and these expectations raise the firm´s current marginal q. Similarly, the shadow price of firm´s debt is the sum of the interest cost of debt repayment and of a provision for external finance that depends on the firm´s expectations over future financial conditions.

Object Details

• Location: Deutsche Nationalbibliothek Frankfurt am Main
• Extent: Online-Ressource
• Language: Englisch

References and Relationships

• Bibliographic citation: Modeling the Effects of Financial Constraints on Firm’s Investment ; volume:2 ; number:1 ; year:2008 ; extent:27 ; Economics / Journal articles. Journal articles ; 2, Heft 1 (2008) (gesamt 27)

Contributors, Places and Time

• Creator: Tomat, Gian Maria

Further information

• DOI: 10.5018/economics-ejournal.ja.2008-9
• URN: urn:nbn:de:101:1-2412121811226.718015646605
• Rights: Open Access; Der Zugriff auf das Objekt ist unbeschränkt möglich.
• Last update: 15.08.2025, 7:31 AM CEST