Costly external finance and investment efficiency in a market equilibrium model

Arbeitspapier

The corporate finance literature suggests that a financially constrained firm invests less than an identical unconstrained firm. This does not imply that financial frictions cause firms to invest less than they would in a frictionless economy. When firms compete for investment funds, an increase in financial frictions can lead individual firms to increase their investment levels. A greater than the frictionless level of investment is likely in low productivity firms, in cash-rich firms, and in firms with cheap external capital. Government programs that make capital cheaper for small firms may lead to lower levels of investment for all firms and decrease efficiency.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Queen's Economics Department Working Paper ; No. 1160

Classification and Topics

• Classification: Wirtschaft ; Investment; Capital; Intangible Capital; Capacity ; Financial Markets and the Macroeconomy ; Financial Institutions and Services: General ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
• Subject: Financial Frictions ; Investment Distortions ; Betriebliche Investitionspolitik ; Betriebliche Liquidität ; Unternehmensfinanzierung ; Fremdkapital ; Rentabilität ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Zabojnik, Jan
• Event: Veröffentlichung
• (who): Queen's University, Department of Economics
• (where): Kingston (Ontario)
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/67847
• Last update: 10.03.2025, 11:45 AM CET