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The effects of future financing constraints on capital accumulation: some new results on the constrained investment problem
Research in Economics (2006)
  • Giuseppe Travaglini
  • Enrico Saltari
Abstract

In this paper we study the effects of future constraints on current investment decisions. Unlike the standard literature on this optimizing problem, we present a model in which firms are neither always constrained nor always unconstrained. We are concerned with those cases where a firm is free from constraints at the current time but expects to face an upper bound at some later date. Using the "no arbitrage principle" in the constrained scenario, we show how to explicitly calculate the optimal investment path switching between regimes. The analytical result shows that the effects of future financing constraints are included in the market value of the firm, and thus are captured by marginal q.

Disciplines
Publication Date
Spring May, 2006
Citation Information
Giuseppe Travaglini and Enrico Saltari. "The effects of future financing constraints on capital accumulation: some new results on the constrained investment problem" Research in Economics Vol. 60 (2006)
Available at: http://works.bepress.com/giuseppe_travaglini/4/