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Article
Financial Constraints and Investment decisions
Scottish Journal of Political Economy (2001)
  • Giuseppe Travaglini
  • Enrico Saltari
Abstract

In what follows we show that liquidity constraints can affect a firm's investment even when the constraints are not currently effective. This happens when, at any given time, the firm believes that internal finance is likely to become a constraint in the future. In these circumstances, the value of the firm becomes a non-monotonic functional form of the fundamental. Thus, in a dynamic setting, the potential barrier to internal liquidity expansion exerts a global effect on the firm's investment policy, lowering its desired investment profile.

Disciplines
Publication Date
2001
Citation Information
Giuseppe Travaglini and Enrico Saltari. "Financial Constraints and Investment decisions" Scottish Journal of Political Economy Vol. 48 Iss. 3 (2001)
Available at: http://works.bepress.com/giuseppe_travaglini/7/