Investment & Dividends under Irreversibility and Financial Constraints

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Research finds that firms' investment and dividend policies are distorted by irreversibility and finance constraints. Whereas the existing literature examines these features separately, this paper considers their interaction. The main theoretical result concerns the separation of the investment and payout thresholds. The ordering of investment and distribution activities is endogenously determined and depends on the levels of capacity and cash balances in a manner consistent with a life- cycle interpretation of firm behaviour. The concavity of the revenue function is capital stock and the complementarity of the constraints drive these results. Important ramifications for empirical work on investment are discussed.
Original languageEnglish
Pages (from-to)467-502
Number of pages39
JournalJournal of Economic Dynamics and Control
Issue number3
Early online date11 Oct 2002
Publication statusPublished - Apr 2003

Keywords / Materials (for Non-textual outputs)

  • Investment
  • dividend policy
  • irreversibility
  • financial constraints


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