Financing constraints and returns on Physical investment
نویسنده
چکیده
Using an intertemporal model of investment decisions under financing constraints we show that the Euler equation approach can be used to identify the effect of financing constraints on investment returns even when the premium on external financing does not change over time. This result is made possible by the introduction of a tangibility constraint to a commonly used dynamic optimization model of investment. Nevertheless, we have to signal that the result is only true for firms that are severely constrained since the tangibility constraint has to be binding to make the identification of financing constraints possible under the above condition.
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