Electronic Resource
Oxford, UK and Boston, USA
:
Blackwell Publishers Ltd
Journal of business finance & accounting
27 (2000), S. 0
ISSN:
1468-5957
Source:
Blackwell Publishing Journal Backfiles 1879-2005
Topics:
Economics
Notes:
We analyze firms’ investment and abandonment decisions when both output price and investment cost change stochastically. The model allows for and makes endogenous the abandonment decision, thereby incorporating irreversibility. We show that the investment trigger may be much higher than the standard net present value rule suggests even when a substantial portion of the investment cost may be recovered. Further, we argue that the correlation between output price and investment costs significantly affects the effect of irreversibility on investment behavior. Empirical implications are discussed with extensive numerical illustrations, along with an application to the banking industry.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1111/1468-5957.00310
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