There is a robust literature on the relationship between financing constraints and real investment. Little has been said on the relationship between financing constraints and capital stock in the long run. This note focuses on this last issue. To keep the model tractable, we assume that the firm employs a single input, and this input is used as collateral. We get three main results. Firstly, we show that the optimal capital stock chosen by a firm is affected by financing constraints even when they are slack at the current time. Secondly, we show that the net present value of the potentially constrained firm is always smaller than the one of the never constrained firm. Finally, we find that in the presence of latent financing constraints the firm does not limit itself to reducing its investment when the upper limit is reached. What it actually does is to lower its long run optimal capital stock, amplifying the effects of constraints in the long run. © 2012 Elsevier B.V.

A note on optimal capital stock and financing constraints / Saltari, Enrico; G., Travaglini. - In: ECONOMIC MODELLING. - ISSN 0264-9993. - STAMPA. - 29:4(2012), pp. 1177-1180. [10.1016/j.econmod.2012.04.006]

A note on optimal capital stock and financing constraints

SALTARI, ENRICO;
2012

Abstract

There is a robust literature on the relationship between financing constraints and real investment. Little has been said on the relationship between financing constraints and capital stock in the long run. This note focuses on this last issue. To keep the model tractable, we assume that the firm employs a single input, and this input is used as collateral. We get three main results. Firstly, we show that the optimal capital stock chosen by a firm is affected by financing constraints even when they are slack at the current time. Secondly, we show that the net present value of the potentially constrained firm is always smaller than the one of the never constrained firm. Finally, we find that in the presence of latent financing constraints the firm does not limit itself to reducing its investment when the upper limit is reached. What it actually does is to lower its long run optimal capital stock, amplifying the effects of constraints in the long run. © 2012 Elsevier B.V.
brownian motion; capital stock; capital stock financing constraints brownian motion uncertainty; financing constraints; uncertainty
01 Pubblicazione su rivista::01a Articolo in rivista
A note on optimal capital stock and financing constraints / Saltari, Enrico; G., Travaglini. - In: ECONOMIC MODELLING. - ISSN 0264-9993. - STAMPA. - 29:4(2012), pp. 1177-1180. [10.1016/j.econmod.2012.04.006]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/446033
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