Authors: Jamel E. Chichti; Walid Mansour
Addresses: Ecole Supérieure de Commerce de Tunis, University of La Manouba, 1020 – Campus Universitaire de la Manouba, Tunisia ' Islamic Economics Institute, King Abdulaziz University, BO 80214, Jeddah, 21589, Kingdom of Saudi Arabia
Abstract: This paper examines investment lumpiness under incentive restrictions. When financial frictions enter the picture into the neoclassical framework, investment is no longer smooth due to the lump-sum costs that the firm incurs when raising costly external finance. Whited (2006) shows that the firm finds it optimal to not invest to avoid paying such costs. Investment is accordingly characterised by lumpiness. We estimate a binomial logit model for the investment spike (i.e., large investment) using a sample of nine OECD European countries. We find that our proxies for net worth and future growth opportunities impact positively the probability of investment spike. The paper further xtends the analysis to encompass some behavioural aspects.
Keywords: investment lumpiness; financing constraints; net worth; Europe; incentive restrictions; OECD countries; future growth opportunities; investment spike; large investments.
International Journal of Behavioural Accounting and Finance, 2012 Vol.3 No.3/4, pp.145 - 162
Published online: 10 Apr 2015 *Full-text access for editors Access for subscribers Purchase this article Comment on this article