TY - JOUR
T1 - Investment, firm-specific uncertainty, and financial flexibility
AU - Chortareas, Georgios
AU - Noikokyris, Emmanouil
N1 - Publisher Copyright:
© 2021
PY - 2021/12
Y1 - 2021/12
N2 - We study how financial flexibility impacts on firm's investment decisions under uncertainty. We use a comprehensive dataset covering US firms for the period 1983–2019. We develop a baseline model of investment under uncertainty and characterize the bindingness of financial constraints. We then use this model to explore firms’ investment responses under uncertainty in the presence of financial constraints under different assumptions regarding the value they assign to financial flexibility. Our results point to a negative uncertainty-investment relationship for constrained firms, withstanding the impact of the value of financial flexibility on this relationship. This negative relationship, however, is less pronounced when the value of financial flexibility is higher (especially for younger financially constrained firms).
AB - We study how financial flexibility impacts on firm's investment decisions under uncertainty. We use a comprehensive dataset covering US firms for the period 1983–2019. We develop a baseline model of investment under uncertainty and characterize the bindingness of financial constraints. We then use this model to explore firms’ investment responses under uncertainty in the presence of financial constraints under different assumptions regarding the value they assign to financial flexibility. Our results point to a negative uncertainty-investment relationship for constrained firms, withstanding the impact of the value of financial flexibility on this relationship. This negative relationship, however, is less pronounced when the value of financial flexibility is higher (especially for younger financially constrained firms).
KW - Corporate investment
KW - Financial constraints
KW - Financial flexibility
KW - Uncertainty
UR - http://www.scopus.com/inward/record.url?scp=85117718127&partnerID=8YFLogxK
U2 - 10.1016/j.jebo.2021.09.042
DO - 10.1016/j.jebo.2021.09.042
M3 - Article
AN - SCOPUS:85117718127
SN - 0167-2681
VL - 192
SP - 25
EP - 35
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
ER -