How and When Do Firms Adjust Their Investments Toward Targets?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractDue to adjustment costs, firms' only partially adjust toward desired investment levels. By exploiting unique survey data on firms' desired investments, we examine how and when firms adjust their investments toward stated plans (targets). More precisely, we examine how financing costs due to asymmetric information, disruption costs, and costs due to asset irreversibility influence firms' adjustment costs and thus adjustment behavior. We find that firms with sufficient cash flows to finance all desired investments adjust significantly faster toward targets than firms with insufficient cash flows. Moreover, firms with either minor investment targets, a large fraction of desired replacement investments or low asset irreversibility adjust within shorter time compared to firms with major investment plans, capacity expansion targets or high asset irreversibility, respectively. Finally, although several prior studies find that the financial crisis of 2008 and 2009 reduced firms' realized investment spending, our results indicate that firms' speed of adjustment toward target investments was not influenced by the crisis.JEL classification: D92; E22; G31; G32.

The Flexible Acceleration Mechanism of China’s Capital Adjustment with the Goal of Consumption-Driven Sustainable Growth

“…In combination with the current situation of China's surplus in Figure 5, we can ascertain that 22% of the current excess capacity can be removed per period. We further expand on these findings through employing Klepsch and Elsas' concept of the half cycle [21]. The time needed to achieve half of the capital adjustment goal is calculated, and its calculation formula is ln(0.5) ln ( ) λ ; so, here we get ln(0.5) ln(0.78)=2.79 , which suggests that it will take at least 2.79 years to remove half of the current excess.…”

“…Irrational invalid investing is more likely to be short-term behavior, so interest rates will have different effects on long-term and short-term investments. Based on this, the discussion of the soft budget constraints will adopt the error correction model (ECM) for the comparative analysis of Equation (21) in the long term and short term.…”

“…where 35is the error correction form of Equation (21), and ecm t−1 is the error correction term. If the long-term equilibrium relation I t = k 0 + k 1 Y e t + k 2 r e t + u t is established, ecm t−1 reflects the short-term deviation of the investment's long-term equilibrium path, and its coefficient (β 1 − 1) indicates the adjustment speed.…”

“…Subsequently, Lucas [17] and Tybout [18] analyzed the impact of demand uncertainty and credit rationing on the adjustment cost, respectively, which further expanded the flexibility of the model. At this point, the flexible and accelerated investment model based on the adjustment cost had been basically formed, which laid a theoretical foundation for a follow-up study [19][20][21] about investment. The so-called flexibility is embodied in two aspects.…”

Trade Credit or Bank Credit? – Lessons Learned from Hungarian Firms between 2010 and 2015

“…The median of the AP/Sales ratio was 5 per cent, and that of the AR/Sales around 8.4 per cent. In empirical literature on corporate finance, the variables measuring the presence of financial constraints are compared by Farre-Mensa and Ljungqvist (2014) and Elsas and Klepsch (2016). Of the variables used by the authors, we measure the presence of constraints on access to short-term bank credit against the three most common variables: the Kaplan-Zingales, the Whited-Wu and the Cleary indices for unlisted firms.…”