The Value of Waiting to Invest

McDonald, Robert; Siegel, Daniel R.

doi:10.3386/w1019

Cited by 721 publications

(1,081 citation statements)

References 4 publications

Supporting

Mentioning

1,023

Contrasting

Unclassified

Order By: Relevance

“…Although intuitively we are inclined to conclude that the higher the uncertainty, the lower the propensity of enterprises to embark on a new investment, this relationship is not unambiguous in the light of the theory (see, on one hand, e.g. Hartman, 1972;Abel, 1983;Lee and Shin, 2000 and, on the other hand, McDonald andSiegel, 1987 or Abel et. al, 1996).…”

Section: Channels Of the Impact Of Inflation On Corporate Investmentmentioning

confidence: 95%

Does Inflation Harm Corporate Investment? Empirical Evidence from OECD Countries

Ciżkowicz

Rzońca

2013

Economics

View full text Add to dashboard Cite

Theoretical models point at various channels of the impact of inflation on corporate investment. This article attempts to answer the question what the direction and strength of this possible impact is, examining the relationship between corporate investment and inflation on the sample of 21 OECD countries in the years 1960-2005. The obtained negative relationship, statistically and economically significant, proves robust to changes in the specification of the estimated equation, estimators, frequency of variables used in the study and analysed period. Moreover, the obtained results suggest a nonlinear character of this relationship: the marginal effect on corporate investment is higher at inflation rates between 3 and 5.5 per cent. These results suggest that the impact of inflation on corporate investment dynamics may be the source of the nonlinear nature of the relationship between GDP growth and inflation identified in previous empirical studies. Finally, taking into account the direct impact of inflation on investment, variables approximating the cost of capital utilisation prove to be statistically insignificant determinants of corporate investment. JEL E22 C23 D22 D81 E31 F44

show abstract

Section: Channels Of the Impact Of Inflation On Corporate Investmentmentioning

confidence: 95%

Does Inflation Harm Corporate Investment? Empirical Evidence from OECD Countries

Ciżkowicz

Rzońca

2013

Economics

View full text Add to dashboard Cite

show abstract

“…Put differently, the development decision is not an ''all or nothing'' type of decision. 2 For additional details on this literature, see McDonald and Siegel (1986), Pindyck (1991), Dixit and Pindyck (1994), and Hubbard (1994). the question of land development under uncertainty.…”

Section: Introductionmentioning

confidence: 98%

Alternate decision rules, the flexibility premium, and land development over time and under uncertainty

Batabyal

2004

Stochastic Environmental Research and Risk Assessment (SERRA)

View full text Add to dashboard Cite

The Arrow-Fisher-Henry (AFH) analysis of land development under uncertainty has been conducted in a two period model. others have analyzed the question of land development under uncertainty in a multi-period setting. We extend this literature by examining the role that time independent and time dependent decision rules play in the decision to develop land over time and under uncertainty. We first construct a dynamic and stochastic model of decision making in the context of land development. Next, we use this model to analyze the expected profit of a landowner when this landowner uses, respectively, time independent and time dependent decision rules. Finally, we compare and contrast the properties of time independent and time dependent decision rules and we discuss the magnitude of the premium stemming from the maintenance of temporal flexibility in decision making.

show abstract

“…Loosely speaking, the idea of real option theory is that an investor who is given an opportunity in investing into a project basically holds a perpetual call option on the value of the business with a strike price that is equal to the sunk costs, installment for example. Project evaluation using real options has been studied by many authors in the past decades, see Dixit and Pindyck (1994), Ingersoll and Ross (1992), McDonald and Siegel (1986), Schwartz (2004) etc. In this article, we investigate the problem of business privatization with flexible investment in a combined real option-stochastic optimal control framework.…”

Section: Introductionmentioning

confidence: 99%

Privatization of businesses and flexible investment: a real option approach

Chavanasporn

Ewald

2011

Decisions Econ Finan

View full text Add to dashboard Cite

In this article, we study the situation, where the opportunity is given to invest into a government-owned business by partial privatization to a private company. After payment of an initial installment cost, the private company's investments are flexible within a range [0, k] until the business is completed. We model the problem in a real option framework, using geometric mean reversion to describe the dynamics of the business. We determine the optimal time for the private company to enter and pay the initial installment cost as well as the optimal dynamic investment strategy that it follows afterward. For the latter, analytic solution cannot be obtained. We use quadratic splines in order to solve the corresponding dynamic programming problem. Finally, we determine the optimal degree of privatization in our model from the government's perspective.

show abstract

The Value of Waiting to Invest

Cited by 721 publications

References 4 publications

Does Inflation Harm Corporate Investment? Empirical Evidence from OECD Countries

Does Inflation Harm Corporate Investment? Empirical Evidence from OECD Countries

Alternate decision rules, the flexibility premium, and land development over time and under uncertainty

Privatization of businesses and flexible investment: a real option approach

Contact Info

Product

Resources

About