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Title:Estimating investment equations in imperfect capital markets PDF Logo
Authors:Hüttel, Silke
Mußhoff, Oliver
Odening, Martin
Zinych, Nataliya
Issue Date:2008
Series/Report no.:SFB 649 discussion paper 2008,016
Abstract:Numerous studies have tried to provide a better understanding of firm-level investment behaviour using econometric models. The model specification of more recent studies has been based on two main approaches. The first, the real options approach, focuses on irreversibility and uncertainty in perfect capital markets; of particular interest is the range of inaction caused by sunk costs. The second, the neo-institutional finance theory, emphasises capital market imperfections and firms' released liquidity constraints. Empirical applications of the latter theory often refer to linear econometric models to prove these imperfections and thus do not account for the range of inaction caused by irreversibility. In this study, a generalised Tobit model based on an augmented q model is developed with the intention of considering the coexistence of irreversibility and capital market imperfections. Simulation-based experiments allow investigating the properties of this model. It can be shown how disregarding irreversibility reduces effectiveness of simpler linear models.
Subjects:q model
uncertainty
capital market imperfections
generalised Tobit model
JEL:D81
D92
C51
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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