American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
More Haste, Less Speed? Signaling through Investment Timing
American Economic Journal: Microeconomics
vol. 9,
no. 3, August 2017
(pp. 148–86)
Abstract
We consider a cash-constrained firm learning on the value of an irreversible project at a privately known speed. Under perfect information, the optimal date of investment may be non-monotonic in the learning speed: better learning increases the value of experimenting further, but also the speed of updating. Under asymmetric information, the firm uses its investment timing to signal confidence in the project and raise cheaper capital from uninformed investors, which may generate timing distortions: investment is hurried when learning is sufficiently fast, and delayed otherwise. The severity of the cash constraint affects the magnitude of the distortion, but not its direction.Citation
Bobtcheff, Catherine, and Raphaël Levy. 2017. "More Haste, Less Speed? Signaling through Investment Timing." American Economic Journal: Microeconomics, 9 (3): 148–86. DOI: 10.1257/mic.20160200Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D25 Intertemporal Firm Choice, Investment, Capacity, and Financing
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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