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- Publisher Website: 10.1016/j.econmod.2009.07.028
- Scopus: eid_2-s2.0-71149089180
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Article: The effects of irreversibility on the timing and intensity of lumpy investment
Title | The effects of irreversibility on the timing and intensity of lumpy investment |
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Authors | |
Keywords | Investment intensity Investment timing Irreversibility Real options |
Issue Date | 2010 |
Publisher | Elsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ecmod |
Citation | Economic Modelling, 2010, v. 27 n. 1, p. 97-102 How to Cite? |
Abstract | This paper examines how changes in irreversibility of investment affect the timing and intensity of lumpy investment. We develop a continuous-time model wherein a firm is endowed with a perpetual option to invest in a project at any time by incurring a partially reversible investment cost at that instant. The amount of the investment cost is directly related to the intensity of investment that is endogenously chosen by the firm at the instant when the investment option is exercised. We show that higher irreversibility of investment induces the firm to raise its optimal investment trigger, thereby deferring the undertaking of the project. Furthermore, we show that changes in irreversibility of investment have no impact on the firm's optimal investment intensity due to two opposing effects that exactly offset each other. Finally, we show that higher irreversibility of investment reduces the value of the investment option and, therefore, makes the firm less valuable. © 2009 Elsevier B.V. All rights reserved. |
Persistent Identifier | http://hdl.handle.net/10722/85537 |
ISSN | 2023 Impact Factor: 4.2 2023 SCImago Journal Rankings: 1.335 |
ISI Accession Number ID | |
References |
DC Field | Value | Language |
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dc.contributor.author | Wong, KP | en_HK |
dc.date.accessioned | 2010-09-06T09:06:19Z | - |
dc.date.available | 2010-09-06T09:06:19Z | - |
dc.date.issued | 2010 | en_HK |
dc.identifier.citation | Economic Modelling, 2010, v. 27 n. 1, p. 97-102 | en_HK |
dc.identifier.issn | 0264-9993 | en_HK |
dc.identifier.uri | http://hdl.handle.net/10722/85537 | - |
dc.description.abstract | This paper examines how changes in irreversibility of investment affect the timing and intensity of lumpy investment. We develop a continuous-time model wherein a firm is endowed with a perpetual option to invest in a project at any time by incurring a partially reversible investment cost at that instant. The amount of the investment cost is directly related to the intensity of investment that is endogenously chosen by the firm at the instant when the investment option is exercised. We show that higher irreversibility of investment induces the firm to raise its optimal investment trigger, thereby deferring the undertaking of the project. Furthermore, we show that changes in irreversibility of investment have no impact on the firm's optimal investment intensity due to two opposing effects that exactly offset each other. Finally, we show that higher irreversibility of investment reduces the value of the investment option and, therefore, makes the firm less valuable. © 2009 Elsevier B.V. All rights reserved. | en_HK |
dc.language | eng | en_HK |
dc.publisher | Elsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ecmod | en_HK |
dc.relation.ispartof | Economic Modelling | en_HK |
dc.subject | Investment intensity | en_HK |
dc.subject | Investment timing | en_HK |
dc.subject | Irreversibility | en_HK |
dc.subject | Real options | en_HK |
dc.title | The effects of irreversibility on the timing and intensity of lumpy investment | en_HK |
dc.type | Article | en_HK |
dc.identifier.openurl | http://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0264-9993&volume=27&issue=1&spage=97&epage=102&date=2010&atitle=The+effects+of+irreversibility+on+the+timing+and+intensity+of+lumpy+investment | en_HK |
dc.identifier.email | Wong, KP: kpwongc@hkucc.hku.hk | en_HK |
dc.identifier.authority | Wong, KP=rp01112 | en_HK |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1016/j.econmod.2009.07.028 | en_HK |
dc.identifier.scopus | eid_2-s2.0-71149089180 | en_HK |
dc.identifier.hkuros | 168280 | en_HK |
dc.relation.references | http://www.scopus.com/mlt/select.url?eid=2-s2.0-71149089180&selection=ref&src=s&origin=recordpage | en_HK |
dc.identifier.volume | 27 | en_HK |
dc.identifier.issue | 1 | en_HK |
dc.identifier.spage | 97 | en_HK |
dc.identifier.epage | 102 | en_HK |
dc.identifier.isi | WOS:000273705100012 | - |
dc.publisher.place | Netherlands | en_HK |
dc.identifier.scopusauthorid | Wong, KP=7404759417 | en_HK |
dc.identifier.citeulike | 5770256 | - |
dc.identifier.issnl | 0264-9993 | - |