Browsing by Author "Bond, Stephen R."

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    Conditional Investment-Cash Flow Sensitivities and Financing Constraints
    (2010-05-17T09:37:24Z) Bond, Stephen R.; Söderbom, Måns
    We study the sensitivity of investment to cash flow conditional on measures of q in an adjustment costs framework with costly external nance. We present a benchmark model in which this conditional investment-cash flow sensitivity increases monotonically with the cost premium for external - nance, for rms in a nancially constrained regime. Using simulated data, we show that this pattern is found in linear regressions that relate invest- ment rates to measures of both cash flow and average q. We also derive a structural equation for investment from the rst order conditions of our model, and show that this can be estimated directly.
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    Pursuing the Wrong Options? Adjustment Costs and the Relationship between Uncertainty and Capital Accumulation
    (2010-05-17T09:48:44Z) Bond, Stephen R.; Söderbom, Måns; Wu, Guiying
    Abel and Eberly (1999) show that the effect of uncertainty on long run capital accumulation is ambiguous in a real options model with irreversible investment. We show that a higher level of uncertainty tends to reduce expected capital stock levels in a model with strictly convex adjustment costs. Simulations suggest that this negative impact of uncertainty on cap- ital accumulation may be substantial. We also provide some intuition for this result.