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Corporate Investment Decisions with Switch Flexibility, Constraints, and Path-dependency

Martzoukos, Spiros; Trigeorgis, Lenos; Pospori, Nayia

Corporate Investment Decisions with Switch Flexibility, Constraints, and Path-dependency Thumbnail


Authors

Spiros Martzoukos

Nayia Pospori



Abstract

We model sequential, corporate investment decisions with time-to-build delays, operating scale mode switching, operating constraints, and path dependencies. We also account for stochastic salvage (abandonment) values that are utilization (path) dependent. Our results highlight a key link between economic depreciation, stochastic salvage values and operational flexibility with asymmetric switching costs. We further identify conditions uncovering a non-conventional impact of resulting path-dependencies on the investment-uncertainty relationship: higher uncertainty and lower asset return shortfall (“dividend yield”) may expedite, rather than delay, corporate investment. High switching costs, operating constraints, and economic depreciation may reduce or eliminate these non-conventional effects.

Citation

Martzoukos, S., Trigeorgis, L., & Pospori, N. (2024). Corporate Investment Decisions with Switch Flexibility, Constraints, and Path-dependency. Review of Quantitative Finance and Accounting, https://doi.org/10.1007/s11156-023-01234-4

Journal Article Type Article
Acceptance Date Nov 23, 2023
Online Publication Date Jan 10, 2024
Publication Date Jan 10, 2024
Deposit Date Nov 23, 2023
Publicly Available Date Jan 19, 2024
Journal Review of Quantitative Finance and Accounting
Print ISSN 0924-865X
Electronic ISSN 1573-7179
Publisher Springer
Peer Reviewed Peer Reviewed
DOI https://doi.org/10.1007/s11156-023-01234-4
Public URL https://durham-repository.worktribe.com/output/1948169

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