scholarly journals Stochastic Capacity Investment and Flexible Versus Dedicated Technology Choice in Imperfect Capital Markets

2011 ◽  
Author(s):  
Onur Boyabatli ◽  
Beril Toktay
Keyword(s):  
Capital Markets ◽  
Technology Choice ◽  
Capacity Investment ◽  
Stochastic Capacity ◽  
Imperfect Capital Markets

Capital Market Imperfections and the Sensitivity of Investment to Stock Prices

2009 ◽  
Vol 44 (3) ◽  
pp. 551-578 ◽  
Author(s):  
Alexei V. Ovtchinnikov ◽  
John J. McConnell
Keyword(s):  
Capital Markets ◽  
Stock Prices ◽  
Financial Distress ◽  
Stock Price ◽  
Debt Overhang ◽  
Capital Market Imperfections ◽  
Investment Opportunities ◽  
Imperfect Capital Markets ◽  
Empirical Tests ◽  
External Equity

AbstractPrior studies argue that investment by undervalued firms that require external equity is particularly sensitive to stock prices in irrational capital markets. We present a model in which investment can appear to be more sensitive to stock prices when capital markets are rational, but subject to imperfections such as debt overhang, information asymmetries, and financial distress costs. Our empirical tests support the rational (but imperfect) capital markets view. Specifically, investment–stock price sensitivity is related to firm leverage, financial slack, and probability of financial distress, but is not related to proxies for firm undervaluation. Because, in our model, stock prices reflect the net present values (NPVs) of investment opportunities, our results are consistent with rational capital markets improving the allocation of capital by channeling more funds to firms with positive NPV projects.

scholarly journals EFFECT OF SALVAGE MARKET ON STRATEGIC TECHNOLOGY CHOICE AND CAPACITY INVESTMENT DECISION OF FIRM UNDER DEMAND UNCERTAINTY

2016 ◽  
Vol 17 (1) ◽  
pp. 140-155 ◽  
Author(s):  
Mohammad Ali KASHEFI
Keyword(s):  
Demand Uncertainty ◽  
Numerical Study ◽  
Investment Decision ◽  
Secondary Market ◽  
Theoretic Model ◽  
Technology Choice ◽  
Capacity Investment ◽  
Flexible Technology ◽  
Game Theoretic ◽  
Unique Nash Equilibrium

This paper examines the effect of salvage market on technology choice and capacity investment decision of two firms that compete on quantity under demand uncertainty. A game theoretic model applies such that firms choose their production technology between two alternatives: flexible versus inflexible production process. Then they decide on the amount of capacity investment: flexible firm makes decision about general and specific components and inflexible firm just about unified component. One stage forward both enter the primary market in which demand is uncertain and play a la Cournot and finally, flexible firm will be able to sell its unsold general components in the secondary market with a deterministic price. Numerical study was employed to observe equilibrium behavior of firms. Findings demonstrate that with symmetric parameterization there is a unique Nash equilibrium in which both firms choose inflexible technology while applying asymmetric parameters has the potential to form two types of equilibrium when both firms choose inflexible technology or only one firm chooses flexible technology. Moreover, it is shown that there is a cost threshold that could shift the equilibria.

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