Working Paper: NBER ID: w1017
Authors: Jeffrey I. Bernstein; M. Isha Nadiri
Abstract: In this stuy a dynamic model of firm behavior is developed which integrates real and financial decisions. The model combines the effects of capital structure and input adjustirent costs on the process of capital accumulation. The existence, uniqueness and stability conditions of the long-run eguilibrium and the dynamic properties of the factor demand are explored. The equations derived from the theoretical model are estimated using firm cross-section time series data. The results indicate that for both Plant and Equipment (P&E) and Research and Development (R&D),the debt-eguity ratio significantly affects the investment demands and the elasticities are highly inelastic. The effect is stronger for P&E than for R&D capital in the long run, while the effects on P&E and R&D investment are quite similar in the short run.
Keywords: capital structure; investment; plant and equipment; research and development
JEL Codes: D24; E22; G31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| debt-equity ratio (G32) | investment demands for PE (G31) |
| debt-equity ratio (G32) | investment demands for RD (O32) |
| debt-equity ratio (G32) | investment demands for PE (long run) (G31) |
| debt-equity ratio (G32) | investment demands for RD (long run) (O39) |
| investment demands for PE (G31) | investment demands for RD (O32) |