Despite being rejected by finance theory, payback continues to be widelyused as a method for evaluating capital investment projects. In situations where investment can be delayed, we show that the value of waiting to invest is an increasing function of payback period. Consequently, the optimal...

Popular investment advice recommends that the stock/bond and stock/wealth ratios should rise with investor risk tolerance and investment horizon respectively, prescriptions that are difficult to reconcile with standard models of portfolio choice. Canner et al. (1997) point out that the first...

We analyze the optimal hedging policy of a firm that has flexibility in the timing of investment. Conventional wisdom suggests that hedging adds value by alleviating the under-investment problem associated with capital market frictions. However, our model shows that hedging also adds value by...

We analyze the investment timing problem of a firm subject to a financing constraint. The threat of future funding shortfalls encourages the firm to accelerate investment beyond the level that is first-best optimal. Thus, our model highlights a new way by which costly external financing can...

We analyze the dynamic investment decision of a firm subject to an endogenous financing constraint. The threat of future funding shortfalls lowers the value of the firm's timing options and encourages acceleration of investment beyond the first-best optimal level. As well as highlighting another...