THE SIGMOIDAL INVESTMENT FUNCTION

Yuzo Honda and Kazuyuki Suzuki
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Yuzo Honda: Osaka University
Kazuyuki Suzuki: Meiji University

No 08-36, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: Based on the investment theory of Abel and Eberly (1994), we develop an analytical model of adjustment costs, which produces a sigmoidal investment function. We also estimate the piecewise linear investment function, which includes as special cases linear models, models with one threshold, the original model of Abel and Eberly, which has two thresholds, and sigmoidal models. Empirical evidence clearly supports the sigmoidal model. The threshold estimate of Tobin fs q is 0.91. The investment ratio does not respond at value of Tobin fs q below 0.91, but begins to react sensitively as Tobin fs q passes 0.91.

Keywords: Tobin fs q; financial constraints; irreversibility of investment; unlisted; Japanese firms; piecewise linear function (search for similar items in EconPapers)
JEL-codes: E22 G31 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2008-11
New Economics Papers: this item is included in nep-mac
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