THE EFFECTS OF INCLUDING BANKRUPTCY ON DYNAMIC INVESTMENT DECISIONS
By: Novak, Frank S.; Schnitkey, Gary D.
Novak, Frank S.; Schnitkey, Gary D., THE EFFECTS OF INCLUDING BANKRUPTCY ON DYNAMIC INVESTMENT DECISIONS, Journal of Agricultural and Resource Economics, Volume 19, Issue 2, December 1994, Pages 255-266
This article evaluates the effects of including the costs of bankruptcy in a dynamic model of off-farm investment decisions using a stochastic dynamic programming (SDP) model which incorporates the stochastic dynamic nature of investment returns and the interrelationships between financial structure and investment decisions. Our results suggest that in the presence of bankruptcy, optimal investment decisions are affected by financial structure and financial market conditions. Ignoring bankruptcy costs in determining investment decisions results in a high probability of bankruptcy.