W study the effect of financial risk on the economic evaluation of a project with capacity decisions. Capacity decisions have an important effect on the project’s value through the up-front investment, the associated operating cost, and constraints on output. However, increased scale also affects the financial risk of the project through its effect on the operating leverage of the investment. A...

By postulating a simple stochastic process for the firm’s cash flows in which the drift and the variance of the process depend on the investment policy of the firm, we develop a theoretical model, determine the optimal investment policy and, given this policy, calculate the ratio of the current value of the firm and the current cash flow which we call the “cash flow multiplier”. The main contri...

This study aims to investigate the impact of deviation from optimal level of cash holdings on adverse selection and moral hazard problems. The data set includes 106 listed firms of Tehran Stock Exchange during the period of 2005-2016 and both panel data and cross-sectional data multivariate regressions were utilized in different stage of analysis to test the hypotheses. According to the optimal...

The short-lived oil price shock at the beginning of the Persian Gulf Crisis created a natural experiment. Oil producers were left with an unexpected, one-time cash flow shock and unchanged investment opportunities. We examine how they spent this free cash flow. Most firms followed an expansionary path, but there is considerable variation in how the cash flow was allocated. Both costly external ...