We devise a model for security investment that reflects dynamic interaction between a defender, who faces uncertainty, and an attacker, who repeatedly targets the weakest link. Using the model, we derive and compare optimal security investment over multiple periods, exploring the delicate balance between proactive and reactive security investment. We show how the best strategy depends on the de...

Using an intertemporal model of investment decisions under financing constraints we show that the Euler equation approach can be used to identify the effect of financing constraints on investment returns even when the premium on external financing does not change over time. This result is made possible by the introduction of a tangibility constraint to a commonly used dynamic optimization model...

The empirical evidence that national saving and domestic investment are correlated, also known as Feldstein-Horioka (1980) Puzzle, has received significant attention in the literature since Feldstein and Horioka interpret it as an evidence of low international capital mobility. This paper argues that there is nothing mysterious in the finding that investment and saving are correlated. Since the...

In this paper we investigate three investment-consumption problems for a risk averse investor: (i) an investment only problem that involves utility from only terminal wealth, (ii) an investment-consumption problem that involves utility from only consumption, and (iii) an extended investment-consumption problem that involves utility from both consumption and terminal wealth. We model these probl...

In recent years, information technology (IT) companies have faced fierce competition across dynamic environments; as such, ways of enhancing organizational performance and obtaining competitive advantage through IT investment have become important issues for academia and businesses. Further, time delays between IT investment transfers and actual market performance make measuring the impact of I...

In this paper two models of investment stemming from the neoclassical theory are derived in a unifying framework. The Q type models view the stock market valuation of a firm as an all-encompassing variable determining its investment decisions, while the Euler equation for investment highlights the dynamic nature of firms’ decisionmaking. A sample of 779 UK manufacturing companies listed in the ...

We study the choice between public and private debt in a firm’s marginal financing decision and its effects on corporate investment. To do so, we build a dynamic model of investment and financing decisions in which firms can choose not only the amount but also the type of debt to issue to finance investment. The paper shows how various firm and industry characteristics, such as liquidation cost...