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G. Feichtinger, R.F. Hartl, P.M. Kort, V.M. Veliov:
"Financially constrained capital investments: the effects of disembodied and embodied technological progress";
Journal of Mathematical Economics, 44 (2008), 5-6; S. 459 - 483.

Empirical studies stress the significance of financing constraints in
business investment. Especially high tech investment is likely to be
affected by capital market imperfections. The reason is that their returns are highly uncertain so that it is difficult to get outside finance for this kind of investment. This paper studies the combined effect of technological progress and the capital market being imperfect on the firm's investment behavior. We show that it is crucial to make a distinction between embodied and disembodied
technological progress. Embodied technological progress affects only the capital goods built after the technological breakthrough while disembodied technological progress influences the productivity of all capital goods installed. It is shown that where disembodied technological progress leads to a positive anticipation phase before the technological breakthrough occurs, a negative anticipation phase will occur before an embodied technological breakthrough. During this negative anticipation phase the firm builds up a stock of liquid financial assets in order to be able to finance increased
investments in the improved capital goods from after the technological breakthrough.

Capital investment, technological progress, age-structured models, economic dynamics