"The Survival of Firms" [2004] ELECD 199; in Minsky, P. Hyman; Papadimitriou, B. Dimitri (eds), "Induced Investment and Business Cycles" (Edward Elgar Publishing, 2004)

Book Title: Induced Investment and Business Cycles

Editor(s): Minsky, P. Hyman; Papadimitriou, B. Dimitri

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843762164

Section: Chapter 6

Section Title: The Survival of Firms

Number of pages: 33

Extract:

6. The survival of firms

The apparatus that we have constructed, a family of average cost curves for
each plant and of planning curves for each production function, can be
modified to take into account the survival conditions for a firm. Survival
conditions are an effective constraint upon the behavior of firms. Therefore
these modified cost curves can be related to investment decisions. Survival
conditions have been defined as requiring that total money expenses be less
than or equal to total money receipts (ignoring whatever initial liquidity
the firm possesses) for every time period from the initial position to the
firm's horizon. The objective phenomenon related to the survival of a firm
is its balance sheet structure. What we will do is construct cost curves which
take into account the effects of the balance sheet structure of a firm upon
its survival conditions.
We will first operate upon the cost curves to allow for the objective costs
associated with a balance sheet structure. We will then allow for the risk
associated by the firm with different balance sheet structures. These modi-
fied cost curves enable us to investigate how balance sheet structures and
changes in financial markets affect firm's investment behavior.
The debts of a firm reflect the conditions which existed in the relevant
financial markets at the date when the debts were assumed. The survival
conditions therefore are measures of the effects that financial or money
market conditions have upon the behavior of firms. Such a generalization
...