Empirical models related to business environment have a general reliability on the assumption regarding representative form that tends to be responding to prices set across the centralized markets of securities. Indeed, if all organizations are known to be having equal accessibility of capital markets, responses of firms to changes in the investment incentives based on tax or cost of capital are different only due to differences in demand of investment.
A financial structure of an organization can be considered is irrelevant towards investment as external funds have been providing a perfect substitution related to internal capital. In the general sense, with markets of perfect capital, an investment decision of organization are independent to the condition of finance. A literature review will be presented for perceiving the aim of this research, while setting a theoretical base and understanding for conducting the research ahead.
The aim of this research is to identify and evaluate financial constraints and challenges for corporate investment and distressed organizations. The research will focus on answering the following research question:
What are the financial constraints and challenges involved for distressed organizations in corporate investment?
However, an alternate agenda of research has been set on the basis of the view that external and internal capital does not have perfect substitution. As per this perception, investment is highly dependent on factors of finance like the functioning of specific markets of credit, accessibility to equity finance or new debt, or the available internal finance.
Corporate failure can be seen as a process of three dimensions that consists of the frame of time, stages of process, and states of finance. The window of time tends to be covering the duration from initial indications of slightly deteriorated performance by downward acceleration of impairment across the subsequent recovery and deepest point. This has been identified as the so- called cycle of financial distress. The theory of finance mostly tends to be ignoring these factors due to their low level of significance. Adverse establishments most end up becoming observable soon enough prior to default, when the firm ends up experiencing major distress. Deepened distress of finance tends to be triggering illiquidity in the assets of the firm, with deterioration of firm’ value below certain level of threshold.