A firm that cannot raise funds in the financial markets in order to finance positive NPV projects is said to face soft capital rationing.

Question

Quizplus · Accepted Answer

Soft capital rationing occurs when constraints on funding are imposed internally by the firm's management, whereas the inability to raise funds in the financial markets to finance positive NPV projects is referred to as hard capital rationing, which is externally imposed.

A Firm That Cannot Raise Funds in the Financial Markets