Dynamic Models of Investment Distortions

Dynamic Models of Investment Distortions This paper studies the interaction between corporate financing decisions and investment decisions in a dynamic framework. When the production decision involves an expansion option, the firm trades off tax benefits of debt against two costs of debt financing, namely the investment distortion related to exercise of the expansion option and the loss of a valuable expansion opportunity if the firm defaults. The optimal capital structure is all equity for firms with more value in growth options (or intangible assets) and tends to involve debt financing for firms with more value in tangible assets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Dynamic Models of Investment Distortions

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Kluwer Academic Publishers
Copyright © 2005 by Springer Science + Business Media, Inc.
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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