Optimal Investment under Credit Constraints
AbstractWe analyze in this paper the interaction between financing and investment decisions in presence of debt issuance costs. We find that, while debt issuance costs reduce tax shields, tax shields induce a higher investment trigger. Moreover, the investment trigger is a non-monotonic function of the borrowing capacity. Indeed, as credit constraints relax, entrepreneurs with small debt capacity speed up investment to exploit tax shields, whereas those with large debt capacity postpone investment to minimize default risk.
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Bibliographic InfoArticle provided by ENSAE in its journal Annals of Economics and Statistics.
Volume (Year): (2009)
Issue (Month): 93-94 ()
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- Mohamed Belhaj & Nataliya Klimenko, 2012.
"On the Role of External Financing Costs in Optimal Investment Decisions,"
AMSE Working Papers, Aix-Marseille School of Economics, Marseille, France
1241, Aix-Marseille School of Economics, Marseille, France.
- Mohamed Belhaj & Nataliya Klimenko, 2012. "On the Role of External Financing Costs in Optimal Investment Decisions," Working Papers, HAL halshs-00793688, HAL.
- Kit Wong, 2010. "On the neutrality of debt in investment intensity," Annals of Finance, Springer, Springer, vol. 6(3), pages 335-356, July.
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