Financing Investment: The Choice between Bonds and Bank Loans
AbstractWe build a dynamic model of investment and financing decisions to study the choice between bonds and bank loans in a firm's marginal financing decision and its effects on corporate investment. We show that firms with more growth options, higher bargaining power in default, operating in more competitive product markets, and facing lower credit supply are more likely to issue bonds. We also demonstrate that, by changing the cost of financing, these characteristics affect the timing of investment. We test these predictions using a sample of U.S. firms and present new evidence which supports our theory.
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Bibliographic InfoPaper provided by HEC Paris in its series Les Cahiers de Recherche with number 1010.
Length: 47 pages
Date of creation: 10 Dec 2013
Date of revision:
debt structure; capital structure; investment; credit supply; competition;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-15 (All new papers)
- NEP-BAN-2013-12-15 (Banking)
- NEP-CFN-2013-12-15 (Corporate Finance)
- NEP-FMK-2013-12-15 (Financial Markets)
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