IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Credit insurance and investment: A contingent claims analysis approach

  • Lai, Van Son
  • Soumaré, Issouf
Registered author(s):

    This paper develops a continuous-time contingent claims analysis model to study the impact of credit insurance on investment. We find that under shareholders' wealth maximization, the presence of credit insurance yields high investment relative to the level of investment without credit insurance. We also obtain a U shape relationship between the project debt maturity and its investment size, with more investment undertaken with short and long maturities and less investment with intermediate maturities.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/B6W4W-4YB792N-3/2/7bc669cd9bf80abcd7d9a4aafd469765
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 19 (2010)
    Issue (Month): 2 (March)
    Pages: 98-107

    as
    in new window

    Handle: RePEc:eee:finana:v:19:y:2010:i:2:p:98-107
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620166

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-67, May.
    2. Barclay, Michael J & Smith, Clifford W, Jr, 1995. " The Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 50(2), pages 609-31, June.
    3. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    4. Jarrow, Robert A & Turnbull, Stuart M, 1995. " Pricing Derivatives on Financial Securities Subject to Credit Risk," Journal of Finance, American Finance Association, vol. 50(1), pages 53-85, March.
    5. McDonald, Robert L & Siegel, Daniel R, 1985. "Investment and the Valuation of Firms When There Is an Option to Shut Down," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 331-49, June.
    6. Varouj A. Aivazian & Ying Ge & Jiaping Qiu, 2005. "Debt Maturity Structure and Firm Investment," Financial Management, Financial Management Association, vol. 34(4), Winter.
    7. Dan Galai & Zvi Wiener, 2003. "Government Support of Investment Projects in the Private Sector: A Microeconomic Approach," Financial Management, Financial Management Association, vol. 32(3), Fall.
    8. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    9. Shane A. Johnson, 2003. "Debt Maturity and the Effects of Growth Opportunities and Liquidity Risk on Leverage," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 209-236.
    10. Flannery, Mark J, 1986. " Asymmetric Information and Risky Debt Maturity Choice," Journal of Finance, American Finance Association, vol. 41(1), pages 19-37, March.
    11. Ju, Nengjiu & Parrino, Robert & Poteshman, Allen M. & Weisbach, Michael S., 2005. "Horses and Rabbits? Trade-Off Theory and Optimal Capital Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(02), pages 259-281, June.
    12. Emery, Gary W, 2001. "Cyclical Demand and the Choice of Debt Maturity," The Journal of Business, University of Chicago Press, vol. 74(4), pages 557-90, October.
    13. Nengjiu Ju & Hui Ou-Yang, 2006. "Capital Structure, Debt Maturity, and Stochastic Interest Rates," The Journal of Business, University of Chicago Press, vol. 79(5), pages 2469-2502, September.
    14. Yoram Kroll & Assaf Cohen, 2000. "Alternative Solutions to Underinvestment, Under Equity and Credit Rationing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3-4), pages 395-421.
    15. Hayne E. Leland., 1998. "Agency Costs, Risk Management, and Capital Structure," Research Program in Finance Working Papers RPF-278, University of California at Berkeley.
    16. Robert C. Merton & Zvi Bodie, 1992. "On the Management of Financial Guarantees," Financial Management, Financial Management Association, vol. 21(4), Winter.
    17. Robert Parrino & Allen M. Poteshman & Michael S. Weisbach, 2002. "Measuring Investment Distortions when Risk-Averse Managers Decide Whether to Undertake Risky Projects," NBER Working Papers 8763, National Bureau of Economic Research, Inc.
    18. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
    19. Diamond, Douglas W, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 709-37, August.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:19:y:2010:i:2:p:98-107. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.