A Dynamic Model of Optimal Investment and Financial Policies with Costs of Adjustment and Leverage
In this study, a dynamic-optimizing framework is developed in which the interaction between the firm’s real and financial decisions may be examined. The derivation of the objective function is based explicitly on the maximization of shareholder wealth subject to the firm’s cashflow and capital accumulation constraints. By incorporating the financial aspects of investment into a model of optimal capital accumulation, it is shown that changes in "q" may affect the firm's capital structure as well as its investment policies. Although an increase in q generally implies an increase in investment, its impact upon capital structure is shown to depend upon how the marginal costs of leverage vary with investment. It is also demonstrated that marginal q equals a particular tax-adjusted average q which renders the relation between q and capital structure a testable hypothesis.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (215) 898-7616
Fax: (215) 573-8084
Web page: http://finance.wharton.upenn.edu/~rlwctr/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:fth:pennfi:19-85. 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: (Thomas Krichel)
If references are entirely missing, you can add them using this form.