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Capital Structure and Investment Dynamics with Fire Sales

Author

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  • Gale, Douglas

    (NYU)

  • Piero, Gottardi

    (European University Institute)

Abstract

The financial crisis of 2007-2008 and the current sovereign debt crisis in Europe have focused attention on the macroeconomic consequences of debt financing. In this paper, we turn our attention to the use of debt finance in the corporate sector and study the general equilibrium effects of debt finance on investment and growth. More precisely, we analyze underinvestment in equilibrium when markets are incomplete and firms use debt and equity to finance investment.

Suggested Citation

  • Gale, Douglas & Piero, Gottardi, 2013. "Capital Structure and Investment Dynamics with Fire Sales," Working Papers 13-21, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:13-21
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    File URL: http://fic.wharton.upenn.edu/fic/papers/13/13-21.pdf
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    References listed on IDEAS

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    Cited by:

    1. Finocchiaro, Daria & Lombardo, Giovanni & Mendicino, Caterina & Weil, Philippe, 2018. "Optimal inflation with corporate taxation and financial constraints," Journal of Monetary Economics, Elsevier, vol. 95(C), pages 18-31.

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    More about this item

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D6 - Microeconomics - - Welfare Economics
    • 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

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