Investment, Implicit Debt Targets and Debt Maturity

Enzo Dia and Marco Rispoli

No crn2204, CRANEC - Working Papers del Centro di Ricerche in Analisi economica e sviluppo economico internazionale from Università Cattolica del Sacro Cuore, Centro di Ricerche in Analisi economica e sviluppo economico internazionale (CRANEC)

Abstract: We analyse industrial firms’ financial policies by modelling investment and debt issuances as endogenous variables. In our setup, firms issue costly short-and long-term debt to cover their capital expenditure. This strategy does not assume the existence of explicit debt targets but allows the recovery of implicit debt targets from firms’ investment and financing decisions. The empirical analysis reveals sizeable cross-sectional variation: Implicit debt targets vary with financial conditions, firm size, and investment opportunities. Furthermore, we find that the magnitude of the implicit debt target ratio is sensitive to the investment type.

Keywords: Implicit Debt Targets; Debt Maturity; Financial Cost; Maturity-matching (search for similar items in EconPapers)
JEL-codes: G14 G31 G32 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-cfn
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