Optimal capital structure and the impact of time-to-build

Elettra Agliardi and Nicos Koussis

Finance Research Letters, 2013, vol. 10, issue 3, 124-130

Abstract: We develop a dynamic investment options model with optimal capital structure and evaluate the effect of time-to-build on firm value and leverage choices. With time-to-build the firm increases initial leverage in order to reduce the impact of delayed cash flows resulting from time-to-build. The impact of time-to-build is more severe the higher the revenue volatility and competitive erosion, and when the firm issues long-term debt. Time-to-build is shown to have a substantial impact on firm values for plausible parameter values.

Keywords: Investment options; Optimal capital structure; Time-to-build; Binomial lattice models; Real options (search for similar items in EconPapers)
JEL-codes: G1 G3 G32 G33 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:10:y:2013:i:3:p:124-130

DOI: 10.1016/j.frl.2013.02.002

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