Investment timing under debt issuance constraint

Takashi Shibata () and Michi Nishihara

Journal of Banking & Finance, 2012, vol. 36, issue 4, 981-991

Abstract: This paper examines the optimal investment timing decision problem of a firm subject to a debt financing capacity constraint. We show that the investment thresholds have a U-shaped relation with the debt capacity constraint, in that they are increasing (decreasing) with the constraint for high (low) debt issuance capacity. Although the financing constraint distorts investment timing, it may encourage the constrained levered firm to overinvest compared with the non-constrained levered firm. Our result fits well with the related problems involving the internal financing constraint.

Keywords: Real options; Capital structure; Debt financing constraint (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:4:p:981-991

DOI: 10.1016/j.jbankfin.2011.10.014

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