The impact of assets-in-place on corporate financing and investment decisions

Saskia Clausen and Christian Flor

Journal of Banking & Finance, 2015, vol. 61, issue C, 64-80

Abstract: In a dynamic setting with asymmetric information we consider firms’ debt-equity choice and investment timing. We extend recent research by adding an abandonment option and assets-in-place and we show that these extensions make debt more attractive. This implies, e.g., that mature firms (with larger assets-in-place) mainly use debt financing, whereas young high-growth firms (without assets-in-place) frequently use equity financing and signal their type by early investment. Simulation analyses confirm this and our model is thus able to explain empirical patterns which contradict the static pecking order theory.

Keywords: Dynamic investment model; Asymmetric information; Debt-equity choice; Limited liability; Assets-in-place (search for similar items in EconPapers)
JEL-codes: G14 G31 G32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:61:y:2015:i:c:p:64-80

DOI: 10.1016/j.jbankfin.2015.08.020

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