Investment frictions and leverage dynamics

Sergey Tsyplakov

Journal of Financial Economics, 2008, vol. 89, issue 3, 423-443

Abstract: The paper examines the effect of investment frictions on leverage dynamics, using a model of a firm whose investment projects are (1) indivisible and lumpy, and (2) subject to time-to-build. Regressions on the model-simulated data demonstrate that investment frictions can provide alternative interpretations of the observed leverages shown in the empirical literature. Cross-sectional analysis of firms in the oil and gas extraction industries, as well as analysis across all industries, reveals the evidence that small firms have more volatile investments and longer time-to-build, which may explain the observed differences in leverage dynamics across small and large firms.

Keywords: Dynamic; capital; structure; Time-to-build; Lumpy; investments; Market; timing (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-405X(08)00099-8
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:89:y:2008:i:3:p:423-443

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().