Optimal Investment Timing and Volume Decisions under Debt Borrowing Constraints

Takashi Shibata () and Michi Nishihara

Chapter 6 in Recent Advances in Financial Engineering 2012:Proceedings of the International Workshop on Finance 2012, 2014, pp 117-131 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This paper examines the optimal investment threshold (timing) and volume strategies under debt borrowing constraints on the condition that an increase in investment volume increases cash inflow. As debt borrowing limits increase, the firm is more likely to prefer market debt to bank debt. Although debt borrowing constraints distort the investment threshold, they have no influence on the optimal investment volume. Debt borrowing constraints have the possibility of distorting the interactions between equity values and the investment threshold.

Keywords: Financial Engineering; Mathematical Finance; Money & Banking; Risk Management; Real Option; Corporate Finance; Computational Finance (search for similar items in EconPapers)
Date: 2014
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