Timing of Convertible Debt Financing and Investment

Kyoko Yagi, Ryuta Takashima, Hiroshi Takamori and Katsushige Sawaki
Additional contact information
Kyoko Yagi: University of Tokyo
Ryuta Takashima: University of Tokyo
Hiroshi Takamori: Chiba University of Commerce
Katsushige Sawaki: Nanzan University

No CARF-F-131, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: In this paper, we examine the optimal investment policy of the firm which is financed by issuing equity, straight debt and convertible debt. We extend the model in Mauer and Sarkar (2005) over financing with convertible debt. We examine two different investment policies that maximize the equity value and the firm value and show the agency cost as the difference between each policy value. Furthermore, we investigate how the issuance of convertible debt affects investment.

Pages: 16 pages
Date: 2008-08
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf131

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