EconPapers    
Economics at your fingertips  
 

Investment Timing, Liquidity, and Agency Costs of Debt

Stefan Hirth and Marliese Uhrig-Homburg
Additional contact information
Marliese Uhrig-Homburg: Chair of Financial Engineering and Derivatives, Postal: Universität Karlsruhe (TH), Germany

No F-2009-04, Finance Research Group Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: This paper examines the effect of debt and liquidity on corporate investment in a continuous- time framework. We show that stockholder-bondholder agency conflicts cause investment thresholds to be U-shaped in leverage and decreasing in liquidity. In the absence of tax effects, we derive the optimal level of liquid funds that eliminates agency costs by implementing the first-best investment policy for a given capital structure. In a second step we generalize the framework by introducing a tax advantage of debt, and we show that an interior solution for liquidity and capital structure optimally trades off tax benefits and agency costs of debt

Keywords: investment timing; liquidity; agency costs of debt; capital structure; real options (search for similar items in EconPapers)
Pages: 48 pages
Date: 2009-05-05
New Economics Papers: this item is included in nep-bec and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.hha.dk/afl/wp/fin/F_2009_04.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.hha.dk:80 (No such host is known. )

Related works:
Journal Article: Investment timing, liquidity, and agency costs of debt (2010) Downloads
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:hhb:aarbfi:2009-04

Access Statistics for this paper

More papers in Finance Research Group Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies The Aarhus School of Business, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Helle Vinbaek Stenholt ( this e-mail address is bad, please contact ).

 
Page updated 2024-06-10
Handle: RePEc:hhb:aarbfi:2009-04