Investment timing under debt issuance constraint |
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Authors: | Takashi Shibata Michi Nishihara |
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Affiliation: | 1. Graduate School of Social Sciences, Tokyo Metropolitan University, 1-1 Minami-osawa, Hachioji, Tokyo 192-0397, Japan;2. Graduate School of Economics, Osaka University, 1-7 Machikaneyama-cho, Toyonaka, Osaka 560-0043, Japan |
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Abstract: | This paper examines the optimal investment timing decision problem of a firm subject to a debt financing capacity constraint. We show that the investment thresholds have a U-shaped relation with the debt capacity constraint, in that they are increasing (decreasing) with the constraint for high (low) debt issuance capacity. Although the financing constraint distorts investment timing, it may encourage the constrained levered firm to overinvest compared with the non-constrained levered firm. Our result fits well with the related problems involving the internal financing constraint. |
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Keywords: | G31 G32 |
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