Open AccessInvestment Options With Debt Financing Constraints
Author(s) -
Nicos Koussis,
Spiros H. Martzoukos
Publication year - 2008
Publication title -
ssrn electronic journal
Language(s) - English
Resource type - Journals
ISSN - 1556-5068
DOI - 10.2139/ssrn.972673
Subject(s) - finance , business , debt , investment (military) , debt financing , financial system , economics , politics , political science , law
A contingent claims model is used to study the impact of debt-financing constraints on firm value, optimal capital structure, the timing of investment and other variables, such as credit spreads. The optimal investment trigger follows a U shape as a function of exogenously imposed constraint. Risky, equity-financed R&D growth options increase firm value by increasing the option value on unlevered assets, while their impact on the net benefits of debt is small.
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