Financing uncertain growth

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

6 Scopus Citations
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Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)241-261
Journal / PublicationJournal of Corporate Finance
Volume41
Online published26 Sep 2016
Publication statusPublished - Dec 2016

Abstract

We examine interactions between investment and financing decisions in a dynamic model where the firm can alter the mix of debt and equity financing and exercise a randomly arriving and potentially short lived growth option. The firm will typically finance the exercise of the growth option with equity and may wait years before recapitalizing to a higher debt level. The lack of coordination between the timing of investment and debt financing helps explain a number of findings in the empirical literature, including violation of the financing pecking order, debt conservatism, apparent market timing of security issues, and more pronounced underperformance following equity issues than debt issues.

Research Area(s)

  • Investment and financing interactions, Security issue timing, Uncertain growth options

Citation Format(s)

Financing uncertain growth. / Li, Jay Y; Mauer, David C.

In: Journal of Corporate Finance, Vol. 41, 12.2016, p. 241-261.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review