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Interactions of Corporate Financing and Investment Decisions: A Dynamic Framework
Abstract
This article analyzes the interaction between a firm's dynamic investment, operating, and financing decisions in a model with operating adjustment and recapitalization costs. Using numerical analysis, we solve the model for cases that highlight interaction effects. We find that higher production flexibility (due to lower costs of shutting down and reopening a production facility) enhances the firm's debt capacity, thereby increasing the net tax shield value of debt financing. While higher financial flexibility (resulting from lower recapitalization costs) has a similar effect, production flexibility and financial flexibility are, to some extent, substitutes. We find that the impact of debt financing on the firm's investment and operating decisions is economically insignificant.
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Citations
Cites
The Determinants of Capital Structure Choice
TITMAN, S., & WESSELS, R. (1988) · The Journal of Finance · doi:10.1111/j.1540-6261.1988.tb02585.x · Cited by 6,112
Cited by
A Review of Empirical Capital Structure Research and Directions for the Future
Graham, J. R., & Leary, M. T. (2011) · Annual Review of Financial Economics · doi:10.1146/annurev-financial-102710-144821 · Cited by 547
Managerial Traits and Capital Structure Decisions
Hackbarth, D. (2008) · Journal of Financial and Quantitative Analysis · doi:10.1017/s002210900001437x · Cited by 540
Trade-Off and Pecking Order Theories of Debt
Frank, M. Z., & Goyal, V. K. (2007) · SSRN Electronic Journal · doi:10.2139/ssrn.670543 · Cited by 455
Metadata
- Authors
- MAUER, D. C., & TRIANTIS, A. J.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 1994-09
- Volume
- 49
- Issue
- 4
- Pages
- 1253-1277
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2126804458
- Cited by
- 366
- References
- 1
- FWCI
- 30.40
- Type
- journal article
- Language
- en
- Open access
- closed
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- MAUER, D. C., & TRIANTIS, A. J. (1994). Interactions of Corporate Financing and Investment Decisions: A Dynamic Framework. The Journal of Finance. https://doi.org/10.1111/j.1540-6261.1994.tb02453.x
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
