TY - JOUR
T1 - Interactions of corporate financing and investment decisions
T2 - The effects of agency conflicts
AU - Childs, Paul D.
AU - Mauer, David C.
AU - Ott, Steven H.
PY - 2005/6
Y1 - 2005/6
N2 - We examine interactions between flexible financing and investment decisions in a model with stockholder-bondholder conflicts over investment policy. We find that financial flexibility encourages the choice of short-term debt thereby dramatically reducing the agency costs of under- and overinvestment. However, the reduction in agency costs may not encourage the firm to increase leverage, since the firm's initial debt level choice depends on the type of growth options in its investment opportunity set. The model has a number of testable predictions for the joint choice of leverage and maturity, and how these choices interact with a firm's growth opportunities.
AB - We examine interactions between flexible financing and investment decisions in a model with stockholder-bondholder conflicts over investment policy. We find that financial flexibility encourages the choice of short-term debt thereby dramatically reducing the agency costs of under- and overinvestment. However, the reduction in agency costs may not encourage the firm to increase leverage, since the firm's initial debt level choice depends on the type of growth options in its investment opportunity set. The model has a number of testable predictions for the joint choice of leverage and maturity, and how these choices interact with a firm's growth opportunities.
KW - Capital structure
KW - Real options
KW - Stockholder-bondholder conflicts
UR - http://www.scopus.com/inward/record.url?scp=19144371637&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=19144371637&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2004.06.012
DO - 10.1016/j.jfineco.2004.06.012
M3 - Article
AN - SCOPUS:19144371637
SN - 0304-405X
VL - 76
SP - 667
EP - 690
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 3
ER -