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Pré-Publication, Document De Travail Année : 2012

On the Role of External Financing Costs in Optimal Investment Decisions

Résumé

This paper brings into focus a link between the investment and financing decisions of a firm which has an access to costly debt financing. Our analysis shows that lump-sum debt issuance costs play a prominent role in a determination of the optimal investment strategy. Faced with larger lump-sum debt issuance costs, a firm will optimally set up a higher-scale investment project in order to "compensate" dead-weight financing costs by higher return. Moreover, in the presence of lump-sum debt issuance costs, the optimal investment scale of financially constrained firms exhibits an inverted U-shaped relationship with the firm's borrowing capacity, so that relatively more/less constrained firms will realize smaller investment projects, whereas firms with an intermediate borrowing capacity will undertake larger investment.
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Dates et versions

halshs-00793688 , version 1 (22-02-2013)

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  • HAL Id : halshs-00793688 , version 1

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Mohamed Belhaj, Nataliya Klimenko. On the Role of External Financing Costs in Optimal Investment Decisions. 2012. ⟨halshs-00793688⟩
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