This paper studies the behavior of leverage ratios in a dynamic trade-off model with real frictions. Firms underutilize debt when financing investment to retain financial flexibility. Underutilization of debt persists even when firms exercise their last investment options, and it is more (less)...

We study the interaction between financing and investment decisions in a dynamic model where the firm has multiple debt issues and equityholders choose the timing of investment. Jointly optimal capital and priority structures can virtually eliminate investment distortions, because debt priority...

Theories of investment suggest that the option value of waiting to invest is significant in many branches of economics, where investment is irreversible. The existing literature has generally failed to account for the general equilibrium feedback effects of lumpy investments on optimal...

This paper develops a model of corporate investment and financing decisions thatdiffers from previous contributions by recognizing that firms face uncertainty regardingtheir future access to credit markets and may have to search for creditors when raisingdebt financing. We show that accounting...

We develop a model of real investment and cash holdings in which firms face uncertaintyregarding their ability to raise funds in the capital markets and have to search for investorswhen raising outside capital. We provide an explicit characterization of the optimal investment,cash management,...

We develop a dynamic model of corporate investment and financing decisions in which corporate insiders have superior information about the firm's growth prospects. We show that firms with positive private information can credibly signal their type to outside investors using the timing of...