We use forward-looking and exogenous measures of output price uncertainty to examine the effect of price uncertainty on firm-level capital investment, risk management, and debt issuance. The effects of uncertainty vary significantly by firm size. When faced with high price uncertainty, large...

We examine the joint optimization of financial leverage and irreversible capacity investment in a real options framework with risky debt and endogenous interest costs. Higher capacity, ceteris paribus, increases operating leverage and default probability, but lowers ex post adjustment costs and...

How do firms vary their capital investment and financing policies in response to business cycle fluctuations within their industry? To address this question, we use the regime-switching approach to compute the quarterly time-series of the probability of a future industry downturn for industry...

Using a dynamic model of strategic bargaining between equity and debt holders following default, we analyze the impact of shareholder bargaining power on the investment effects of debt overhang. Our empirical tests utilize a new measure of debt overhang wedge based on default probabilities...

In a recent working paper, "An application of causal forest in corporate finance: How does financing affect investment?" Gulen, Jens, and Page, April 23 2020, (GJP) challenge the analysis and several conclusions of our paper, "How Does Financing Impact Investment? The Role of Debt Covenants,"...