We examine the interaction between investment and financing policies in a dynamic model for a firm with existing assets-in-place and a growth option, of which investment cost is financed with equity and contingent convertible bond (CoCo). We attempt to clarify how CoCo impacts on investment...

We consider a risk-averse entrepreneur who invests in a project with idiosyncratic risk and takes debt financing for diversification benefits. In contrast to the literature, we assume the entrepreneur is unable to get a loan from a bank directly because of the low creditability of the...