We analyze optimal financial contracts when the specificity of investments is endogenous. Specialization decreases the liquidation value of assets, but improves the asset’s long-term productivity. While the former is known to make financing more difficult, we show that the latter can ease financing constraints and increase financing capacity by improving an entrepreneur’s incentive to repay. Th...

The purpose of this paper is to empirically investigate the interaction between hedging, financing, and investment decisions. This work is relevant in that theoretical predictions are not necessarily identical to those in the case where only two decisions are being made. We argue that the way in which hedging affects the firms’ financing and investing decisions differs for firms with different ...

The 2008 financial crisis exemplifies significant uncertainties in corporate financing conditions. We develop a unified dynamic q-theoretic framework where firms have both a precautionary-savings motive and a market-timing motive for external financing and payout decisions, induced by stochastic financing conditions. The model predicts (1) cuts in investment and payouts in bad times and equity ...

This paper examines how asset risk impacts corporate investment and financing decisions. We derive a general model that incorporates risk, adjustment cost, and depreciation features of assets-in-place into investment decisions. The model suggests that the risk and adjustment cost of assets-in-place reduce both corporate investment and financing. We empirically test the model in a panel of US fi...

We study how supply risk, fixed supplier costs, financial constraints, and the dual role played by the suppliers as the providers of parts and the financiers of the manufacturer affect the relationship among firms in a supply chain, supplier selection, and supply chain performance. Using a one-period model, we consider joint procurement and financing decisions of a firm with limited financial c...

We study optimal liquidity management, innovation, and production decisions for a continuum of firms facing financing frictions and the threat of creative destruction. We show that while financing frictions prompt firms to decrease production, they may also spur investment in innovation. We examine which types of firms substitute production for innovation in response to negative operating shock...

Previous research has argued that debt financing affects equityholders’ investment decisions, producing substantial inefficiency. This paper shows that the size of this inefficiency depends on the degree of investment reversibility. In a dynamic model of financing and investment, the paper provides an upper bound for the inefficiency produced by debt financing. The upper bound is decreasing in ...

Green financing diverts more funds to green industries such as environmental protection, and clean energy, enabling the realize structural adjustment. On financing, existing studies at home abroad mainly focus on definition of concepts service scope system construction. There are few attempts combined efficacy with corporate investment from angles level, efficiency, risks. This paper associates...

Using an intertemporal model of investment decisions under financing constraints we show that the Euler equation approach can be used to identify the effect of financing constraints on investment returns even when the premium on external financing does not change over time. This result is made possible by the introduction of a tangibility constraint to a commonly used dynamic optimization model...