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On Debt Financing and Investment Timing

Author

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  • Paolo M. Panteghini

    (Dipartimento di Scienze Economiche, Università di Brescia, Italy)

Abstract

This paper studies the relationship between debt-financing and the timing of investment, under asymmetric information. In particular we show that an option to delay raises the average profitability of firms who choose to invest immediately, thereby reducing the market interest rate on debt. Moreover, the option to delay is shown to be welfare improving.

Suggested Citation

  • Paolo M. Panteghini, 2002. "On Debt Financing and Investment Timing," Finnish Economic Papers, Finnish Economic Association, vol. 15(2), pages 110-114, Autumn.
    • Handle: RePEc:fep:journl:v:15:y:2002:i:2:p:110-114
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    References listed on IDEAS

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    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 701-728.
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    3. Lensink, Robert & Sterken, Elmer, 2001. "Asymmetric information, option to wait to invest and the optimal level of investment," Journal of Public Economics, Elsevier, vol. 79(2), pages 365-374, February.
    4. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    6. Vercammen, James, 2000. "Irreversible investment under uncertainty and the threat of bankruptcy," Economics Letters, Elsevier, vol. 66(3), pages 319-325, March.
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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