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Investment options with debt-financing constraints

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  • Nicos Koussis
  • Spiros H. Martzoukos

Abstract

A contingent claims model is used to study the impact of debt-financing constraints on firm value, optimal capital structure, the timing of investment and other variables, such as credit spreads. The optimal investment trigger follows a U shape as a function of exogenously imposed constraint. Risky, equity-financed R&D growth options increase firm value by increasing the option value on unlevered assets, while their impact on the net benefits of debt is small.

Suggested Citation

  • Nicos Koussis & Spiros H. Martzoukos, 2012. "Investment options with debt-financing constraints," The European Journal of Finance, Taylor & Francis Journals, vol. 18(7), pages 619-637, August.
    • Handle: RePEc:taf:eurjfi:v:18:y:2012:i:7:p:619-637
    DOI: 10.1080/1351847X.2011.603347
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    Cited by:

    1. Sarkar, Sudipto & Zhang, Chuanqian, 2020. "Investment and financing decisions with learning-curve technology," Journal of Banking & Finance, Elsevier, vol. 121(C).
    2. Koussis, Nicos & Martzoukos, Spiros H., 2022. "Credit line pricing under heterogeneous risk beliefs," International Journal of Production Economics, Elsevier, vol. 243(C).

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