701. Investment, financing, strategic debt service, and liquidation
Invited abstract in session WD-9: Quantitative methods in finance, stream OR in Finance and Insurance .
Wednesday, 14:30-16:00Room: Clarendon SR 2.01
Authors (first author is the speaker)
| 1. | Takashi Shibata
|
| School of Business Administration, Hosei University | |
| 2. | Michi Nishihara
|
| Graduate School of Economics, Osaka University | |
| 3. | Yuan Tian
|
| Ryukoku University |
Abstract
We develop a dynamic model of real options to examine how the introduction of both collateral and debt renegotiation (strategic debt service) affects a firm's investment and financing (capital structure) decisions. Our results reveal that such an introduction hastens investment and decreases debt issuance, leading to a decreased credit spread and increased leverage. When firms are allowed to issue one of two kinds of debt---bank (renegotiable) debt and market (non-renegotiable) debt---with collateral, firms with substantial collateral are more likely to prefer market debt rather than bank debt. These results align with previous empirical findings.
Keywords
- Finance and Banking
- Financial Modelling
Status: accepted
Back to the list of papers