Financing Constraint, Over-Investment and Market-to-Book Ratio

In a simple symmetric information continous time model, we consider leverage as way to finance a fraction of the investment cost. We show that underinvestment cannot arise while over-investment may and the room for overinvestment is negatively related with the fraction paid by equityholders. Finally, we show that our model predicts the (empirically observed) negative relation between the market-to-book ratio and the leverage ratio

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Year of publication:	[2008]
Authors:	Braouezec, Yann
Publisher:	[2008]: [S.l.] : SSRN

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Extent:	1 Online-Ressource (14 p)
Type of publication:	Book / Working Paper
Notes:	In: Finance Research Letters, Forthcoming Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 17, 2008 erstellt
Classification:	G31 - Capital Budgeting; Investment Policy ; G32 - Financing Policy; Capital and Ownership Structure ; G33 - Bankruptcy; Liquidation
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10012774356