We propose a model that jointly determines the capital structure and investment decisions taking business cycle and debt maturity into account. Namely, the firm can switch the diffusion regime of asset value, which involves switching costs, and the state of the economy that generates cyclical...

We propose a model of a firm's reversible investment decision with macroeconomic conditions based on optimal switching of a diffusion process. The switching costs of a diffusion regime and the cash flow generated by the firm depend on a business cycle which alternates via a Markov chain, and the...

We study a firm's optimal investment timing and capacity decisions in the presence of uncertain time-to-build. Because of the time-to-build, the firm can expand its capacity before or after the initial project is completed and the lags of the follow-up investment can be shorter than those of the...

We investigate a firm's optimal investment, financing, and default decisions when it takes an uncertain amount of time and running costs to complete a project. A firm that makes an optimal financing decision delays investment in the presence of time-to-build, whereas a highly levered firm...

We incorporate both labor and capital as production inputs and discuss the effects of labor choice on a firm's optimal investment decision and output dynamics based on real options framework. In particular, we introduce different levels of labor flexibility and examine how it affects the firm's...