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 structural model with an optimal switching of diffusion regime which integrates a wide range of investment reversibility. The default boundary and switching thresholds are endogenously determined, and we can examine conflict of interest between shareholders and creditors from...

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 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...