To study the impact of stochastic interest rates and capital illiquidity on investment and firm value, we incorporate a widely-used arbitrage-free term structure model of interest rates into a standard q-theoretic framework. Our generalized q model informs us to use corporate credit-risk...

We study the impact of stochastic interest rates and capital illiquidity on investment and firm value by incorporating a widely used arbitrage-free term structure model of interest rates into a standard q theoretic framework. Our generalized q model informs us to use corporate credit-risk...

We develop a dynamic incomplete-markets model where an entrenched insider, facing imperfect investor protection and non-diversifiable illiquid business risk, makes interdependent consumption, portfolio choice, expropriation, corporate investment, ownership, and business exit decisions. Unlike in...

The interest rate is a key determinant of firm investment. We integrate a widely used term structure model of interest rates, CIR (Cox, Ingersoll, and Ross (1985)), with the q theory of investment (Hayashi (1982) and Abel and Eberly (1994)). We show that stochastic interest rates have...