The business cycle dynamics of firms' investment and debt maturity vary across the firm size and age distribution: Young and small firms have strongly pro-cyclical debt maturity and investment, old and large firms a-cyclical debt maturity and weakly pro-cyclical investment. This paper explores...

In dynamic capital structure models with an investor break-even condition, the firm's Bellman equation may not generate a contraction mapping, so the standard existence and uniqueness conditions do not apply. First, we provide an example showing the problem in a classical trade-off model. The...

We develop a model to examine the timing of investment decisions in relation to the issuance of convertible debt by firms. Our model shows that when the demand shock has higher volatility, the firm finances the investment cost with high-coupon convertible debt. We find that default occurs...

The popular weighted average cost of capital (WACC) approach to capital budgeting implicitly assumes that a project's debt tax shields will always be used by the firm that adopts the project. We show that even a low probability of selling a project in the future to a firm with a different tax...

This paper investigates the impact of firm leverage on its investment activities. Especially, the research is conducted in the context of the Vietnamese emerging market, an incomplete market in South East Asia with the existence of inefficient market problems such as information asymmetry and...