We build a model of investment and financing decisions to study the choice between bonds and bank loans in a firm …'s marginal financing decision and its effects on corporate investment. We show that firms with more growth options, higher … bargaining power in default, operating in more competitive product markets, and facing lower credit supply are more likely to …

, the model reflects empirical credit spread patterns, rationalizes the observed joint distribution of corporate events and … generates novel implications for the impact of renegotiable debt on covenant and investment policies …