Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Department of Business Studies, Aarhus School of Business, University of Aarhus Finance Research Group Working Papers, Department of Business Studies, Aarhus School of Business, University of Aarhus

No F-2009-04:
Investment Timing, Liquidity, and Agency Costs of Debt

Stefan Hirth () and Marliese Uhrig-Homburg

Abstract: This paper examines the effect of debt and liquidity on corporate investment in a continuous- time framework. We show that stockholder-bondholder agency conflicts cause investment thresholds to be U-shaped in leverage and decreasing in liquidity. In the absence of tax effects, we derive the optimal level of liquid funds that eliminates agency costs by implementing the first-best investment policy for a given capital structure. In a second step we generalize the framework by introducing a tax advantage of debt, and we show that an interior solution for liquidity and capital structure optimally trades off tax benefits and agency costs of debt

Keywords: investment timing; liquidity; agency costs of debt; capital structure; real options; (follow links to similar papers)

48 pages, May 5, 2009

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

F_2009_04.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Helle Vinbaek Stenholt ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joakim Ekebom

Handle: RePEc:hhb:aarbfi:2009-04 This page was generated on 2014-12-14 19:15:49