Timing of Investment and Financing Decisions in Imperfectly Competitive Financial Markets

Abstract

The authors present a model in which firms can time their projects. They show that financing and investment decisions are interrelated if financial markets are not perfectly competitive, resulting in apparent timing of financing decisions. The authors obtain the result that the proportion of equity financing relative to debt is higher when economic conditions are improving. They also show that the type of financing depends both on current and past economic conditions. Finally, the authors show that there will be relatively more equity financing in industries in which obsolescence is more likely. Copyright 1993 by University of Chicago Press.

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