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- Title
Investment, Capital Structure, and Complementarities Between Debt and New Equity.
- Authors
Stenbacka, Rune; Tombak, Mihkel
- Abstract
We study simultaneous investment and financing decision made by incumbent owners in the presence of capital market imperfections. We present a theory for how the optimal combination of debt and equity financing depends on the firm's internal funds. We identify complementarities between the two financial instruments. We test these predictions empirically with panel data on 3,119 corporations in the COMPUSTAT database. Our estimates using instrumental variable techniques support our theoretical predictions regarding the link between internal funds and capital investments, as well as the interaction effects between debt and new equity. We explore implications for managers, financiers, and policy makers.
- Subjects
CAPITAL investments; INVESTMENTS; CAPITAL structure; STOCKS (Finance); DEBT; MANAGEMENT science; CAPITAL market; SAVINGS; BUSINESS finance
- Publication
Management Science, 2002, Vol 48, Issue 2, p257
- ISSN
0025-1909
- Publication type
Article
- DOI
10.1287/mnsc.48.2.257.260