Investment Frictions and Leverage Dynamics

Tsyplakov, Sergey

doi:10.2139/ssrn.891578

Cited by 21 publications

(19 citation statements)

References 88 publications

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“…Tsyplakov (2008), for example, argues that when productive capacity takes time to build and is lumpy, firms tend to stock pile retained earnings (i.e., build up internal equity) before spending the money to build capacity. The main empirical weakness of the trade-off theory is commonly thought to be the fact that more profitable firms generally have lower leverage.…”

Section: Discussionmentioning

confidence: 99%

“…The most important of these is the declining importance of profits. See, for example, Hovakimian, Opler, and Titman (2001), Welch (2004), Frank and Goyal (2004), Leary and Roberts (2005), Flannery and Rangan (2006), Lemmon, Roberts, and Zender (2008), Huang and Ritter (2007), and Tsyplakov (2008), among others. In the later period, profits-while still statistically significant-became less important in leverage decisions.…”

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confidence: 99%

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Capital Structure Decisions: Which Factors are Reliably Important?

2007

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This paper examines the relative importance of many factors in the capital structure decisions of publicly traded American firms from 1950 to 2003. The most reliable factors for explaining market leverage are: median industry leverage (+ effect on leverage), market‐to‐book assets ratio (−), tangibility (+), profits (−), log of assets (+), and expected inflation (+). In addition, we find that dividend‐paying firms tend to have lower leverage. When considering book leverage, somewhat similar effects are found. However, for book leverage, the impact of firm size, the market‐to‐book ratio, and the effect of inflation are not reliable. The empirical evidence seems reasonably consistent with some versions of the trade‐off theory of capital structure.

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Section: Discussionmentioning

confidence: 99%

mentioning

confidence: 99%

Capital Structure Decisions: Which Factors are Reliably Important?

2007

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“…The impact of such frictions on corporate capital structure decisions is well documented. See Tsyplakov (2008), Leary and Roberts (2005), Flannery and Rangan (2006) and others. Similar frictions may impede a firm's ability to manage liquid assets causing them to deviate from optimal levels.…”

Section: Introductionmentioning

confidence: 99%

Partial adjustment toward optimal cash holding levels

Venkiteshwaran

2011

Rev Financ Econ

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Recognizing that industry and capital market conditions may impede a firm's desire to achieve its targeted cash holding levels, we estimate a dynamic model that allows firms to adjust their cash holding levels over time and find evidence consistent with a trade‐off type behavior in cash holding levels. We estimate a partial adjustment model and find that firms rapidly correct any deviation from their targeted cash levels. A typical firm in our sample closes this gap within two years. Inconsistent with the agency view of excess cash holdings, we find that cash holding levels for firms with excess cash persists over time compared to those that have a deficit. We also find that smaller firms typically hold excess cash and are quicker to correct deviations than large firms consistent with the view that it is more costly for financially constrained firms to operate at sub‐optimal levels of liquid assets.

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“…Mauer and Sarkar (2005), Sundaresan and Wang (2007a), and Sundaresan and Wang (2007b) developed models of irreversible investment with debt financing by combining real options and tradeoff theory. In Tsyplakov (2008), leverage dynamics are accounted for by the presence of a time‐to‐build lag in real investment.…”

Section: Introductionmentioning

confidence: 99%

Interactions between Preemptive Competition and a Financing Constraint

Nishihara

Sawada

2010

Economics Manag Strategy

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We develop an investment and financing model in which two identical firms compete for first-mover advantage in an opportunity to invest. We investigate the interactions between preemptive competition and a financing constraint. We show that a medium-intensity financing constraint can play a positive role in mitigating the preemptive competition and improving firm value in equilibrium. This positive effect is in sharp contrast with the conventional negative effects of the financing constraint. The positive effect is strong, especially for IT venture businesses because of the following characteristics: severe preemptive competition, a lack of internal funds, high uncertainty regarding future project value, and high bankruptcy costs.

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Investment Frictions and Leverage Dynamics

Cited by 21 publications

References 88 publications

Capital Structure Decisions: Which Factors are Reliably Important?

Capital Structure Decisions: Which Factors are Reliably Important?

Partial adjustment toward optimal cash holding levels

Interactions between Preemptive Competition and a Financing Constraint

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