On the Debt Capacity of Growth Options

Barclay, Michael J.; Morellec, Erwan; Smith, Clifford W.

doi:10.2139/ssrn.271949

Cited by 139 publications

(148 citation statements)

References 15 publications

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“…Therefore, growth opportunities should rather be equity-financed. Analogously, the model of Barclay et al [2006] predicts a negative relation between book leverage and growth opportunities. Though, in this last paper, the result is driven by a trade-off between underinvestment costs and cash-flow benefits associated with additional debt financing.…”

Section: Introductionmentioning

confidence: 91%

Financing Decisions Along a Firm's Life-Cycle: Debt as a Commitment Device

Hirsch

Walz

2009

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe analyze the life-cycle patterns of a firm's financing decisions and their interaction with future growth and development decisions. The framework derives three different financing sequences (debt-debt, equity-debt, equity-equity financing) which we link to existing empirical research. Furthermore, by adopting a life-cycle approach we are able to go one step beyond existing empirical research and derive testable hypotheses with respect to differences in the financing decisions of firms due to project, firm, market and country characteristics as well as the impact of a possible lack of start-up financing possibilities on firm dynamics.

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Section: Introductionmentioning

confidence: 91%

Financing Decisions Along a Firm's Life-Cycle: Debt as a Commitment Device

Hirsch

Walz

2009

SSRN Journal

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“…For example, Bradley, Jarrell, and Kim (1984) show that industries associated with high growth opportunities tend to have low market leverage. Smith and Watts (1992) and Barclay, Morellec, and Smith (2006) show using Compustat data a negative relation between market leverage and the market-to-book ratio, a commonly used proxy for growth options. Rajan and Zingales (1995) extend this analysis to show that the relation between market leverage and the market-to-book ratio is negative and significant across seven different countries.…”

Section: Empirical Implicationsmentioning

confidence: 99%

“…Our paper also relates to the literature that examines the relation between growth options and debt financing (see Myers, 1977;Barclay, Morellec, and Smith, 2006). In this literature, the cost of investment is exogenous and firms have a monopoly access to investment projects.…”

Section: Introductionmentioning

confidence: 96%

Financing and takeovers

Morellec

Zhdanov

2008

Journal of Financial Economics

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119

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This paper analyzes the interaction between financial leverage and takeover activity. We develop a dynamic model of takeovers in which the financing strategies of bidding firms and the timing and terms of takeovers are jointly determined. In the paper, capital structure plays the role of a commitment device, and determines the outcome of the acquisition contest. We demonstrate that there exists an asymmetric equilibrium in financing policies with endogenous leverage, bankruptcy, and takeover terms, in which the bidder with the lowest leverage wins the takeover contest. Based on the resulting equilibrium, the model generates a number of new predictions. In particular, the model predicts that the leverage of the winning bidder is below the industry average and that acquirers should lever up after the takeover consummation. The model also relates the dispersion in leverage ratios to various industry characteristics, such as cash flow volatility or bankruptcy costs. r

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“…In conditions of the Anglo-American model, majority of companies is traded at public capital markets, which means that derivation of market value is done on the basis of product of the stock market value and number of issued stocks. That is also why Barclay, Morellec and Smith [2] in their study based on research of companies at the American capital market claim that there is no reason to use retrospective information when there is perspective information. Due to such arguments, the research uses indicators on the basis of accounting data.…”

Section: Methodsmentioning

confidence: 99%

Dependency of return on equity and use of finance sources in building companies in v4 countries

Růčková¹

2015

E+M

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On the Debt Capacity of Growth Options

Cited by 139 publications

References 15 publications

Financing Decisions Along a Firm's Life-Cycle: Debt as a Commitment Device

Financing Decisions Along a Firm's Life-Cycle: Debt as a Commitment Device

Financing and takeovers

Dependency of return on equity and use of finance sources in building companies in v4 countries

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