Does financial flexibility reduce investment distortions?

de Jong, A., Verbeek, M. and Verwijmeren, P. (2012) Does financial flexibility reduce investment distortions? Journal of Financial Research, 35(2), pp. 243-259. (doi: 10.1111/j.1475-6803.2012.01316.x)

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The average U.S. firm has less leverage than one would expect based on the trade-off between tax shields and bankruptcy costs. We focus on firms’ financial flexibility and examine whether firms preserve debt capacity to reduce investment distortions in the future. We find that firms with high unused debt capacity invest more in future years than do firms with low unused debt capacity. Furthermore, firms that are reluctant to borrow in unconstrained periods are more likely to issue debt in periods in which access to capital markets is more constrained.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Verwijmeren, Professor Patrick
Authors: de Jong, A., Verbeek, M., and Verwijmeren, P.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Journal of Financial Research
ISSN (Online):1475-6803
Published Online:01 June 2012

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