TIMING OF INVESTMENT AND FINANCING DECISIONS IN IMPERFECTLY COMPETITIVE FINANCIAL-MARKETS

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