Capital Budgeting and Risk Taking Under Credit Constraints

• 成果类型: Article
• 署名作者: Iachan, Felipe S.
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2019.3369
• 发表日期: 2020
• 页码: 4292-4314
• 关键词: Capital budgeting; credit constraints; project selection; INVESTMENT; risk exposure

摘要

Limited external financing creates a hedging motive that distorts resource allocation for investment projects. I study these distortions through a dynamic model with endogenous collateral constraints. The hedging motive can be broken into three components: expected future productivity, leverage capacity, and current net worth. Although constrained firms behave as if averse to transitory fluctuations in net worth, they can endogenously pursue increased exposure to both persistent factors that predict future productivity and fluctuations in credit tightness. The most constrained firms abstain from financial hedging, while still distorting capital-allocation decisions, thereby influencing firm- level volatility. These distortions contribute to a potential explanation for the negative cross- sectional relationship between volatility and net worth.