Financing Investment with Long-Term Debt and Uncertainty Shocks

Michaux, Michael; Gourio, Francois

doi:10.2139/ssrn.1786082

Abstract

References (34)

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Financing Investment with Long-Term Debt and Uncertainty Shocks

Michael Michaux

University of Southern California - Marshall School of Business

Boston University - Department of Economics

February 6, 2012

Abstract:
We extend the quantitative corporate finance framework of Hennessy and Whited (2005) by introducing long-term defaultable debt and stochastic volatility. These features lead to significantly lower leverage and higher default probabilities, and a stronger negative correlation of investment with credit spreads, consistent with the data.

Number of Pages in PDF File: 39

Keywords: Q Theory of Investment, Capital Structure, Long Term Debt, Stochastic Volatility

JEL Classification: G30, G32

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Date posted: March 19, 2011 ; Last revised: March 19, 2012

Suggested Citation

Michaux, Michael and Gourio, Francois, Financing Investment with Long-Term Debt and Uncertainty Shocks (February 6, 2012). Available at SSRN: http://ssrn.com/abstract=1786082 or http://dx.doi.org/10.2139/ssrn.1786082

Contact Information

Michael Michaux (Contact Author) University of Southern California - Marshall School of Business ( email ) Marshall School of Business, FBE 3670 Trousdale Parkway, BRI-308 Los Angeles, CA 90089 United States HOME PAGE: http://www-bcf.usc.edu/~michaux/
Francois Gourio Boston University - Department of Economics ( email ) 270 Bay State Road Boston, MA 02215 United States 617 353 4534 (Phone) HOME PAGE: http://people.bu.edu/fgourio

Abstract

References (34)

Financing Investment with Long-Term Debt and Uncertainty Shocks

Michael Michaux

Francois Gourio

Date posted: March 19, 2011 ; Last revised: March 19, 2012

Suggested Citation

Contact Information

Michael Michaux (Contact Author)

Francois Gourio