Abstract

https://ssrn.com/abstract=1716925
 
 

References (3)



 
 

Citations (3)



 


 



Operational Investment and Capital Structure Under Asset-Based Lending


Yasin Alan


Vanderbilt University - Operations Management

Vishal Gaur


Cornell University - Samuel Curtis Johnson Graduate School of Management

June 1, 2015

Johnson School Research Paper Series

Abstract:     
We analyze a single-period game of incomplete information between a business owner and a bank to study the relationship between operational investment and capital structure in the context of asset-based lending (ABL). The bank moves first and offers a menu of loans to maximize its expected profit. Each loan offer is characterized by an interest rate and an inventory advance rate, which gives a credit limit that is increasing in the firm’s inventory investment. The owner then decides the inventory level and the mix of debt and equity with which to finance her firm’s operations. Our paper results in several new insights into the optimal solution for the firm, the characteristics of the menu of loan terms offered by the bank, and the sensitivity of the loan terms and equilibrium outcomes with respect to the operational characteristics of the firm. For instance, a leveraged firm stocks more inventory regardless of the interest rate or credit limit. These insights can be tested with data in future research.

Number of Pages in PDF File: 39

Keywords: Inventory Management, Newsvendor Model, Operations Management-Finance Interface, Capital Structure Decisions, Bankruptcy Risk, Capital Market Frictions


Open PDF in Browser Download This Paper

Date posted: November 30, 2010 ; Last revised: June 2, 2015

Suggested Citation

Alan, Yasin and Gaur, Vishal, Operational Investment and Capital Structure Under Asset-Based Lending (June 1, 2015). Johnson School Research Paper Series . Available at SSRN: https://ssrn.com/abstract=1716925 or http://dx.doi.org/10.2139/ssrn.1716925

Contact Information

Yasin Alan (Contact Author)
Vanderbilt University - Operations Management ( email )
Nashville, TN 37203
United States

Vishal Gaur
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States
HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Gaur/

Feedback to SSRN


Paper statistics
Abstract Views: 2,837
Downloads: 515
Download Rank: 41,253
References:  3
Citations:  3