Dynamic Models and Structural Estimation in Corporate Finance

Final pre-publication version, published in Foundations and Trends in Finance 6 (2012), 1-163.

159 Pages Posted: 25 Jun 2012 Last revised: 10 Jan 2014

Ilya A. Strebulaev

Stanford University - Graduate School of Business; National Bureau of Economic Research

Toni M. Whited

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2012

Abstract

We review the last two decades of research in dynamic corporate finance, focusing on capital structure and the financing of investment. We first cover continuous time contingent claims models, starting with real options models, and working through static and dynamic capital structure models. We then move on to corporate financing models based on discrete-time dynamic investment problems. We cover the basic model with no financing, as well as more elaborate models that include features such as costly external finance, cash holding, and both safe and risky debt. For all the models, we offer a minimalist, simplified presentation with a great deal of intuition. Throughout, we show how these models can answer questions concerning the effects of financial constraints on investment, the level of corporate leverage, the speed of adjustment of leverage to its target, and market timing, among others. Finally, we review and explain structural estimation of corporate finance models.

Keywords: Dynamic Corporate Finance, Structural Estimation

JEL Classification: G3

Suggested Citation

Strebulaev, Ilya A. and Whited, Toni M., Dynamic Models and Structural Estimation in Corporate Finance (December 1, 2012). Final pre-publication version, published in Foundations and Trends in Finance 6 (2012), 1-163.. Available at SSRN: https://ssrn.com/abstract=2091854 or http://dx.doi.org/10.2139/ssrn.2091854

Ilya A. Strebulaev

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://faculty-gsb.stanford.edu/strebulaev/

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Toni M. Whited (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paper statistics

Downloads
4,109
Rank
1,485
Abstract Views
12,253