Gamba, Andrea and Triantis, Alexander. (2008) The Value of Financial Flexibility. Journal of Finance, Vol.63 (No.5). pp. 2263-2296. ISSN 0022-1082

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Abstract

We develop a model that endogenizes dynamic financing, investment, and cash retention/payout policies in order to analyze the effect of financial flexibility on firm value. We show that the value of financing flexibility depends on the costs of external financing, the level of corporate and personal tax rates that determine the effective cost of holding cash, the firm's growth potential and maturity, and the reversibility of capital. Through simulations, we demonstrate that firms facing financing frictions should simultaneously borrow and lend, and we examine the nature of dynamic debt and liquidity policies and the value associated with corporate liquidity.

Item Type:	Journal Article
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Journal of Finance
Publisher:	Wiley-Blackwell Publishing, Inc.
ISSN:	0022-1082
Date:	2008
Volume:	Vol.63
Number:	No.5
Number of Pages:	34
Page Range:	pp. 2263-2296
Identification Number:	10.1111/j.1540-6261.2008.01397.x
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
URI:	http://wrap.warwick.ac.uk/id/eprint/44768

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