Investment and leverage decisions under caps and floors
研究了上限和下限如何影响企业的投资时机和杠杆决策，发现下限低于临界值时影响温和，超过则促使企业发行低风险甚至无风险债务并加速投资；上限则抑制投资、提高杠杆并降低信用利差。
This article investigates the impact of caps and floors on investment timing and leverage decisions made by firms. By examining their effects on investment timing, firm value, leverage ratios, and credit spreads, this study sheds light on the significant implications of caps and floors. Specifically, the analysis reveals that the impact of a floor on leverage is moderate when it remains below a critical threshold. However, surpassing this threshold leads firms to issue debt with reduced risk, and potentially even risk-free debt. Consequently, the influence of the floor becomes more pronounced, leading to an acceleration of investment activities. Conversely, a lower cap acts as a deterrent to investment, contributing to increased leverage and reduced credit spreads. In a collar regime, the interaction between the floor and the cap produces non-monotonic effects, as firms gain the ability to issue risk-free debt for intermediate cap levels. Moreover, the study highlights that uncertainty consistently discourages investment, and its impact on leverage and credit spreads follows a non-monotonic pattern.