Feb 25, 2011
from 03:00 PM to 04:00 PM
|Where||Laundress Lane, Seminar Room 1|
|Contact Name||Dr Jamie Alcock|
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Gabor Pinter (Department of Land Economy) presenting.
Title: Capital Structure and Investment Dynamics
Abstract: This paper studies how investment dynamics is affected by firms' decision to lease as opposed to buy productive capital. To understand the role of leasing, a dynamic model of investment with financial frictions such credit and irreversibility constraints will be developed. Firms adjust their capital stock in response to shocks to profitability. Financial frictions hinder the efficiency to sell/buy capital, whereas lessors serve as trading intermediaries to mitigate these frictions. The intuition behind why leasing is beneficial is twofold. Firstly, repossession of leased capital is easier than foreclosure on the collateral of a secured loan. Secondly, leased capital (unlike purchased capital) is not subject to irreversibility constraints, which makes capital adjustments easier in face of shocks. The paper provides empirical evidence on firm-level data for selected EU countries in order to test the theoretical predictions of the model.
The format is 30 minutes presentation, 10 minutes discussant, 20 minutes general questions and debate. We hope to continue the discussion informally after the seminar