Multistage investment options, time-to-build and financing constraints

A dynamic investment options model with “time-to-build”, debt and equity constraints is studied to evaluate the effects on firm value and leverage choices. It is shown that a firm is more likely to face financing constraints with short term debt. With “time-to-build” and a tax scheme with full loss offset provisions, the firm increases initial leverage in order to reduce the impact of delayed cash flow receipts resulting from “time-to-build”. Under no deductibility for losses, the firm would reduce initial debt significantly. The joint impact of “time-to-build” and financing constraints causes a significant decrease in firm values.