Abstract
This paper analyzes the joint impact of the interest rate volatility and debt on firm investment. We derive an investment model taking account of the risk attitude of the owners of the firm. Using a panel of Dutch listed firms in the period of 1984-1995, we find that the cross-effect of the interest rate volatility and debt on investment is positive. This effect is more important for highly indebted firms than for less-indebted firms. The results are robust to different measures for the interest rate volatility. We interpret this finding by the tradeoff between the effect of the interest burden and the effect of debt revaluation. (C) 2002 Elsevier Science B.V. All rights reserved.
| Original language | English |
|---|---|
| Article number | PII S0929-1199(01)00031-1 |
| Pages (from-to) | 179-193 |
| Number of pages | 15 |
| Journal | Journal of Corporate Finance |
| Volume | 8 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - Mar-2002 |
Keywords
- firm investment
- interest rate volatility
- debt
- uncertainty measure
- PRICE UNCERTAINTY
- IMPACT