Financing investment: The choice between bonds and bank loans

Erwan Morellec, Philip Valta, Alexei Zhdanov

Research output: Contribution to journalArticlepeer-review

46 Scopus citations


We build a model of investment and financing decisions to study the choice between bonds and bank loans in a firm's marginal financing decision and its effects on corporate investment. We show that firms with more growth options, with higher bargaining power in default, operating in more competitive product markets, or facing lower credit supply are more likely to issue bonds. We also demonstrate that, by changing the cost of financing, these characteristics affect the timing of investment. We test these predictions using a sample of U.S. firms and present new evidence that supports our theory.

Original languageEnglish (US)
Pages (from-to)2580-2602
Number of pages23
JournalManagement Science
Issue number11
StatePublished - Nov 2015

All Science Journal Classification (ASJC) codes

  • Strategy and Management
  • Management Science and Operations Research


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