Optimal capital structure with time-to-build and the impact of financing constraints

We develop a dynamic investment options framework that captures " time-to-build " and realistic features for multiple classes of debt, e.g. debt seniority and interacting debt issues with various maturities. The study investigates the effect of debt and equity constraints on firm value, dynamic leverage choice and the effect of " time-to-build " on firm value and leverage choice. It is shown that a firm is more likely to face financing constraints with short term debt. With " time-to-build " the firm increases leverage in order to reduce the impact of delayed cash flow receipts resulting from " time-to-build ". The joint impact of " time-to-build " and financing constraints cause a significant decrease in firm values.