Di Corato, Luca
- Department of Economics, Swedish University of Agricultural Sciences
Di Corato, Luca; Moretto, Michele; Rossini, Gianpaolo
We investigate the relationship between the extent and timing of vertical flexibility and the financial choices of a firm. By vertical flexibility we mean partial/total and reversible outsourcing of a necessary input. A firm simultaneously selects the vertical setting and the financial sources of investment in flexibility, in particular debt and venture capital. A loan may come from a lender that requires the payment of a fixed coupon over time and an option to buy out the firm in certain circumstances. Debt leads to the same level of flexibility of an unlevered firm. Yet investment occurs earlier. The injection of venture capital reduces the quest for vertical flexibility and speeds up investment. Then, there arises a fresh substitutability between a financial (venture capital) and a real variable (vertical flexibility). (C) 2017 Elsevier B.V. All rights reserved.
Vertical integration; Flexible outsourcing; Debt; Equity and Venture capital; Real options
Journal of Economic Dynamics and Control
2017, Volume: 76, pages: 35-65
Publisher: ELSEVIER SCIENCE BV