Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/159847
Authors: 
Moretto, Michele
Rossini, Gianpaolo
Year of Publication: 
2015
Series/Report no.: 
Quaderni - Working Paper DSE 1009
Abstract: 
We investigate the relationship between the extent of vertical flexibility and the underlying financial choices of a firm. By vertical flexibility we mean the opportunity to outsource a necessary input and to reverse the choice as input market conditions dictate. A firm simultaneously selects the portion of equity and debt and its vertical setting. Debt is provided by a lender that requires the payment of a fixed coupon over time and, as a collateral, an option to buy out the firm in certain circumstances. Debt leads to the same level of flexibility acquired by an unlevered firm. However, investment to set up a flexible technology occurs earlier. An alternative to debt is the involvement of venture capital for the production of the input. We explore this second avenue finding that the extent of outsourcing adopted is lower than for the unlevered firm, but the firm invests earlier.
JEL: 
C61
G31
G32
L24
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/3.0/
Document Type: 
Working Paper

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