Abstract: This paper analyzes the interaction between firm investment and both capital structure and equity financing,obtaining endogenously the investment timing,bankruptcy timing,and equity-selling ratio.The simulation of our model shows that the initial debt and new debt financing affect the firm investment: the initial debt has promotive effect on the firm investment,while the equity financing is constraint,they are two factors causing overinvestment or underinvestment.

Key words: debt financing, firm investment, investment timing, cash flow