The analysis reveals that the interaction between financing and production decisions is important in an industry equilibrium. Moreover, the equilibrium output price has an important feedback effect. As a result, several conclusions reached in the standard single-firm contingent claims models do not hold true in an equilibrium setting. Moreover, it moves predictions in the right direction in terms of reconciling the empirical evidence. Specifically, the analysis shows that either one of the following exogenous factors can simultaneously explain the empirical findings mentioned in the introduction: the slowdown of technology (productivity) growth, the deterioration of entry distribution, or the increase in the corporate tax rate.