Work

Capital Supply Uncertainty, Cash Holdings, and Investment

Year: 2014

Type: article

Abstract: We develop a dynamic model of investment, financing, and cash management decisions in which investment is lumpy and firms face capital supply uncertainty. We characterize optimal policies explicitly, demonstrate that smooth-pasting conditions may not guarantee optimality, and show that firms may not follow standard single barrier policies. In the model, firms with high investment costs differ in their behaviors from firms with low investment costs, financing policy does not follow a strict pecking order, and the optimal payout policy may feature several regions with both incremental and lumpy dividend payments.

Source: Review of Financial Studies

DOI: 10.1093/rfs/hhu081

Authors: Julien Hugonnier, Semyon Malamud, Erwan Morellec

Institutions: École Polytechnique Fédérale de Lausanne, Swiss Finance Institute

Language: English

Topic: Corporate Finance and Governance

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3121430177

FWCI: 28.75

Cites: 96

Cited by: 201

Related to: 10