Learning about profitability and dynamic cash management

• 成果类型: Article
• 署名作者: Decamps, Jean-Paul; Villeneuve, Stephane
• 署名单位: Universite de Toulouse; Universite Toulouse 1 Capitole; Toulouse School of Economics
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2022.105522
• 发表日期: 2022
• 关键词: Corporate cash management; Corporate life cycle; learning; Singular control

摘要

We study a dynamic model of a firm whose shareholders learn about its profitability and, face costs of external financing and costs of holding cash. The shareholders' problem involves a notoriously challenging singular stochastic control problem with a two-dimensional degenerate diffusion process. We solve it by means of an explicit construction of its value function, and derive a corporate life-cycle with two stages: a probation stage where it is never optimal for the firm to issue new shares, and a mature stage where the firm resorts to the market whenever needed. The cash target level is nonmonotonic in the belief about profitability and reaches its highest value on the edge between the two stages. This solution leads to new insights into the firm's volatility and its payout ratio which depend on the firm's stage in its life cycle.(c) 2022 Elsevier Inc. All rights reserved.