Optimal dividend policy with random interest rates

Erdinç Akyildirim, I. Ethem Güney, Jean Rochet and H. Mete Soner

Journal of Mathematical Economics, 2014, vol. 51, issue C, 93-101

Abstract: Several recent papers have studied the impact of macroeconomic shocks on the financial policies of firms. However, they only consider the case where these macroeconomic shocks affect the profitability of firms but not the financial markets conditions. We study the polar case where the profitability of firms is stationary, but interest rates and issuance costs are governed by an exogenous Markov chain. We characterize the optimal dividend policy and show that these two macroeconomic factors have opposing effects: all things being equal, firms distribute more dividends when interest rates are high and less when issuing costs are high.

Keywords: Dividend policy; Business cycles; Financial frictions (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Optimal Dividend Policy with Random Interest Rates (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:51:y:2014:i:c:p:93-101

DOI: 10.1016/j.jmateco.2014.01.005

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