Liquidity management with decreasing returns to scale and secured credit line

Erwan Pierre (), Stéphane Villeneuve () and Xavier Warin ()
Additional contact information
Erwan Pierre: EDF Lab Paris-Saclay
Stéphane Villeneuve: Toulouse School of Economics (CRM-IDEI)
Xavier Warin: Laboratoire de Finance des Marchés de l’Energie

Finance and Stochastics, 2016, vol. 20, issue 4, No 2, 809-854

Abstract: Abstract This paper examines the dividend and investment policies of a cash constrained firm, assuming a decreasing-returns-to-scale technology and adjustment costs. We extend the literature by allowing the firm to draw on a secured credit line both to hedge against cash-flow shortfalls and to invest/disinvest in a productive asset. We formulate this problem as a two-dimensional singular control problem and use both a viscosity solution approach and a verification technique to get qualitative properties of the value function. We further solve quasi-explicitly the control problem in two special cases.

Keywords: Investment; Dividend policy; Singular control; Viscosity solution; 60G40; 91G50; 91G80 (search for similar items in EconPapers)
JEL-codes: C61 G35 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1007/s00780-016-0312-4

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