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Optimal Dividend Policy with Random Interest Rates

Erdinc Akyildirim, Ibrahim Güney, Jean Rochet () and Halil Mete Soner
Additional contact information
Erdinc Akyildirim: Akdeniz University
Ibrahim Güney: University of Zurich, Swiss Finance Institute
Halil Mete Soner: ETH Zürich; Swiss Finance Institute

No 13-14, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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)
JEL-codes: G35 E32 C61 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-04
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Journal Article: Optimal dividend policy with random interest rates (2014) Downloads
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