Liquidity management with decreasing returns to scale and secured credit line

Erwan Pierre, Stéphane Villeneuve () and Xavier Warin
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Stéphane Villeneuve: CRM - Centre de Recherche en Management - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - IAE - Institut d'Administration des Entreprises - Toulouse - CNRS - Centre National de la Recherche Scientifique
Xavier Warin: EDF R&D - EDF R&D - EDF - EDF

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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: "dividend"; " investment policie" (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

Published in Finance and Stochastics, 2016, 20 (4), pp.809 - 854. ⟨10.1007/s00780-016-0312-4⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01522513

DOI: 10.1007/s00780-016-0312-4

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