Capital Investment and Liquidity Management with collateralized debt

Erwan Pierre, Stephane Villeneuve and Xavier Warin

No 841, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

Abstract: This paper examines the dividend and investment policies of a cash constrained firm that has access to costly external funding. We depart from the literature by allowing the firm to issue collateralized debt to increase its investment in productive assets resulting in a performance sensitive interest rate on debt. We formulate this problem as a bi-dimensional singular control problem and use both a viscosity solution approch and a verification tech- nique 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 (search for similar items in EconPapers)
JEL-codes: C61 G35 (search for similar items in EconPapers)
Date: 2014-11
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Persistent link: https://EconPapers.repec.org/RePEc:ide:wpaper:28790

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