Repository logo

Infoscience

  • English
  • French
Log In
Logo EPFL, École polytechnique fédérale de Lausanne

Infoscience

  • English
  • French
Log In
  1. Home
  2. Academic and Research Output
  3. Preprints and Working Papers
  4. Capital Supply Uncertainty, Cash Holdings, and Investment
 
working paper

Capital Supply Uncertainty, Cash Holdings, and Investment

Hugonnier, Julien N.
•
Malamud, Semyon  
•
Morellec, Erwan  
2013

We develop a model of investment, financing, and cash management decisions in which investment is lumpy and firms face uncertainty regarding their ability to raise funds in the capital markets. We characterize optimal policies explicitly and show that the smooth-pasting conditions used in prior contributions are necessary, but may not be sufficient, for an optimum. Instead of the standard Miller and Orr (1966) double-barrier policy for financing and payout, firms may optimally raise outside funds before exhausting internal resources and the optimal payout policy may feature several regions, with both smooth and discrete dividend payments. In the model, firms with high investment costs are qualitatively as well as quantitatively different in their investment, financing, and payout behaviors from firms with low investment costs. Finally, investment and payout do not always increase with slack, challenging the use of investment-cash flow sensitivities or payout ratios as measures of financing constraints.

  • Details
  • Metrics
Type
working paper
DOI
10.2139/ssrn.1658362
Author(s)
Hugonnier, Julien N.
Malamud, Semyon  
Morellec, Erwan  
Date Issued

2013

Subjects

Capital supply uncertainty

•

Cash management

•

Lumpy investment

•

Inventory models

Note

Published in: Swiss Finance Institute Research Paper Series

Editorial or Peer reviewed

REVIEWED

Written at

EPFL

EPFL units
SFI-JH  
Available on Infoscience
August 13, 2013
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/94106
Logo EPFL, École polytechnique fédérale de Lausanne
  • Contact
  • infoscience@epfl.ch

  • Follow us on Facebook
  • Follow us on Instagram
  • Follow us on LinkedIn
  • Follow us on X
  • Follow us on Youtube
AccessibilityLegal noticePrivacy policyCookie settingsEnd User AgreementGet helpFeedback

Infoscience is a service managed and provided by the Library and IT Services of EPFL. © EPFL, tous droits réservés