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Liquidity management with decreasing returns to scale and secured credit line

Author

Listed:
  • Erwan Pierre
  • 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)

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

Suggested Citation

  • Erwan Pierre & Stéphane Villeneuve & Xavier Warin, 2016. "Liquidity management with decreasing returns to scale and secured credit line," Post-Print halshs-01522513, HAL.
    • Handle: RePEc:hal:journl:halshs-01522513
    DOI: 10.1007/s00780-016-0312-4
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    Citations

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    Cited by:

    1. Gaïgi, M’hamed & Ly Vath, Vathana & Scotti, Simone, 2022. "Optimal harvesting under marine reserves and uncertain environment," European Journal of Operational Research, Elsevier, vol. 301(3), pages 1181-1194.
    2. Salvatore Federico & Giorgio Ferrari & Patrick Schuhmann, 2019. "A Model for the Optimal Management of Inflation," Department of Economics University of Siena 812, Department of Economics, University of Siena.
    3. Etienne Chevalier & Vathana Ly Vath & Alexandre Roch, 2020. "Optimal Dividend and Capital Structure with Debt Covenants," Journal of Optimization Theory and Applications, Springer, vol. 187(2), pages 535-565, November.

    More about this item

    Keywords

    dividend; investment policie;

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