Liquidity Management with Decreasing-returns-to-scale and Secured Credit Line

Erwan Pierre; Stéphane Villeneuve; Xavier Warin

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arXiv · 1411.7670

Liquidity Management with Decreasing-returns-to-scale and Secured Credit Line

Erwan Pierre·Stéphane Villeneuve·Xavier Warin

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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 technique to get qualitative properties of the value function. We further solve quasi-explicitly the control problem in two special cases.

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Erwan Pierre, Stéphane Villeneuve, Xavier Warin. 2014-11-27. Liquidity Management with Decreasing-returns-to-scale and Secured Credit Line. https://arxiv.org/abs/1411.7670

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