TY  - JOUR
CY  - Brugge
ID  - publications46243
UR  - http://tse-fr.eu/pub/127243
A1  - Décamps, Jean-Paul
A1  - Villeneuve, Stéphane
Y1  - 2022/10//
N2  - We study a dynamic model of a firm whose shareholders learn about its profitability, face costs of external nancing and costs of holding cash. The shareholders' problem involves a notoriously challenging singular stochastic control problem with a two-dimensional degenerate diffusion process. We solve it by means of an explicit construction of its value function, and derive a corporate life-cycle with two stages: a "probation stage" where it is never optimal for the firm to issue new shares, and a "mature stage" where the firm resorts to the market whenever needed. The cash target level is non-monotonic in the belief about the profitability and reaches its highest value on the edge between the two stages. It follows new insights on the firm's volatility and its payout ratio which depend on the firm's stage in its life cycle.
PB  - Academic Press
JF  - Journal of Economic Theory
VL  - vol. 205
KW  - Corporate cash management
KW  - Corporate life cycle
KW  - Learning
KW  - Singular control
SN  - 0022-0531
TI  - Learning about profitability and dynamic cash management
AV  - public
ER  -