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Dividend policy and capital structure of a defaultable firm
Mathematical Finance ( IF 1.6 ) Pub Date : 2020-03-04 , DOI: 10.1111/mafi.12238
Alex S. L. Tse 1
Affiliation  

Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to default at an exponential random time jointly sets its dividend policy and capital structure to maximize the expected lifetime utility from consumption of risk‐averse equity investors. We give a complete characterization of the solution to the singular stochastic control problem. The optimal policy involves paying dividends to keep the ratio of firm's equity value to investors' wealth below a critical threshold. Dividend payout acts as a precautionary channel to transfer wealth from the firm to investors for mitigation of losses in the event of default. Higher the default risk, more aggressively the firm leverages and pays dividends.

中文翻译:

违约公司的股利政策和资本结构

违约风险会严重影响公司的公司政策。我们建立了一个模型,在该模型中,有责任在指数随机时间违约的有限责任实体共同设定其股息政策和资本结构,以最大限度地利用厌恶风险投资者的预期寿命。我们给出了奇异随机控制问题的完整描述。最优政策包括支付股息,以将公司的股权价值与投资者的财富之比保持在临界阈值以下。股息支付是一种预防性渠道,可将财产从公司转移给投资者,以减轻违约时的损失。违约风险越高,公司就更积极地利用杠杆并支付股息。
更新日期:2020-03-04
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