Special Session 99: 

Dynamic Investment and Financing with Internal and External Liquidity Management

Nan Chen
The Chinese University of Hong Kong
Hong Kong
Co-Author(s):    Nan Chen, Yuan Tian, and Jiahui Ji
Abstract:
We develop a theoretical model of dynamic investments, dividend pay-outs, debt borrowing, external equity financing/bankruptcy, and risk management for financially constrained firms. Mathematically, it can be formulated as a fixed- point problem with variational inequalities embedded. Through this formulation, we provide a quantitative characterization of the central importance of liquidity management in corporate decision making in the presence of external financing costs.