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http://ssrn.com/abstract=1658362
 
 

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Capital Supply Uncertainty, Cash Holdings, and Investment


Julien N. Hugonnier


Swiss Federal Institute of Technology Lausanne - Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Semyon Malamud


Ecole Polytechnique Federale de Lausanne; Swiss Finance Institute

Erwan Morellec


Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

April 30, 2014

Swiss Finance Institute Research Paper No. 11-44

Abstract:     
We develop a dynamic model of investment, financing, and cash management decisions in which investment is lumpy and firms face capital supply uncertainty. We characterize optimal policies explicitly, demonstrate that smooth-pasting conditions may not guarantee optimality, and show that firms may not follow standard Miller and Orr (1966) barrier policies. In the model, firms with high investment costs differ in their behaviors from firms with low investment costs, financing policy does not follow a strict pecking order, and the optimal payout policy may feature several regions with both incremental and lumpy dividend payments.

Number of Pages in PDF File: 84

Keywords: Capital supply uncertainty, cash management, lumpy investment, inventory models

JEL Classification: D83, G24, G31, G33, G35

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Date posted: August 15, 2010 ; Last revised: May 7, 2014

Suggested Citation

Hugonnier, Julien N. and Malamud, Semyon and Morellec, Erwan, Capital Supply Uncertainty, Cash Holdings, and Investment (April 30, 2014). Swiss Finance Institute Research Paper No. 11-44. Available at SSRN: http://ssrn.com/abstract=1658362 or http://dx.doi.org/10.2139/ssrn.1658362

Contact Information

Julien N. Hugonnier
Swiss Federal Institute of Technology Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )
Quartier UNIL Dorigny
Extranef
Lausanne, CH-1015
Switzerland
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Semyon Malamud
Ecole Polytechnique Federale de Lausanne ( email )
Lausanne, 1015
Switzerland
Swiss Finance Institute
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Erwan Morellec (Contact Author)
Ecole Polytechnique Fédérale de Lausanne ( email )
College of Management
Extranef Quartier UNIL-Dorigny
1015 Lausanne, CH-1015
Switzerland
HOME PAGE: http://sfi.epfl.ch/
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
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