Firm Life Cycles Under Additive Shocks

28 Pages Posted: 30 Sep 2010 Last revised: 1 Dec 2011

See all articles by Klaus Reiner Schenk-Hoppé

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance

Urs Schweri

University of Zurich

Date Written: November 30, 2011

Abstract

The optimal investment-dividend policy of a financially constrained firm whose earnings are subject to additive shocks is shown to exhibit several stylized economic and financial features of the firm life cycle which usually require considerably more complex models. This parsimonious model provides new material for Occam’s razor.

Keywords: Firm life cycle; financing constraints; additive production shock; optimal dividend and investment policy.

JEL Classification: D92, G32

Suggested Citation

Schenk-Hoppé, Klaus Reiner and Schweri, Urs, Firm Life Cycles Under Additive Shocks (November 30, 2011). Swiss Finance Institute Research Paper No. 10-39, Available at SSRN: https://ssrn.com/abstract=1677428 or http://dx.doi.org/10.2139/ssrn.1677428

Klaus Reiner Schenk-Hoppé (Contact Author)

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

Urs Schweri

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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