Optimal Dividend Policy with Random Interest Rates

27 Pages Posted: 9 Apr 2013

See all articles by Erdinc Akyildirim

Erdinc Akyildirim

Akdeniz University

Ibrahim Güney

University of Zurich, Swiss Finance Institute

Jean-Charles Rochet

GFRI, University of Geneva; Swiss Finance Institute; University of Zurich - Swiss Banking Institute (ISB)

Halil Mete Soner

ETH Zürich; Swiss Finance Institute

Date Written: April 5, 2013

Abstract

Several recent papers have studied the impact of macroeconomic shocks on the financial policies of firms. However they only consider the case where these macroeconomic shocks affect the profitability of firms but not the financial markets conditions. We study the polar case where the profitability of firms is stationary, but interest rates and issuance costs are governed by an exogenous Markov chain. We characterize the optimal dividend policy and show that these two macroeconomic factors have opposing effects: all things being equal, firms distribute more dividends when interest rates are high and less when issuing costs are high.

Keywords: Dividend Policy, Business Cycles, Financial Frictions

JEL Classification: G35, E32, C61

Suggested Citation

Akyildirim, Erdinc and Güney, Ibrahim and Rochet, Jean-Charles and Soner, Halil Mete, Optimal Dividend Policy with Random Interest Rates (April 5, 2013). Swiss Finance Institute Research Paper No. 13-14. Available at SSRN: https://ssrn.com/abstract=2245638 or http://dx.doi.org/10.2139/ssrn.2245638

Erdinc Akyildirim

Akdeniz University ( email )

Antalya, Kampus
Turkey

Ibrahim Güney

University of Zurich, Swiss Finance Institute ( email )

Plattenstr. 32
Office: G06
Zurich, 8032
Switzerland

Jean-Charles Rochet (Contact Author)

GFRI, University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

University of Zurich - Swiss Banking Institute (ISB) ( email )

Plattenstrasse 14
CH-8032 Zurich, Zurich 8032
Switzerland

Halil Mete Soner

ETH Zürich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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