The Continuous Capital Corporation

Abstract

Traditionally, a capital increase is a one-time event driven by the management of a firm. I explore the dynamics of the opposite, namely letting a company engage in a continuous offering and buyback if its own shares at a zero spread. When doing so according to deterministic and publicly known pricing mechanics, control over the capital level is shifted from the company to the invisible hand of the open market. I derive pricing mechanics that allow a market consisting of rational investors to push an economy consisting of continuous capital corporation to the optimal capital allocation under a wide range of circumstances. These circumstances include unanticipated interest rate changes, technology shocks, as well as input and output price changes.

Keywords: Decentralized Finance, Corporate Finance, Equilibrium Theory

JEL Classification: G11