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Dividends and leverage: How to optimally exploit a non-renewable investment


Coculescu, Delia (2011). Dividends and leverage: How to optimally exploit a non-renewable investment. Journal of Economic Dynamics and Control, 35(3):312-329.

Abstract

In this paper we model the situation where a non-renewable investment is given, for instance a resource reservoir, and show how to optimally trade-off between dividends and leverage, in order to maximize a performance indicator for shareholders, up to the bankruptcy time. We then study the way market risk (the volatility of the market price of the resource) impacts the optimal policies and the default risk of the company. The moments when the policies are rebalanced are analyzed and we give a measure of the agency costs which appear between the shareholders and the debt-holders.

Abstract

In this paper we model the situation where a non-renewable investment is given, for instance a resource reservoir, and show how to optimally trade-off between dividends and leverage, in order to maximize a performance indicator for shareholders, up to the bankruptcy time. We then study the way market risk (the volatility of the market price of the resource) impacts the optimal policies and the default risk of the company. The moments when the policies are rebalanced are analyzed and we give a measure of the agency costs which appear between the shareholders and the debt-holders.

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2 citations in Web of Science®
3 citations in Scopus®
2 citations in Microsoft Academic
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:March 2011
Deposited On:22 May 2017 14:27
Last Modified:24 Jun 2018 07:22
Publisher:Elsevier
ISSN:0165-1889
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jedc.2010.11.007
Other Identification Number:merlin-id:14833

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