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Market frictions and corporate finance: An overview paper


Rochet, Jean-Charles; Moreno-Bromberg, Santiago (2014). Market frictions and corporate finance: An overview paper. Mathematics and Financial Economics, 8(4):355-381.

Abstract

We present an overview of corporate-finance models where firms are subject to exogenous market frictions. These models, albeit quite simple, yield reasonable predictions regarding financing, pay-outs and default, as well as asset-pricing implications. The price to pay for the said simplicity is the need to use non-standard mathematical techniques, namely Singular and Impulse Stochastic Control. We explore the cases where a firm with fixed expected profitability has access to costly equity issuance as a refinancing possibility, and that where issuance is infinitely costly. We also present a model of bank leverage.

Abstract

We present an overview of corporate-finance models where firms are subject to exogenous market frictions. These models, albeit quite simple, yield reasonable predictions regarding financing, pay-outs and default, as well as asset-pricing implications. The price to pay for the said simplicity is the need to use non-standard mathematical techniques, namely Singular and Impulse Stochastic Control. We explore the cases where a firm with fixed expected profitability has access to costly equity issuance as a refinancing possibility, and that where issuance is infinitely costly. We also present a model of bank leverage.

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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
Scopus Subject Areas:Physical Sciences > Statistics and Probability
Social Sciences & Humanities > Finance
Social Sciences & Humanities > Statistics, Probability and Uncertainty
Language:English
Date:2014
Deposited On:17 Oct 2014 06:45
Last Modified:24 Jan 2022 04:52
Publisher:Springer
ISSN:1862-9679
OA Status:Green
Publisher DOI:https://doi.org/10.1007/s11579-014-0121-5
Other Identification Number:merlin-id:9646
  • Content: Published Version
  • Language: English
  • Description: Nationallizenz 142-005