Год выпуска: 2011 Автор: Arnav Sheth Издательство: LAP Lambert Academic Publishing Страниц: 180 ISBN: 9783846508107
Описание
We solve a series of four stochastic control problems for a firm whose cash flows are a diffusion process that includes (individually): (i) Financial distress costs; (ii) Costs of company politics; (iii) Agency costs of free cash flow and; (iv) Physical asset upgrades. Amongst other things, our results show that: (a) There are conditions for which asset substitution (risk?taking when close to broke) is optimal, with financial distress costs; (b) When politicking amongst employees exists, it is optimal to keep the firm extremely small by downsizing frequently; (c) Increasing the free cash boundary (or equivalently increasing cash obligations) would reduce the agency costs associated with free cash flow from overly negligent managers; (d) It is optimal to have a buffer cash zone before upgrading technologies, rather than upgrade immediately. We solve for the optimal operating strategy using an algorithm that includes applying Ito calculus, the use of martingale theory and linear...
