Free Cash Flows, Inssuance Costs and Volatility
Résumé
We develop a dynamic model of a firm facing agency costs of free cash flow and external financing costs. An explicit solution for the firm's optimal balance sheet dynamics is derived. Financial frictions affect issuance and dividend policies, the value of cash holdings, and the dynamics of stock prices. The model predicts that the marginal value of cash varies negatively with the stock price, and positively with the volatility of the stock price. This yields novel insights on the asymmetric volatility phenomenon, on risk management policies, and on how business cycles and agency costs affect the volatility of stock returns
Mots clés
VOLATILITY (Finance)
CORPORATIONS Cash position
STOCKS (Finance) Prices
AGENCY costs
CASH flow
"BUSINESS cycles"
"STOCKS (Finance) Rate of return"
"SECURITIES"
" CORPORATIONS -- Finance "DIVIDENDS"
"RATE of return"
"FINANCE Mathematical models"
"CASH flow"
"AGENCY costs"
"STOCKS (Finance) Prices"
"CORPORATIONS Cash position"
"VOLATILITY (Finance)"
"RISK management in business"
FINANCE Mathematical models
RATE of return
CORPORATIONS -- Finance "DIVIDENDS
SECURITIES
STOCKS (Finance) Rate of return
BUSINESS cycles
RISK management in business
Domaines
Gestion et management
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