We study the issuance and payout policies that maximize the value of a firm facing both agency costs of free cash-flow and external financing costs. We find that the firm optimally issues equity. Equity distributes no dividends until a target cash level is reached, while new equity is issued...

This paper proposes a dynamic model of financial markets where some investors are prone to the confirmation bias. Following insights from the psychological literature, these agents are assumed to amplify signals that are consistent with their prior views. In a model with public information only,...

We develop a bi-dimensional dynamic model of corporate cash management in which shareholders learn about a firm's profitability and weigh the costs and benefits of holding cash. We explicitly characterize the optimal payout policy. We explain how the evolution of the strength of shareholders'...

In this paper, we develop a dynamic model that captures the interaction between the cash reserves, the risk management policy and the profitability of a non-predictable irreversible investment opportunity. We consider a firm that has assets in place generating a stochastic cash- ow stream. The...