We propose a tractable model of dynamic investment, spinoffs, financing, and risk management for a multi-division firm facing costly external finance. Our main results are: (1) within-firm resource allocation is based not only on the divisions’ productivity—as in “winner picking”...

We develop a model where a realization-utility investor (Barberis and Xiong, 2009, 2012; Ingersoll and Jin, 2013) optimally targets her liquid-illiquid wealth ratio at a constant w∗. By saving in the risk-free asset (w∗ 0), she makes smaller bets in the illiquid asset and realizes gains/losses...

We propose a tractable model of dynamic investment, division sales (spinoffs), financing, and risk management for a multi-division firm that faces costly external finance. The model highlights the importance of considering the intertwined nature of the different policies. Our main results are as...

Many business opportunities feature second-mover advantages as there are often positive spillovers and externalities from early entrants to followers. We develop a tractable stochastic duopoly entry game with a second-mover advantage. We show that firms engage in a war-of-attrition game with the...

Many business opportunities feature second-mover advantages as there are often positive spillovers and externalities from early entrants to followers. We develop a tractable stochastic duopoly entry game with a second-mover advantage. We show that firms engage in a war-of-attrition game with the...

An investor receives utility bursts from realizing gains and losses at the individual-stock level (Barberis and Xiong, 2009, 2012; Ingersoll and Jin, 2013) and dynamically allocates his mental budget between risky and risk-free assets at the trading-account level. Using savings, he reduces his...

We propose a tractable model of dynamic investment, division sales (spinoffs), financing, and risk management for a multi-division firm that faces costly external finance. The model highlights the importance of considering the intertwined nature of the different policies. Our main results are as...

We analyze a duopoly real-option entry game where the second mover has a cost advantage over the first mover. The equilibrium solution features five regions. In addition to the option-value-of-waiting and competing-to-enter (first-mover-advantage) regions (Fudenberg and Tirole, 1985; Grenadier,...