We solve for a Firm's optimal cash holding policy within a continuous time, contingent claims framework using dividends, short-term borrowing and equity issues as controls. In line with recent empirical research but in contrast with most of the contingent claims literature we assume mean...

We develop and estimate a Q-Theory style dynamic model of the firm's liquidity reserve and capital structure. The model features financial constraints, finite maturity debt, and growth limited by convex costs. We apply the model to obtain the following: 1. We suggest a resolution of the puzzle,...

We build a simple dynamic structural model of the firm, with state variable being earnings. It can address general empirical levels of investment, dividends, equity issuance in distress, leverage, debt duration, and liquidation/bankruptcy. Firms with very low leverage carry a substantial...