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Dividends and leverage: How to optimally exploit a non-renewable investment

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  • Coculescu, Delia
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    Abstract

    In this paper we model the situation where a non-renewable investment is given, for instance a resource reservoir, and show how to optimally trade-off between dividends and leverage, in order to maximize a performance indicator for shareholders, up to the bankruptcy time. We then study the way market risk (the volatility of the market price of the resource) impacts the optimal policies and the default risk of the company. The moments when the policies are rebalanced are analyzed and we give a measure of the agency costs which appear between the shareholders and the debt-holders.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 35 (2011)
    Issue (Month): 3 (March)
    Pages: 312-329

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    Handle: RePEc:eee:dyncon:v:35:y:2011:i:3:p:312-329

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    Web page: http://www.elsevier.com/locate/jedc

    Related research

    Keywords: Dividend policy Capital structure Non-renewable investment Default risk Bankruptcy costs Agency costs;

    References

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