Optimal dividend policy with random interest rates |
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| Institution: | 1. University of Zürich, Switzerland;2. Swiss Finance Institute, Switzerland;3. Toulouse School of Economics, France;4. ETH (Swiss Federal Institute of Technology), Zürich, Switzerland;1. University of Wisconsin, Whitewater, United States;2. Utah State University, United States;1. Borsa Istanbul, Business and Product Development Department, Turkey;2. Department of Mathematics, ETH Zurich, Switzerland;3. Swiss Finance Institute, Switzerland;1. Faculty of Actuarial Science and Insurance, Cass Business School, London, United Kingdom;2. Centre for Actuarial Studies, Department of Economics, The University of Melbourne, VIC 3010, Australia;3. Department of Mathematics, Wayne State University, Detroit, MI 48202, United States |
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| Abstract: | Several recent papers have studied the impact of macroeconomic shocks on the financial policies of firms. However, they only consider the case where these macroeconomic shocks affect the profitability of firms but not the financial markets conditions. We study the polar case where the profitability of firms is stationary, but interest rates and issuance costs are governed by an exogenous Markov chain. We characterize the optimal dividend policy and show that these two macroeconomic factors have opposing effects: all things being equal, firms distribute more dividends when interest rates are high and less when issuing costs are high. |
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| Keywords: | Dividend policy Business cycles Financial frictions |
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