TY - UNPB
T1 - The Value of Financial Constraints
AU - Kling, Gerhard
PY - 2018/3/1
Y1 - 2018/3/1
N2 - We solve a deterministic impulse control problem with state dependent continuous control constraints. Impulses shift the state variable, altering subsequent continuous control constraints, making established methods difficult to apply. These functionals arise in the context of firm valuation, where capital drives cash flows with diminishing returns, and investment increases capital stock. Continous control constraints capture the firm's investment opportunities. Our model leads to a generalization of the Irrelevance Theorem derived by [1] for firms 'out of equilibrium'. We derive optimal equity and debt finance and determine the value of financial constraints.
AB - We solve a deterministic impulse control problem with state dependent continuous control constraints. Impulses shift the state variable, altering subsequent continuous control constraints, making established methods difficult to apply. These functionals arise in the context of firm valuation, where capital drives cash flows with diminishing returns, and investment increases capital stock. Continous control constraints capture the firm's investment opportunities. Our model leads to a generalization of the Irrelevance Theorem derived by [1] for firms 'out of equilibrium'. We derive optimal equity and debt finance and determine the value of financial constraints.
KW - impulse control
KW - control constraints
KW - financial constraints
UR - http://www.mendeley.com/research/value-financial-constraints
U2 - 10.2139/ssrn.3132330
DO - 10.2139/ssrn.3132330
M3 - Working paper
T3 - SSRN Electronic Journal
BT - The Value of Financial Constraints
PB - SSRN
ER -