Erwan Pierre, Stéphane Villeneuve, and Xavier Warin, Capital Investment and Liquidity Management with collateralized debt, IDEI Working Paper, n. 841, November 2014.


This paper examines the dividend and investment policies of a cash constrained firm that has access to costly external funding. We depart from the literature by allowing the firm to issue collateralized debt to increase its investment in productive assets resulting in a performance sensitive interest rate on debt. We formulate this problem as a bi-dimensional singular control problem and use both a viscosity solution approch and a verification tech- nique to get qualitative properties of the value function. We further solve quasi-explicitly the control problem in two special cases.


Investment; dividend policy; singular control; viscosity solution;

JEL codes

  • C61: Optimization Techniques • Programming Models • Dynamic Analysis
  • G35: Payout Policy