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| Main Authors: | , , |
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| Format: | Preprint |
| Published: |
2024
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| Subjects: | |
| Online Access: | https://arxiv.org/abs/2401.15827 |
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| _version_ | 1866910310133137408 |
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| author | Yan, Kaixin Wang, Wenyuan Zhu, Jinxia |
| author_facet | Yan, Kaixin Wang, Wenyuan Zhu, Jinxia |
| contents | We investigate a value-maximizing problem incorporating a human behavior pattern: present-biased-ness, for a firm which navigates strategic decisions encompassing earning retention/payout and capital injection policies, within the framework of Lévy processes. We employ the concept of stochastic quasi-hyperbolic discounting to capture the present-biased inclinations and model decision making as an intra-personal game with sophisticated decision-makers. Our analysis yields closed-form solutions, revealing that double-barrier strategies constitute Markov equilibrium strategies. Our findings reveal that firms, influenced by present-biased-ness, initiate dividend payments sooner, diminishing overall value compared to scenarios without present-biased-ness (under exponential discounting). We also discuss bailout optimality, providing necessary and sufficient conditions. The impact of behavioral issues is examined in the Brownian motion and jump diffusion cases. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2401_15827 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Value Maximization under Stochastic Quasi-Hyperbolic Discounting Yan, Kaixin Wang, Wenyuan Zhu, Jinxia Optimization and Control We investigate a value-maximizing problem incorporating a human behavior pattern: present-biased-ness, for a firm which navigates strategic decisions encompassing earning retention/payout and capital injection policies, within the framework of Lévy processes. We employ the concept of stochastic quasi-hyperbolic discounting to capture the present-biased inclinations and model decision making as an intra-personal game with sophisticated decision-makers. Our analysis yields closed-form solutions, revealing that double-barrier strategies constitute Markov equilibrium strategies. Our findings reveal that firms, influenced by present-biased-ness, initiate dividend payments sooner, diminishing overall value compared to scenarios without present-biased-ness (under exponential discounting). We also discuss bailout optimality, providing necessary and sufficient conditions. The impact of behavioral issues is examined in the Brownian motion and jump diffusion cases. |
| title | Value Maximization under Stochastic Quasi-Hyperbolic Discounting |
| topic | Optimization and Control |
| url | https://arxiv.org/abs/2401.15827 |