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The dynamics of corporate financial policies, group decisions, and coalition formation.

PI: Prof. Bart Lambrecht (award holder)

Dr Shiqi Chen (co-investigator)

Project Period: February 2021 - February 2023

 

This research studies the dynamics of the three main corporate policies: the investment, financing and payout decisions. We first study how these decisions interact, and whether the theories of corporate capital structure and payout can be reconciled with each other given these interactions. Next, we study investment and payout decisions made by a group of investors. We examine the formation, composition, efficiency, evolution and stability of the decision-making coalitions.

Traditionally, the finance literature has studied the firm’s three main financial policies in isolation. However, in reality these three key corporate decisions are not independent as they are linked by the firm’s sources and uses of funds constraint. The interdependencies between the firm’s policies raise many questions that have not been recognized in the existing literature. For example, if we believe that firms follow a target leverage ratio, what are the implications for the dynamics of payout and investment? Alternatively, what are the implications for payout and investment if firms follow a pecking order policy? Our research aims to explore these questions from a theoretical perspective, with a view to produce empirical predictions as to how payout, investment and capital interact.

In the second project, we want to develop a dynamic model that examines the formation, composition, evolution and stability of decision-making coalitions. In particular, we want to study how the sharing rules, cooperation and bargaining among agents affects the composition of a ruling coalition when the profits to be shared are uncertain. We want to examine how the composition of the coalition evolves as profits change and identify conditions that yield stable coalitions.

Project Update - April 2021

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Best Student Paper Award 2021 - competition is now open

Feb 12, 2021

For the last 13 years, Cambridge Finance is offering its Best Student Paper Award. The award comprises a cash honorarium of £1,000 and a certificate is awarded to the author of the best student paper in finance presented during the 2020-2021 academic year.

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