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Cambridge Endowment for Research in Finance (CERF)


PI: Prof. Bart Lambrecht (award holder)

Dr Shiqi Chen (co-investigator)

Project Period: February 2021 - July 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, such as a partnership. We examine the formation, composition, organizational and legal structure 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 study partnerships. In particular, we examine how the partners’ personal liability, their sharing rule, personal taxes, and capital constraints determine the partnership’s optimal size, financing, and investment decisions, and the partners’ optimal degree of personal liability.

Project Update - August 2023


Project Update - April 2022

Project Update - August 2021

Project Update - April 2021