Research On Enterprise Investment And Financing, Pricing And Risk Managemen

Liquidity management has long since been the central topics in the field of corporate finance.Literatures often combine liquidity management and corporate investment strategies together and generate many classic theories,such as precautionary saving,financing constraints,strategic cash holding,adjustment costs and R?D-smoothing investment.These theories have been widely accepted both in academic and industrial area.However,these theories usually are not incorporated into a unified framework with other important firm decisions,so that causing difficulties providing explanations for some economic issues.In addition,existing literatures often investigate firms' decisions with operating revenue given,and overlook the important role of liquidity risk per se.Therefore,this paper discusses corporate investment,valuation,and risk management under a unified theoretic framework,and investigates what effects that different forms of liquidity shocks can cause to firms' decision,which develops the theoretic framework of financing,investment,and risk management,and provides a more comprehensive explanation of some observed economic phenomenons.Contributions are shown as below.First,this paper induces cash-flow risk into an industry-competition model,and investigates the simultaneous effects from winner's advantage,financing frictions,cash-flow risks on the firm's innovation investment decision and firm value.The results show that different from convention wisdom,cash-flow risk does not necessarily does harm to firm value.However,it is the winner's advantage that determines whether the cash-flow risk is an opportunity or a threat to the firm.We find “funding effect” and “precaution effect” of cash-flow risks,and winner's advantage impacts both at the same time,thus the firm could adopt totally different investment strategies according to the different value of winner's advantage.Specifically,when the winner's advantage is strong,the firm attaches more importance on the potential rich revenue so that the funding effect dominates.Now the increase of cash-flow risk would stimulate the firm to adopt aggressive innovation investment strategies,and lead to a higher value.If the winner's advantage is weak,however,funding effect causes a very limited promotion of firm value,thus now the consideration for risk becomes more important.In case of the financial distress,an increase of cash-flow risk would make the firm adopt a more conservative innovation strategy.Second,this paper incorporates innovation into a continuous-time corporate finance framework,to investigate the positive liquidity shock's effects on the firm's dynamic investment and risk management.We discuss the relationship between marginal value of cash,financing constraints,and continuation value thoroughly,to furthermore investigate the firm's tradeoff between asset sales,capital investment,and innovation investment.The results show that the positive liquidity shock helps improve the firm's continuation value and the marginal value of cash,increasing its demand for liquidity.If without external financing opportunity,the firm would do more asset sales due to the increase of continuation value,so that the underinvestment phenomenon merges.On the contrary,if with external financing channel,the firm would “overinvest” since the average financing costs get lowered.In addition,innovation does not alter the classic “three-stage hedging” pattern.Third,this paper uses model uncertainty to capture the effects of a negative liquidity shock on the firm's daily operation.We find that model uncertainty is totally different from traditional business risk,which directly harms the firm's continuation value,lowers its demand for liquidity and for investment.Interestingly,classical risk management tools can play a good role in alleviating the value-loss issue caused by this negative liquidity shock,since through hedging,the original model becomes more trustworthy and the belief distortion gets cut down.Furthermore,since managing model uncertainty requires such a sharp rise on hedging ratio that “no-hedging region” could vanish,hedging induces large demands for liquidity,and therefore the demand for liquidity gradually becomes harder to distinguish from business risk.This result provides theoretic explanations that it is sometimes difficult to statistically distinguish model uncertainty from business risk.Lastly,we relax the assumption a bit more,to incorporate incomplete information into the framework of a continuous-time corporate finance model.Empirical results show that it is sometimes improper to assume a constant growth rate.Therefore we use Bayesian updating process to capture the learning process of the firm for productivity.The results show that under incomplete information,belief directly determines the expected continuation value,fortifying the classical interpretations of Tobin's Q,but its impacts on marginal Q become ambiguous.Correspondingly,with a higher belief,the firm would take a more activate investment strategy,have a larger demand for liquidity.Besides,we offer the numerical solution of the complex PDE,which may provide a useful reference for related research.