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Article: The firm under uncertainty: real and financial decisions

TitleThe firm under uncertainty: real and financial decisions
Authors
KeywordsBackground Risk
Capital Structure
Price Uncertainty
Issue Date2013
PublisherSpringer-Verlag Italia Srl. The Journal's web site is located at http://www.springer.it/libri_libro.asp?id=205
Citation
Decisions In Economics And Finance, 2013, v. 36 n. 2, p. 125-136 How to Cite?
AbstractThis paper examines the interplay between the real and financial decisions of the competitive firm under output price uncertainty. The firm faces additional sources of uncertainty that are aggregated into a background risk. We show that the firm always chooses its optimal debt-equity ratio to minimize the weighted average cost of capital, irrespective of the risk attitude of the firm and the incidence of the underlying uncertainty. We further show that the firm's optimal input mix depends on its optimal debt-equity ratio, thereby rendering the interdependence of the real and financial decisions of the firm. When the background risk is either additive or multiplicative, we provide reasonable restrictions on the firm's preferences so as to ensure that the firm's optimal output is adversely affected upon the introduction of the background risk. © 2012 Springer-Verlag.
Persistent Identifierhttp://hdl.handle.net/10722/177790
ISSN
2015 SCImago Journal Rankings: 0.167

 

DC FieldValueLanguage
dc.contributor.authorBroll, Uen_US
dc.contributor.authorWong, KPen_US
dc.date.accessioned2012-12-19T09:39:55Z-
dc.date.available2012-12-19T09:39:55Z-
dc.date.issued2013en_US
dc.identifier.citationDecisions In Economics And Finance, 2013, v. 36 n. 2, p. 125-136en_US
dc.identifier.issn1593-8883en_US
dc.identifier.urihttp://hdl.handle.net/10722/177790-
dc.description.abstractThis paper examines the interplay between the real and financial decisions of the competitive firm under output price uncertainty. The firm faces additional sources of uncertainty that are aggregated into a background risk. We show that the firm always chooses its optimal debt-equity ratio to minimize the weighted average cost of capital, irrespective of the risk attitude of the firm and the incidence of the underlying uncertainty. We further show that the firm's optimal input mix depends on its optimal debt-equity ratio, thereby rendering the interdependence of the real and financial decisions of the firm. When the background risk is either additive or multiplicative, we provide reasonable restrictions on the firm's preferences so as to ensure that the firm's optimal output is adversely affected upon the introduction of the background risk. © 2012 Springer-Verlag.en_US
dc.languageengen_US
dc.publisherSpringer-Verlag Italia Srl. The Journal's web site is located at http://www.springer.it/libri_libro.asp?id=205en_US
dc.relation.ispartofDecisions in Economics and Financeen_US
dc.rightsThe original publication is available at www.springerlink.com-
dc.subjectBackground Risken_US
dc.subjectCapital Structureen_US
dc.subjectPrice Uncertaintyen_US
dc.titleThe firm under uncertainty: real and financial decisionsen_US
dc.typeArticleen_US
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_US
dc.identifier.authorityWong, KP=rp01112en_US
dc.description.naturelink_to_subscribed_fulltexten_US
dc.identifier.doi10.1007/s10203-011-0126-yen_US
dc.identifier.scopuseid_2-s2.0-84884703164en_US
dc.identifier.hkuros226684-
dc.identifier.spage125en_US
dc.identifier.epage136en_US
dc.publisher.placeItalyen_US
dc.identifier.scopusauthoridBroll, U=7004024398en_US
dc.identifier.scopusauthoridWong, KP=7404759417en_US
dc.identifier.citeulike10217284-

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