Dear colleagues,
You are kindly invited to attend the following VGSF research seminars:
Seminar 1: What gives? A Study of Firms' Reactions to Cash Shortfalls Speaker: Toni Whited (University of Wisconsin-Madison) Time: 2008-04-04, Friday, 14:00-15:30
Seminar 2: Time Inconsistent Stochastic Control Speaker: Tomas Björk (Stockholm School of Economics) Time: 2008-04-04, Friday, 16:00-17:30
Location: 1190, Heiligenstädter Strasse 46-48, seminar room 1 (ground floor) (WU-H46)
The paper to be presented by Toni Whited can be downloaded from the VGSF website (http://www.vgsf.ac.at/activities/seminars.htm). The abstracts are attached below.
Best regards,
Youchang
*What Gives? A Study of FirmsReactions to Cash Shortfalls* *Abstract* This paper examines the relative magnitude of financial versus real frictions by looking at how firms react to exogenous cash shortfalls. To answer the question theoretically, we examine a dynamic model of financing and exogenous cash shortfalls. We find that when financing costs are high, firms adjust on real margins and vice versa. To answer the question empirically, we use a regression discontinuity design, in which the discontinuity is the point of violation of underfunding of corporate defined benefit pension plans. We examine firm-year observations in which the firms pension assets are just barely less than its pension liabilities, and in which, consequently, the firm must make a mandatory contribution to its pension plan. We compare this group to a control group of firm-year observations in which the rm has just barely escaped having to make a mandatory contribution. In this quasi-experimental setting, we find little evidence that firms cut back on their real activities such as employment and investment. Instead, they use a variety of financial tools, such as cash, working capital management, and short-term external financing to fund their pension liabilities.
*Time Inconsistent Stochastic Control Abstract *In this talk we will present some recent work on non-classical stochastic control problems which are "time inconsistent" in the sense that they cannot be treated by dynamic programming. We present a game-theoretic approach to such problems and we derive an extended version of the Hamilton-Jacobi-Bellman equation in terms of a system of PDEs for the determination of the associated subgame perfect Nash equilibrium strategy. We also present applications from finance.