The Behavioral and Experimental Economics group has an influential position in this field in the Netherlands and Europe. CREED, the Amsterdam-based group, focuses particularly on three main projects: economics of political decision making; bounded rationality and institutions and experimental economics. The research of the Rotterdam-based group focuses on two broad themes: decision under risk and uncertainty and intertemporal choice.
- S. Gryglewicz
- Journal of Financial Economics, 2011, 99(2), 365-84
This paper studies the impact of both liquidity and solvency concerns on corporate finance. I present a tractable model of a firm that optimally chooses capital structure, cash holdings, dividends, and default while facing cash flows with long-term uncertainty and short-term liquidity shocks. The model explains how changes in solvency affect liquidity and also how liquidity concerns affect solvency via capital structure choice. These interactions result in a dynamic cash policy in which cash reserves increase in profitability and are positively correlated with cash flows. The optimal dividend distributions implied by the model are smoothed relative to cash flows. I also find that liquidity concerns lead to a decrease of dispersion of credit spreads.
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