Corporate Investment, Tobin's Q and Liquidity Management under Time-Inconsistent Preferences

摘要

We incorporate time-inconsistent preferences into a dynamic model of corporate investment and liquidity management. For the dividend strategy, we find time-inconsistent preferences always accelerate firm's cash payout. By contrast, the influence of time-inconsistent preferences on the investment policy is ambiguous, which depends on firm's liquidity measured by the cash-capital ratio w = W/K. It shows that time-inconsistent preferences induce the shareholder to over-invest when firm's liquidity is essentially low. However, the shareholder prefers under-investing as the firm has sufficient cash. Furthermore, we find time-inconsistent preferences significantly lower a firm's average q and marginal q as well as marginal value of liquidity. Finally, the impact on the investment policy and liquidity management also depends on such factors as whether the shareholder is sophisticated or naive in the expectation regarding his future time-inconsistent behavior.