Excess Capital and Liquidity Management
Levy Economics Institute Working Papers No. 549
10 Pages Posted: 23 Nov 2008
Date Written: November 19, 2008
Abstract
These notes present a new approach to corporate finance, one in which financing is not determined by prospective income streams but by financing opportunities, liquidity considerations, and prospective capital gains. This approach substantially modifies the traditional view of high interest rates as a discouragement to speculation; the Keynesian and Post-Keynesian theory of liquidity preference as the opportunity cost of investment; and the notion of the liquidity premium as a factor in determining the rate of interest on longer-term maturities.
Keywords: Capital structure, financing, overcapitalization, interest rates, liquidity
JEL Classification: D21, G32
Suggested Citation: Suggested Citation