Dynamic Dividend and Investment Decisions in Value Added Firms: An Application to Farmer Owned Ethanol Plants
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The paper analyzes the dynamic interaction between dividend and investment by adopting
numerical methods in a growth framework. Two benchmark models are introduced and their
modified version for ethanol production is particularly studied. The transition path supports the
trend of smoothing procedure and approximately follows plant’s life cycle. After ethanol plants
achieve the mature size, impulse response functions and moment properties for dividend and
investment associated with margin shocks and interest rate shocks are computed numerically.
The result suggests that investment amount is adjusted in wide range and dividend decision is
highly associated with cash flows available in ethanol plants.