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Kris­ti­an Miltersen

Professor

Subjects
Finance Mortgage finance Interest rates Securities Founding Companies

Primary research areas

Optimal capital structure of firms

What is the optimal mix of debt and equity financing for firms and how should it be dynamically optimized over time. A central part of this answer to this question is also to include the question of the optimal maturity of the firm’s debt.

Dividend policy, equity offerings, and cash and liquidity management of firms

What determines how much cash and liquidity firms should have, and how does this change dynamically over time? The answers to these questions also involve determining how and when firms should get new injections of capital (e.g., equity offerings) and how and when firms should distribute capital back to its owners (e.g., dividends and/or repurchasing stocks).

Dynamic interaction between investment and financing of projects inside firms

Financing and investments depend mutually on each other dynamically over time. When determining the financing of a firm at a given point in time, potential future investment opportunities should be considered, because it may influence the incentives to later accept or reject these future investment projects. At the times when new investment opportunities are adapted, this will be accompanied by a new round of financing, which again needs to consider potential new future investment opportunities.

By helping firms to make better investment and financing decisions, I help society

I completed my PhD on continuous-time term structure of interest rate models in 1992.  Since then, I have gradually drifted from fixed income asset pricing into real options and dynamic corporate finance models.  My most cited work is my Journal of Finance paper on the LIBOR Market model where we give a rational for, but also show the limitations of, the use of the Black-76 formula to price fixed income derivatives.  I have spent more than six years in Norway and more than four years in the US as part of my academic life.  

Together with a long list of co-authors, I have published work on:

Dynamic optimal capital structure and maturity of debt

Dynamic cash and liquidity management

The dynamic interlinkage between investments and financing

R&D investments and competition

Commodity and foreign exchange derivatives

Mortgages

Life insurance and pensions

My research is mainly theoretical. On the teaching side, I have over the years been teaching all the classical finance courses.  Lately, I have mainly been teaching Corporate Finance.

I am Head of Studies for the Study Board of Finance, Economics, and Mathematics.  I am PhD Coordinator for our department, and I am one of two vice chairs of Academic Council at CBS. 

Recent research projects

Dynamic Debt Policy with Observable Issuance

We investigate the dynamic game between equity and debt holders in a tradeoff model of capital structure with proportional debt issuance costs in which lenders can also observe firms' issuance activities. There is an optimal capital structure in which firms retain positive tax benefits with and without commitment. Creditors discipline equity holders not to issue debt too aggressively and firms only issue infrequently and in a lumpy fashion. This result holds even without issuance costs. High credit risk firms cannot always issue debt without commitment whereas low credit risk firms are practically indifferent between committing or not.

The project is co-authored with Jens Dick-Nielsen and Walt Torous.

Interaction between Dynamic Financing and Investments: The Role of Priority Rules

We analyze in a dynamic model how debt priority rules influence firms' initial capital structure choice, investment timing, and subsequent debt issues. We quantify deviations from first-best investment behavior that arise from different debt priority rules, and document surprisingly large deviations caused by well-known rules such as the absolute priority rule. We introduce a new rule, called the efficient priority rule (EPR), that gives equity holders incentives to choose first-best investment timing and financing. Under EPR, old debt has the same value and risk characteristics as if the firm had not invested and new debt had not been issued.

The project is co-authored with Engelbert Dockner and Jøril Mæland.
Working paper on SSRN

Personal Taxes and Corporate Cash Holdings

Dividends are taxed at the personal level, but injecting funds into firms does not offer the symmetric tax benefit. Hence, there is a tax saving incentive to retain cash in the firm. We develop a corporate finance model of liquidity management, in which the firm's liquidity policy trades off precaution and saved personal taxes against agency and corporate tax costs. The model implies that the tax saving motive is substantial and increasing with the dividend tax rate. Consistent with the model, we empirically show that affected firms reduce their cash accumulation after a dividend tax cut.

The project is co-authored with Jens Dick-Nielsen and Ramona Westrermann.
Working paper on SSRN

Outside activities

External examiner and ad hoc evaluator at different universities