Optimal Ratchet Dividend Policy with Reset Mechanism

This study focuses on the optimal dividend policy problem under ratchet and bankruptcy constraints, allowing firms to cut dividend payout ratios after negative impacts on equity valuation, consistent with relevant empirical findings. The study provides necessary and sufficient conditions for the finiteness of the value function, proves its differentiability, and characterizes it via viscosity solutions and super-contact properties. It equivalently reduces the original two-dimensional variational inequality problem to a one-dimensional framework, and conducts numerical simulations and parameter sensitivity analyses to verify the impact of overreaction to financial news on managers' optimal policies.