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1 – 10 of 25Models for valuing an option to exchange one commodity for another, or any combination of n commodities for some combination of m others, are applied to the capital budgeting…
Abstract
Models for valuing an option to exchange one commodity for another, or any combination of n commodities for some combination of m others, are applied to the capital budgeting problem. By analyzing a project in the exchange option pricing framework, it is possible to draw wellfounded conclusions about the effects on project value of such attributes as flexibility and innovativeness. A project which uses systems that have many alternative uses is recognized by such analysis to be more valuable than an otherwise identical project which uses very specialized systems, because the former provides a greater array of choices. Likewise, a company which thinks of a new use for some kind of system will be able to generate a project which has a higher value than any other company could generate from the same system. By including divestiture as one of the alternatives in the portfolio of options representing a project, it is possible to incorporate project abandonment into the analysis, which is an improvement over earlier methodologies which simply add the value of the “abandonment option” to the discounted cash flow net present value. Finally, shortcomings of the options approach to capital budgeting are discussed.
The financial analysis of international investment decisions is complex. The basic methodology which homes in on incremental cash flows needs to be refined in order to focus upon…
Abstract
The financial analysis of international investment decisions is complex. The basic methodology which homes in on incremental cash flows needs to be refined in order to focus upon cash flows which are remittable to the parent company, for it is only these that would logically add shareholder value. Build in the complications of two lots of tax and changing exchange rates and the equation looks anything but simple. But there is another complexity too which renders the traditional discounting methodology less than wholly appropriate. And this applies not just to international investment but to any situation where capital is committed with an option to expand or curtail embedded in it. This is not to say that the typical model cannot be adapted to meet the situation. It can and it is not too difficult.
Michael C. Ehrhardt and James M. Reeve
Traditional approaches to capital budgeting may be inadequate in today's complex business environment. This paper identifies problems with a narrow approach to capital budgeting…
Abstract
Traditional approaches to capital budgeting may be inadequate in today's complex business environment. This paper identifies problems with a narrow approach to capital budgeting and suggests several improvements. In particular, an example illustrates an option‐based approach to valuing managerial flexibility.
Leslie Monplaisir, Christopher Malikane and Kalu Ojah
We study the performance attributes of an international production form that is designed for success in an increasingly global marketplace‐global product design and development…
Abstract
We study the performance attributes of an international production form that is designed for success in an increasingly global marketplace‐global product design and development. We find that firms elicit higher returns from their global product development when they compete in strategic complements than when they compete in strategic substitutes. These firms are most likely to compete in strategic complements if they have higher free cash flows, but are most likely to compete in strategic substitutes if they are more dominant in their industry. Importantly, global product development reduces cost largely via variable cost reduction. Moreover, we find that global product development contributes to the firm’s growth potential when pursued in conjunction with high multinationalism, aggressive competitive strategy, and high cost saving.
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Sung C. Bae and Dongnyoung Kim
This paper examines the effect of R&D investments on the market value of firms in the U.S., Germany, and Japan. Specially, this paper investigates the empirical validity of the…
Abstract
This paper examines the effect of R&D investments on the market value of firms in the U.S., Germany, and Japan. Specially, this paper investigates the empirical validity of the widely‐held economic views that suggest that the stock‐market oriented U.S. financial system leads to more corporate myopia and hence to less longer‐term investments such as R&D than the bank‐oriented German and Japanese firms. Findings include that U.S. firms invest in R&D as much as their counterparts in Japan and Germany; the market places a significant and positive value on R&D investments by U.S. firms, though lower than German and Japanese firms; and there are notable differences among the three nations with respect to several other variables. The overall evidence lends little support to the corporate myopia view on U.S. firms.
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Ashish Kumar, Vikas Srivastava and Mosab I. Tabash
The objective of this systematic literature review (SLR) is to outline the existing research in the field of infrastructure project finance (IPF). This paper aims to summarise the…
Abstract
Purpose
The objective of this systematic literature review (SLR) is to outline the existing research in the field of infrastructure project finance (IPF). This paper aims to summarise the academic and practitioner research to highlight the benefits of adopting IPF structures in uncertain environments. By highlighting all conceptual and applied implications of IPF, the study identifies future research directions to develop a holistic understanding of IPF.
Design/methodology/approach
The SLR is based on 125 articles published in peer-reviewed journals during 1975–2019. After providing a brief overview of IPF, research methodology and citation, publication and author analysis, the SLR presents the various domains around which existing research in IPF is focussed and provides future research propositions in each domain.
Findings
The study found that despite the increased usage of IPF, academic and practitioner research in the field is lagging. Also, with increased usage of IPF in emerging and under-developed economies, IPF structure presents a perfect setting to understand how investment and financing are interlinked and how to overcome the institutional voids, socio-economic risks and inter-partner differences by IPF structures.
Originality/value
This literature review paper is based on the research in IPF between 1975 and 2019. To the best of the authors’ understanding, the SLR is the first focussed study detailing a methodical and thorough compendium of existing studies in the IPF domain. By focussing on various domains of IPF research, this paper presents future research avenues in the field.
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Chuka Mike Ifeagwazi, Emeka E. Nwokpoku, JohnBosco Chika Chukwuorji, John E. Eze and Emmanuel Ekpedoho Abiama
The modern prison system is not only a necessity to keep the public safe but also a mode of punishment for crimes. The correctional role of prisons is hampered in situations of…
Abstract
Purpose
The modern prison system is not only a necessity to keep the public safe but also a mode of punishment for crimes. The correctional role of prisons is hampered in situations of mental illness, given that mental illness in the prison or correctional setting is a serious security risk. Few studies have given attention to the modifiable factors that may influence the mental health status of prison inmates, especially in developing countries. The purpose of this paper is to investigate emotion regulation (ER), dispositional mindfulness and duration of stay as factors in somatic symptoms among prison inmates.
Design/methodology/approach
Participants were 209 prison inmates drawn from a prison in Eastern Nigeria, who completed measures of ER (cognitive reappraisal and expressive suppression), mindfulness and somatization.
Findings
Results of a hierarchical multiple regression indicated that cognitive reappraisal predicted somatic complaints but it was only among older prison inmates, while expressive suppression was not a significant predictor of somatic complaints. Dispositional mindfulness was a negative predictor of somatic complaints among younger and older prison inmates. Duration of stay in prison positively predicted somatic complaints among prison inmates in emerging adulthood only (younger inmates), but not among older inmates.
Research limitations/implications
Frequent use of cognitive reappraisal strategy of ER by prisoners may not always be productive in reducing somatic complaints, and the length of time in prison may influence somatic symptoms especially for younger prisoners. The possible benefits of incorporating mindfulness-based therapies in psychosocial interventions to reduce somatic complaints in correctional settings deserves further investigation.
Originality/value
To date, there is limited research on somatic complaints of prisoners in the developing societies, particularly the psychosocial factors that may contribute to mental health problems.
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This article focuses on three related themes. Firstly, normative decision rules for the international capital budgeting decision are outlined. Secondly, the strengths and…
Abstract
This article focuses on three related themes. Firstly, normative decision rules for the international capital budgeting decision are outlined. Secondly, the strengths and limitations of finance theory in guiding the capital budgeting plan within the MNC are discussed. Thirdly, strategic views are introduced to complement financial analysis in the area of international capital budgeting.
James Forjan and Bonnie Van Ness
Poison pill securities can be used to deter takeover activity by making the acquisition cost prohibitive or to increase bargaining power of target firms. Poison pills, which are…
Abstract
Poison pill securities can be used to deter takeover activity by making the acquisition cost prohibitive or to increase bargaining power of target firms. Poison pills, which are also known as shareholder rights plans, are typically used in conjunction with other takeover defense mechanisms, such as anti‐takeover charter amendments or dual classes of stock. This study examines the role that debt plays as an anti‐takeover strategy in the presence of poison pills. The results show that, on average, capital markets have little reaction to poison pill announcements. A regression equation, however, shows that announcement period abnormal returns are positively related to leverage ratios. This paper provides empirical evidence that the capital structure of firms plays an important role in the perceived strength of poison pills.
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Most of the past studies have managed to confirm the value‐relevance of R&D, but few of them have formally addressed the issue of knowledge spillovers. In reality, firms improve…
Abstract
Most of the past studies have managed to confirm the value‐relevance of R&D, but few of them have formally addressed the issue of knowledge spillovers. In reality, firms improve their know‐how both by producing new knowledge and by learning from others. The objective of this study is to examine the relevance of R&D and knowledge spillovers as an explanation for the observed inconsistency between market and book values. While the level of R&D is measured by R&D expenses and patent counts, the intensity of knowledge spillovers is measured by tracing the linkages between inventions across time as established by patent citations. Specifically, knowledge spillovers are decomposed into intraindustry, internal, and interindustry spillovers. The empirical findings from this study conclude that R&D and knowledge spillovers are value‐relevant. The results also suggest that, among the three components of spillovers, intraindustry spillovers have the strongest impact on market‐to‐book ratios.