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1 – 10 of 491The globalization of markets and businesses has meant that many companies now consider the world as a potential marketplace. In this changing environment, two crucial decisions…
Abstract
The globalization of markets and businesses has meant that many companies now consider the world as a potential marketplace. In this changing environment, two crucial decisions taken by companies are time of entry (e.g. whether to enter early or late) and level of involvement (e.g. whether to adopt low involvement modes such as exports or high involvement modes such as sole venture). Although existing research has examined these issues and underscored the importance of these two decisions in isolated descriptive research, none has developed an integrated mathematical modeling framework for handling these two decisions simultaneously. To alleviate this important gap in the literature, develops a mathematical model for considering these decisions in a simultaneous framework. The results of the model are illustrated by means of numerical simulations. Managerial implications of the model and future research directions are delineated.
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– The purpose of this paper is to solve the optimal managerial compensation problem when shareholders are either naïvely optimistic or rational.
Abstract
Purpose
The purpose of this paper is to solve the optimal managerial compensation problem when shareholders are either naïvely optimistic or rational.
Design/methodology/approach
The paper uses applied game theory to derive the optimal CEO compensation package with over optimistic shareholders.
Findings
The results suggest that boards of directors should decrease option grants to CEOs when equity is likely to be irrationally overvalued at the date when the CEO's options vest.
Research limitations/implications
The implications of the model are consistent with the available empirical evidence. In addition, the model generates new testable predictions about managerial stock price manipulation, the number of options granted, and the magnitude of the options’ strike prices that have not yet been formally tested.
Originality/value
This is the only paper to derive closed-form solutions to optimal CEO compensation when shareholders are naïvely optimistic.
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Shavin Malhotra and K. Sivakumar
The purpose of this paper is to develop and test a theoretical model of managerial decisions involving international market entry.
Abstract
Purpose
The purpose of this paper is to develop and test a theoretical model of managerial decisions involving international market entry.
Design/methodology/approach
The authors propose a mathematical model that seeks the optimal level of cultural distance between the host and the home country and the market potential of the host country that maximizes a firm's investment in an international market. The authors illustrate the intuition and the managerial application of the model using a large data set of cross‐border acquisitions, then the results of this data set are used to validate the model in a specific data context.
Findings
The authors find that cultural distance and market potential have curvilinear and interaction effects on the level of equity participation. The empirical results are further used to conduct sensitivity analysis of decisions for changes in parameters.
Research limitations/implications
The authors’ general approach can be used to analyze any two variables that have interaction effect on a variable of interest related to market entry strategies.
Practical implications
The authors illustrate the intuition and the managerial application of the model using a large data set of cross‐border acquisitions. Managers can use this approach in choosing CBA targets.
Originality/value
The study provides a mathematical framework and an empirical illustration of optimizing the cultural distance and market potential for maximizing equity participation in foreign market acquisitions. This is a new unique contribution to the literature.
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The concept of geoeconomic time, introduced here, is based on the interface among economic activity, technology, and geophysical processes. Geoeconomic time is what should frame…
Abstract
The concept of geoeconomic time, introduced here, is based on the interface among economic activity, technology, and geophysical processes. Geoeconomic time is what should frame economic analysis of global warming policy. Otherwise, the analysis will be flawed. Application of geoeconomic time to global warming has two parts. The first is the future time frame for projecting impacts on the earth. The second is the historic time frame for delineating our bounds of ignorance regarding the possible consequences of global warming. Many economic analyses conclude against policies to reduce emissions of warming gases, and instead conclude in favour of the “optimal” policy of adapting to global warming. The concept of geoeconomic time reveals that the magnitude of our ignorance is of such a scale that we can never reduce uncertainty sufficiently to design “optimal” policies. Concludes in favour of risk‐reducing policies for research, development and commercialization of energy efficiency technologies and renewable energy. Successful examples can be found at the state and local levels of government action.
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K. Sivakumar and Cheryl Nakata
Companies are increasingly bringing personnel together into teams from different countries, physically and/or electronically, to develop products for multiple or worldwide…
Abstract
Companies are increasingly bringing personnel together into teams from different countries, physically and/or electronically, to develop products for multiple or worldwide markets. Called global new product teams (GNPTs), these groups face significant challenges, including cultural diversity. Differing cultural values can lead to conflict, misunderstanding, and inefficient work styles on the one hand, and strong idea generation and creative problem solving on the other. A study was conducted to identify team compositions that would optimize the effects of national culture so that product development outcomes are favorable. This began by developing a theoretical framework describing the impact of national culture on product development tasks. The framework was then translated into several mathematical models using analytical derivations and comparative statics. The models identify the levels and variances of culture values that maximize product development success by simultaneously considering four relevant dimensions of GNPT performance. Next, the utility of these models was tested by means of numerical simulations for a range of team scenarios. Concludes by drawing implications of the findings for managers and researchers.
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Following Hadar and Seo, the paper aims to determine, in the case of a portfolio with three assets, the condition of preservation of comparative statics results under which a…
Abstract
Purpose
Following Hadar and Seo, the paper aims to determine, in the case of a portfolio with three assets, the condition of preservation of comparative statics results under which a change in risk increases the optimal value of the decision variables for all risk‐averse investors.
Design/methodology/approach
Using the first‐ and second‐order conditions, the paper examines a theoretical approach of a particular portfolio problem in two stages. The first step considers the case of dependence between assets where the second extends previous results in the case of dependence between assets.
Findings
It is found that even in the case of portfolio with two risky assets and one risk less asset that an FDS or an MPC deterioration that affects either the distribution will increase the weight of this asset in the optimal fund for all decision makers whose preferences exhibit decreasing absolute risk aversion.
Originality/value
The paper extends the previous study in the case of dependence between assets and examines portfolio with more than two assets.
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George M. Jabbour, Marat V. Kramin and Stephen D. Young
Credit derivatives continue to grow in popularity as well as complexity. While single‐name credit default swaps are still the most popular instruments, second‐generation products…
Abstract
Purpose
Credit derivatives continue to grow in popularity as well as complexity. While single‐name credit default swaps are still the most popular instruments, second‐generation products have become more commonplace. Second generation products are those whose payoffs are contingent on the viability of a number of firms and include instruments such as default baskets and synthetic collateralized debt obligations. The purpose of this paper is to provide a transparent and detailed account of default basket valuation along with thorough and intuitive explanations of comparative statics and the relationship between basket values and default correlation.
Design/methodology/approach
The paper delineates the standard approach to valuing default baskets and with its implementation examines results for two copula functions and the input assumptions which are critical to the valuation process.
Findings
It is found that the assumptions are critical to the valuation and that the copula chosen also has an impact on pricing and comparative statics.
Practical implications
This paper is very practical in its orientation and takes a pedagogical approach in its explanation of default baskets, the standard model, and key assumptions.
Originality/value
This paper fills a gap in the literature as prior works are more focused on certain enhancements or nuances of modeling basket credit derivatives while this work centers on the standard model and provides a thorough analysis and explanation of the comparative statics as well as a discussion of model limitations. This paper is ideal reading for those that seek an understanding of the modeling and risks associated with multi‐name credit derivatives.
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Kishor Kumar Guru‐Gharana, Matiur Rahman and Satyanarayana Parayitam
This paper aims at theoretical exploration of price and quantity setting behaviors of a monopolist encountering uncertain product demand within the mean‐risk frameworks. In the…
Abstract
Purpose
This paper aims at theoretical exploration of price and quantity setting behaviors of a monopolist encountering uncertain product demand within the mean‐risk frameworks. In the microeconomic literature, the relationships between price and quantity have been traditionally studied using the expected utility approach. This paper moves away from the traditional assumptions and compares various types of risk‐return approaches and explains why most of the monopoly firms follow pricing strategy instead of quantity setting strategy.
Design/methodology/approach
Price setting behavior and quantity setting behavior monopoly firms were examined with endogenous target value and comparative statics were used.
Findings
Comparison of various approaches reveals that risk‐averse customers might decrease purchases because of the price uncertainty or shift to other suppliers, which may explain why monopoly firms prefer their power over price setting rather than quantity setting.
Research limitations/implications
The present study has introduced some testable propositions by comparing different behavioral models of price and quantity setting behaviors of a monopolist facing uncertain product demand.
Practical implications
This study contributes to understanding of firm's behavior in the face of uncertainty.
Originality/value
The conceptual nature of the paper makes the paper original in its contribution to the existing literature of the theory of firm.
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Feng Wu, Zhengfei Guan and Robert Myers
– The purpose of this paper is to provide a unified theoretical framework that explains farm capital structure choice.
Abstract
Purpose
The purpose of this paper is to provide a unified theoretical framework that explains farm capital structure choice.
Design/methodology/approach
The framework accommodates different credit access scenarios and heterogeneous risk profiles of borrowers. It recognizes that the costs of capital are endogenously determined, reflecting the degree of credit risk and accessibility to credit markets. Based on the proposed model and the comparative statics derived thereof, the paper empirically tests the impacts of different factors on capital structure choice.
Findings
Based on the theoretical framework, the paper derived the impacts of different factors on capital structure choice using comparative statics. Results suggest that the potential determinants of capital structure have varying effects at different ranges of leverage. Empirical evidence supports the theoretical model.
Originality/value
Despite all of previous work on various aspects of farm capital structure choice, a framework that encompasses each of the different assumptions and scenarios is still lacking. The theoretical model integrates credit risk models and accommodates endogenous cost of capital, providing a comprehensive framework for studying farm capital structure choice and its determinants. The results provide insights that could help policy makers and lenders develop effective instruments to manage, monitor, and influence the financial leverage of farms at different quantiles of debt ratio.
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Andreas Löschel and Dirk T.G. Rübbelke
This paper aims to investigate empirically the findings of an analytical impure public good model. The impure public good model described in this study allows for the application…
Abstract
Purpose
This paper aims to investigate empirically the findings of an analytical impure public good model. The impure public good model described in this study allows for the application of different technologies generating public and private characteristics. The influence of the individual technologies on the total level of (impure) public good provision is of main concern in this study.
Design/methodology/approach
After the illustration of the impure public good model, the analytical results are compared to the results of a numerical approach based on climate policy in Germany.
Findings
The study shows that comparative static analyses do not always generate clear results. Therefore, the numerical approach is helpful to derive unambiguous results. The paper finds that technologies which exclusively generate private characteristics may have significant effects on total impure public good provision, since they may replace the private characteristics of the impure public good.
Originality/value
This paper provides useful information on the influence of the individual technologies on the total level of (impure) public good provision.
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