Real options and multinational investments : an empirical study of risk, performance and organisational awareness

DUE TO COPYRIGHT RESTRICTIONS ONLY AVAILABLE FOR CONSULTATION AT ASTON UNIVERSITY LIBRARY AND INFORMATION SERVICES WITH PRIOR ARRANGEMENT This thesis is a cross-disciplinary study of the empirical impact of real options theory in the fields of decision sciences and performance management. Borrowing from the economics, strategy and operations research literature, the research examines the risk and performance implications of real options in firms’ strategic investments and multinational operations. An emphasis is placed on the flexibility potential and competitive advantage of multinational corporations to explore the extent to which real options analysis can be classified as best practice in management research. Using a combination of qualitative and quantitative techniques the evidence suggests that, if real options are explored and exploited appropriately, real options management can result in superior performance for multinational companies. The qualitative findings give an overview of the practical advantages and disadvantages of real options and the statistical results reveal that firms which have developed a high awareness of their real options are, as predicted by the theory, able to reduce their downside risk and increase profits through flexibility, organisational slack and multinationality. Although real options awareness does not systematically guarantee higher returns from operations, supplementary findings indicate that firms with evidence of significant investments in the acquisition of real options knowledge tend to outperform competitors which are unaware of their real options. There are three contributions of this research. First, it extends the real options and capacity planning literature to path-dependent contingent-claims analysis to underline the benefits of average type options in capacity allocation. Second, it is thought to be the first to explicitly examine the performance effects of real options on a sample of firms which have developed partial capabilities in real options analysis suggesting that real options diffusion can be key to value creation. Third, it builds a new decision-aiding framework to facilitate the use of real options in projects appraisal and strategic planning.

Managing risk in information technology projects

There are several studies on managing risks in information technology (IT) projects. Most of the studies identify and prioritise risks through empirical research in order to suggest mitigating measures. Although they are important to clients for future projects, these studies fail to provide any framework for risk management from IT developers' perspective. Although a few studies introduced a framework of risk management in IT projects, most of them are presented from clients' perspectives and very little effort has been made to integrate this with the project management cycle. As IT developers absorb a considerable amount of risk, an integrated framework for managing risks in IT projects from developers' perspective is needed in order to ensure success in IT projects. The main objective of the paper is to develop a risk management framework for IT projects from the developers' perspective. This study uses a combined qualitative and quantitative technique with the active involvement of stakeholders in order to identify, analyse and respond to risks. The entire methodology has been explained using a case study on an information technology project in a public sector organisation in Barbados.

Managing risk in software development projects:a case study

Purpose - The main objective of the paper is to develop a risk management framework for software development projects from developers' perspective. Design/methodology/approach - This study uses a combined qualitative and quantitative technique with the active involvement of stakeholders in order to identify, analyze and respond to risks. The entire methodology has been explained using a case study on software development project in a public sector organization in Barbados. Findings - Analytical approach to managing risk in software development ensures effective delivery of projects to clients. Research limitations/implications - The proposed risk management framework has been applied to a single case. Practical implications - Software development projects are characterized by technical complexity, market and financial uncertainties and competent manpower availability. Therefore, successful project accomplishment depends on addressing those issues throughout the project phases. Effective risk management ensures the success of projects. Originality/value - There are several studies on managing risks in software development and information technology (IT) projects. Most of the studies identify and prioritize risks through empirical research in order to suggest mitigating measures. Although they are important to clients for future projects, these studies fail to provide any framework for risk management from software developers' perspective. Although a few studies introduced framework of risk management in software development, most of them are presented from clients' perspectives and very little effort has been made to integrate this with the software development cycle. As software developers absorb considerable amount of risks, an integrated framework for managing risks in software development from developers' perspective is needed. © Emerald Group Publishing Limited.

Corporate boards and incentives: empirical evidence from the UK in 1935

We investigate boardroom governance using UK historical data for 1935. We demonstrate that there is a negative relationship between risk and incentives in this year. Prior research has produced anomalous results (Prendergast, 2002). Second, we show that average (median) board ownership of ordinary shares is about 7.95% (2.88%). Heuristically this figure is less than previously reported estimates for the US also using 1935 data. Finally, we show the phenomenon of multiple board membership. UK directors in 1935 hold many directorships – sometimes exceeding 10 concurrent memberships.

Quality risk in global supply network

Purpose - The rise of recent product recalls reveals that manufacturing firms are particularly vulnerable to product quality and safety where goods and materials have been sourced globally. The purpose of this paper is to explore the issues of quality and safety problems in global supply networks, and introduce a supply chain risk management (SCRM) framework to reduce the quality risk. Design/methodology/approach - A conceptual SCRM framework for mitigating quality risk is developed. In addition, four SCRM treatment practices are proposed by consolidating the empirical literature in the operations management and supply chain management areas. The general feasibility was discussed based on literature. Findings - The research has identified the root causes of the recent product recalls and a series of product harm scandals ranging from automobiles to unsafe toys. Supply chains are extended by outsourcing and stretched by globalization, which greatly increase the complexity of supply networks and decrease the visibility in risk and operation processes. Originality/value - The paper identifies four SCRM practices, and proposes two distinct antecedents that can prompt the effectiveness of SCRM. © 2011 Emerald Group Publishing Limited. All rights reserved.

Corporate restructuring: empirical evidence from the UK

Corporate restructuring is perceived as a challenge to research. Prior studies do not provide conclusive evidence regarding the effects of restructuring. Since there are discernible findings, this research attempts to examine the effects of restructuring events amongst the UK listed firms. The sample firms are listed in the LSE and London AIM stock exchange. Only completed restructuring transactions are included in the study. The time horizon extends from year 1999 to 2003. A three-year floating window is assigned to examine the sample firms. The key enquiry is to scrutinise the ex post effects of restructuring on performance and value measures of firms with contrast to a matched criteria non-restructured sample. A cross sectional study employing logit estimate is undertaken to examine firm characteristics of restructuring samples. Further, additional parameters, i.e. Conditional Volatility and Asymmetry are generated under the GJR-GARCH estimate and reiterated in logit models to capture time-varying heteroscedasticity of the samples. This research incorporates most forms of restructurings, while prior studies have examined certain forms of restructuring. Particularly, these studies have made limited attempts to examine different restructuring events simultaneously. In addition to logit analysis, an event study is adopted to evaluate the announcement effect of restructuring under both the OLS and GJR-GARCH estimate supplementing our prior results. By engaging a composite empirical framework, our estimation method validates a full appreciation of restructuring effect. The study provides evidence that restructurings indicate non-trivial significant positive effect. There are some evidences that the response differs because of the types of restructuring, particularly while event study is applied. The results establish that performance measures, i.e. Operating Profit Margin, Return on Equity, Return on Assets, Growth, Size, Profit Margin and Shareholders' Ownership indicate consistent and significant increase. However, Leverage and Asset Turn Over suggest reasonable influence on restructuring across the sample period. Similarly, value measures, i.e. Abnormal Returns, Return on Equity and Cash Flow Margin suggest sizeable improvement. A notable characteristic seen coherently throughout the analysis is the decreasing proportion of Systematic Risk. Consistent with these findings, Conditional Volatility and Asymmetry exhibit similar trend. The event study analysis suggests that on an average market perceives restructuring favourably and shareholders experience significant and systematic positive gain.

The derivation and application of risk tolerability criteria

This research involves a study of the questions, "what is considered safe", how are safety levels defined or decided, and according to whom. Tolerable or acceptable risk questions raise various issues: about values and assumptions inherent in such levels; about decision-making frameworks at the highest level of policy making as well as on the individual level; and about the suitability and competency of decision-makers to decide and to communicate their decisions. The wide-ranging topics covering philosophical and practical concerns examined in the literature review reveal the multi-disciplined scope of this research. To support this theoretical study empirical research was undertaken at the European Space Research and Technology Centre (ESTEC) of the European Space Agency (ESA). ESTEC is a large, multi-nationality, high technology organisation which presented an ideal case study for exploring how decisions are made with respect to safety from a personal as well as organisational aspect. A qualitative methodology was employed to gather, analyse and report the findings of this research. Significant findings reveal how experts perceive risks and the prevalence of informal decision-making processes partly due to the inadequacy of formal methods for deciding risk tolerability. In the field of occupational health and safety, this research has highlighted the importance and need for criteria to decide whether a risk is great enough to warrant attention in setting standards and priorities for risk control and resources. From a wider perspective and with the recognition that risk is an inherent part of life, the establishment of tolerability risk levels can be viewed as cornerstones indicating our progress, expectations and values, of life and work, in an increasingly litigious, knowledgeable and global society.

The effects of perceived business uncertainty, external consultants and risk management on organisational outcomes

Purpose: The purpose of this paper is to investigate the relations between perceived business uncertainty (PBU), use of external risk management (RM) consultants, formalisation of RM, magnitude of RM methods and perceived organisational outcomes. Design/methodology/approach: This paper is based on a questionnaire survey of members of the Chartered Institute of Management Accountants in the UK. Using AMOS 17.0, the paper tests the strength of the direct and indirect effects among the variables and explores the fit of the overall path model. Findings: The results indicate significant and positive associations exist between the extent of PBU and the level ofRMformalisation, as well as between the level ofRMformalisation and the magnitude of RMmethods adopted. The use of externalRMconsultants is also found to have a significant and positive impact on the magnitude of RM methods adopted. Finally, both the extent of RM formalisation and the magnitude of RM methods adopted are seen to be significantly associated with overall improvement in organisational outcomes. Research limitations/implications: The study uses perceptual measures of the level of business uncertainty, usage of RM and organisational outcomes. Further, the respondents are members of a management accounting professional body and the views of other managers, such as risk managers, who are also important to the governance process are not incorporated. Originality/value: This study provides empirical evidence on the impact ofRMdesign and usage on improvements in organisational outcomes. It contributes to the RM literature where empirical research is needed in order to be comparable with the traditional management control system literature.

Development of a risk-oriented strategic sourcing (ROSS) framework for the construction and electronics manufacturing industries

Strategic sourcing has increased in importance in recent years, and now plays an important role in companies’ planning. The current volatility in supply markets means companies face multiple challenges involving lock-in situations, supplier bankruptcies or supply security issues. In addition, their exposure can increase due to natural disasters, as witnessed recently in the form of bird flu, volcanic ash and tsunamis. Therefore, the primary focus of this study is risk management in the context of strategic sourcing. The study presents a literature review on sourcing based on the 15 years from 1998–2012, and considers 131 academic articles. The literature describes strategic sourcing as a strategic, holistic process in managing supplier relationships, with a long-term focus on adding value to the company and realising competitive advantage. Few studies discovered the real risk impact and status of risk management in strategic sourcing, and evaluation across countries and industries was limited, with the construction sector particularly under-researched. This methodology is founded on a qualitative study of twenty cases across Ger-many and the United Kingdom from the construction sector and electronics manufacturing industries. While considering risk management in the context of strategic sourcing, the thesis takes into account six dimensions that cover trends in strategic sourcing, theoretical and practical sourcing models, risk management, supply and demand management, critical success factors and the strategic supplier evaluation. The study contributes in several ways. First, recent trends are traced and future needs identified across the research dimensions of countries, industries and companies. Second, it evaluates critical success factors in contemporary strategic sourcing. Third, it explores the application of theoretical and practical sourcing models in terms of effectiveness and sustainability. Fourth, based on the case study findings, a risk-oriented strategic sourcing framework and a model for strategic sourcing are developed. These are based on the validation of contemporary requirements and a critical evaluation of the existing situation. It contemplates the empirical findings and leads to a structured process to manage risk in strategic sourcing. The risk-oriented framework considers areas such as trends, corporate and sourcing strategy, critical success factors, strategic supplier selection criteria, risk assessment, reporting, strategy alignment and reporting. The proposed model highlights the essential dimensions in strategic sourcing and guides us to a new definition of strategic sourcing supported by this empirical study.

The paradoxes of risk management in the banking sector

This paper uses empirical evidence to examine the operational dynamics and paradoxical nature of risk management systems in the banking sector. It demonstrates how a core paradox of market versus regulatory demands and an accompanying variety of performance, learning and belonging paradoxes underlie evident tensions in the interaction between front and back office staff in banks. Organisational responses to such paradoxes are found to range from passive to proactive, reflecting differing organisational, departmental and individual risk culture(s), and performance management systems. Nonetheless, a common feature of regulatory initiatives designed to secure a more structurally independent risk management function is that they have failed to rectify a critical imbalance of power - with the back office control functions continuing to be dominated by front office trading and investment functions. Ultimately, viewing the 'core' of risk management systems as a series of connected paradoxes rather than a set of assured, robust practices, requires a fundamental switch in emphasis away from a normative, standards-based approach to risk management to one which gives greater recognition to its behavioural dimensions.

Reviewing the hedge funds literature II:hedge funds' returns and risk management characteristics

This paper summarizes the literature on hedge funds (HFs) developed over the last two decades, particularly that which relates to risk management characteristics (a companion piece investigates the managerial characteristics of HFs). It discusses the successes and the shortfalls to date in developing more sophisticated risk management frameworks and tools to measure and monitor HF risks, and the empirical evidence on the role of the HFs and their investment behaviour and risk management practices on the stability of the financial system. It also classifies the HF literature considering the most recent contributions and, particularly, the regulatory developments after the 2007 financial crisis.

Acceptance of smartphone-based mobile shopping:mobile benefits, customer characteristics, perceived risk and the impact of application context

Despite their generally increasing use, the adoption of mobile shopping applications often differs across purchase contexts. In order to advance our understanding of smartphone-based mobile shopping acceptance, this study integrates and extends existing approaches from technology acceptance literature by examining two previously underexplored aspects. Firstly, the study examines the impact of different mobile and personal benefits (instant connectivity, contextual value and hedonic motivation), customer characteristics (habit) and risk facets (financial, performance, and security risk) as antecedents of mobile shopping acceptance. Secondly, it is assumed that several acceptance drivers differ in relevance subject to the perception of three mobile shopping characteristics (location sensitivity, time criticality, and extent of control), while other drivers are assumed to matter independent of the context. Based on a dataset of 410 smartphone shoppers, empirical results demonstrate that several acceptance predictors are associated with ease of use and usefulness, which in turn affect intentional and behavioral outcomes. Furthermore, the extent to which risks and benefits impact ease of use and usefulness is influenced by the three contextual characteristics. From a managerial perspective, results show which factors to consider in the development of mobile shopping applications and in which different application contexts they matter.