A path-dependent contingent-claims approach to capacity investments

This note presents a contingent-claims approach to strategic capacity planning. We develop models for capacity choice and expansion decisions in a single firm environment where investment is irreversible and demand is uncertain. These models illustrate specifically the relevance of path-dependent options analysis to planning capacity investments when the firm adopts demand tracking or average capacity strategies. It is argued that Asian/average type real options can explain hysteresis phenomena in addition to providing superior control of assets in place.

Keeping in step:measuring the effect of promotional investments ensures strategies stay in line with the market

It is an old adage that "you cannot manage what you cannot measure", yet pharmaceutical managers annually commit 30 per cent of turnover to the promotion of their products without measuring the effect of their investment. This unsatisfactory state of affairs has persisted for over 20 years and, judging by comments at the recent Sales Force Effectiveness conference, seems set to continue.

Capital markets and the market structure of foreign investments

Contrary to the long-received theory of FDI, interest rates or rates of return can motivate foreign direct investment (FDI) in concert with the benefits of direct ownership. Thus, access to investor capital and capital markets is a vital component of the multinational’s competitive market structure. Moreover, multinationals can use their superior financial capacity as a competitive advantage in exploiting FDI opportunities in dynamic markets. They can also mitigate higher levels of foreign business risks under dynamic conditions by shifting more financial risk to creditors in the host economy. Furthermore, the investor’s expectation of foreign business risk necessarily commands a risk premium for exposing their equity to foreign market risk. Multinationals can modify the profit maximization strategy of their foreign subsidiaries to maximize growth or profits to generate this risk premium. In this context, we investigate how foreign subsidiaries manage their capital funding, business risk, and profit strategies with a diverse sample of 8,000 matched parents and foreign subsidiary accounts from multiple industries in 38 countries.We find that interest rates, asset prices, and expectations in capital markets have a significant effect on the capital movements of foreign subsidiaries. We also find that foreign subsidiaries mitigate their exposure to foreign business risk by modifying their capital structure and debt maturity. Further, we show how the operating strategy of foreign subsidiaries affects their preference for growth or profit maximization. We further show that superior shareholder value, which is a vital link for access to capital for funding foreign expansion in open market economies, is achieved through maintaining stability in the rate of growth and good asset utilization.

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.

International business research and risky investments, an analysis of FDI in conflict zones

The purpose of this paper is to examine the determinants of a firm's strategy to invest in a conflict location. To the best of our knowledge, this has not been done before. We examine this using a standard model of international business, overlaid with the fundamental approach to corporate social responsibility. We start with the population of multinationals who have chosen to invest in low income countries with weak institutions. We then split this sample in order to distinguish between firms that have invested in conflict regions compared to those that have not. Our analysis then proceeds to explain the decision of those firms to invest in conflict locations using a simple Probit model. We find that countries with weaker institutions and less concern about corporate social responsibility (CSR) are more likely to invest in conflict regions. Finally, firms with more concentrated ownership are more likely to invest in such locations. © 2012 Elsevier Ltd.

Tőkebefektetések Magyarországon = Capital investments in Hungary

A tanulmány megvizsgálja Magyarország integrációs kapcsolatainak alakulását a tőkebefektetések területén, feltárja annak pozitív és negatív hatásait. Az 1990-től 2010-ig tartó periódust három fő szakaszban elemzi, ezek a szakaszok: a rendszerváltás ideje, az EU csatlakozásig, valamint a csatlakozás óta eltelt évek. Kitér a tanulmány arra, hogy a hét évvel ezelőtti uniós csatlakozás hogyan hatott a tőkebefektetések alakulására, az integráció előtti kapcsolatok milyen mértékben maradtak fent, illetve változtak, mennyire vagyunk nyitottak a külföldi tőke előtt és a 2008-ban kezdődő gazdasági világválság milyen hatással volt ezekre a folyamatokra. / === / The purpose of the study is to examine the standing of Hungary's relations within the integration especially focusing on foreign direct investment, as well as to explore its positive and negative consequences. The period between 1990 and 2010 will be discussed in three main parts, namely as the time of the political transformation, the time preceding Hungary's accession to the European Union, and that of the years passed since then. Apart from the above mentioned it is also necessary to analyze the impact made by the integration which took place seven years ago on the state of foreign direct investment, and, to have a look at the relations formed prior to it, to see the extent to which they have altered or remained the same. We need to know how much our economy is open to foreign capital and we have to understand the measure Hungary has been affected by, since the crisis that began in 2008 has made itself plausible.

Project finance in Hungarian electricity sector. Effect of feed-in tariff system’s change onto power plant investments

The research analyses the former and the current status of the small gas-motor power plant investments in the Hungarian energy sector. It discusses the development of project financing in the segment and the major changes and effects of new regulations and subsidy-policy implemented in 2010. The objective of this paper is to present the results of an empirical research of the so called GCHP projects, and to draw conclusion concerning how classic project financing conditions were present and changed during the last decade, and how regulation affected the current and future financial status of these projects.

The direct investments in Latin America and the Caribbean in the 1990s of multinational enterprises headquartered in Spain

This thesis explains why multinational enterprises (MNEs) headquartered in Spain made significant investments in Latin America in the 1990s. Two independent variables are considered: structural reforms in Latin America, and liberalization in Spain. The first independent variable concerns the ways in which Latin American governments adopted a series of reforms that made their economies attractive to foreign investors. The second variable explains how the prospects of liberalization and foreign competition led Spanish firms to invest abroad in order to expand their businesses. The study will also show the competitive advantage of Spanish MNEs, vis-a-vis other foreign and local competitors in Latin America. This thesis takes an international political economy approach. The core of the thesis shows the development of Spanish direct investment in Latin America and the Caribbean in the 1990s. The theoretical perspectives on MNEs are provided by theory of the firm, industrial organizations theory and alliance theory. ^

Temporal analysis of land use and transportation investments with geographic information system

Land use and transportation interaction has been a research topic for several decades. There have been efforts to identify impacts of transportation on land use from several different perspectives. One focus has been the role of transportation improvements in encouraging new land developments or relocation of activities due to improved accessibility. The impacts studied have included property values and increased development. Another focus has been on the changes in travel behavior due to better mobility and accessibility. Most studies to date have been conducted in metropolitan level, thus unable to account for interactions spatially and temporally at smaller geographic scales. ^ In this study, a framework for studying the temporal interactions between transportation and land use was proposed and applied to three selected corridor areas in Miami-Dade County, Florida. The framework consists of two parts: one is developing of temporal data and the other is applying time series analysis to this temporal data to identify their dynamic interactions. Temporal GIS databases were constructed and used to compile building permit data and transportation improvement projects. Two types of time series analysis approaches were utilized: univariate models and multivariate models. Time series analysis is designed to describe the dynamic consequences of time series by developing models and forecasting the future of the system based on historical trends. Model estimation results from the selected corridors were then compared. ^ It was found that the time series models predicted residential development better than commercial development. It was also found that results from three study corridors varied in terms of the magnitude of impacts, length of lags, significance of the variables, and the model structure. Long-run effect or cumulated impact of transportation improvement on land developments was also measured with time series techniques. The study offered evidence that congestion negatively impacted development and transportation investments encouraged land development. ^

Trojan horses: On the origins of national security concerns over foreign investments in the United States from 1919 to 2008

In this thesis I sought to explain the origins of national security concerns over foreign investments in the United States from 1919 to 2008. I identified and examined 29 cases of national security concerns over foreign investments in the United States during that period, and argued that in order to understand the circumstances under which foreign investments in the United States are perceived to be threats to the U.S. security we must rely on a combination of democratic peace theory and the version of political realism known as power transition theory. Thus, I tested the argument that national security concerns over foreign investments in the United States from 1919 to 2008 resulted from: (1) perceptions of international power transition, (2) perceptions of ideological and institutional differences between the United States and the home country of the investor, (3) perceptions of the strategic importance of the sector where the investment is made, and (4) perceptions of participation or control of the foreign investor by the government of the country of origin. I found that all these hypotheses have some explanatory power.

Cash Investments are Required for Restaurant Purchases

An individual considering a restaurant purchase must look at a number of major items that require financing. An initial cash investment is also necessary. The author enumerates and discusses what the buyer must have to start in business.

Relationship between Changes in Cash Flow and Investments in Publicy Traded Restaurant Firms in the United States

This research investigated the relationship between investments in fixed assets and free cash flows of U.S. restaurant firms while controlling for future investment opportunities and financial constraints. It also investigated investment and cash-flow sensitivity in the context of economic conditions. Results suggested that investments in small firms (with higher financial constraints) had relatively weaker sensitivity to cash flows than investments in large firms (with higher sensitivity). Controlling for economic conditions did not significantly change results. While the debate over sensitivity of investments to cash flows remains unresolved, it has not been explored widely in industry contexts, especially in services such as the restaurant industry. In addition to its contribution to this literature, this paper provides implications for cash-flow management in publicly traded restaurant companies.

Entrepreneur's Dilemma: Hotel Investments in Emerging Markets

Estimating the required rate of return for hotel properties is a daunting task because a lodging property is considered a hybrid between a real estate asset, and a revenue-generating enterprise affiliated with a hotel brand. Computing the expected rate of return for a hotel becomes even more complicated when a third party foreign investor/entrepreneur is the one performing the computation for an investment hotel in an emerging country. This clinical case illustrates the challenges surrounding the estimation of a project’s cost of equity in the multinational hotel industry. The results reveal that estimating cost of equity in emerging markets for hotel investments continues to be a conundrum. Future investors should make multiple adjustments and use several models when making their capital investment decisions.

The recent development and performance of ethical investments

In this chapter, we assess the recent development and performance of ethical investments around the world. Ethical investments include both socially responsible investments (following Environmental, Social and Governance criteria) and faith-based investments (following religious principles). After presenting the development of each type of funds in a historical context, we analyse their ethical screening process, highlighting similarities and differences across funds and regions. This leads us to investigate their characteristics in terms of return and risk, and finally evaluate their historical performance using various risk-adjusted performance measures on a small sample of US funds. Hence we are able to not only compare the performance of each fund with each other and with traditional investments, but also assess their relative resilience to the 2007-08 financial crisis.

Growth and Public Transportation Investments: Growth Management Strategies to Reduce Transportation Capital Costs In and Near Midwestern Urban Areas, 1995

Transportation and land-use are independent, inter-active systems. Land-use patterns shape local transportation demand, but transportation systems in turn influence land-use patterns. In attempting to satisfy transportation demand created by existing land-use patterns, transportation planners directly, if not always consciously or intentionally, influence future land-use patterns. This study examines that complex relationship. The purpose of the study was threefold: to compile the body of knowledge already existing; to apply this body of knowledge to the context of midsize cities in the Midwest; and, to make the knowledge accessible both to transportation planners and to public officials who make key decisions about land use.