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Investment Projects (investment + project)
Selected AbstractsInflation, Inflation Variability, and CorruptionECONOMICS & POLITICS, Issue 1 2004Miguel Braun We present a model where agents can inflate the cost of goods needed to start an investment project and inflation variability increases monitoring costs. We show that inflation variability can lead to higher corruption and lower investment. We document a positive relationship between corruption and inflation variability in a sample of 75 countries. The effect is robust to the inclusion of country fixed effects, other controls, and 2SLS estimation. The results are economically significant: a one standard deviation increase in inflation variance from the median increases corruption by 12 percent of a standard deviation and reduces growth by 0.33 percentage points. Our paper highlights a new channel through which inflation reduces investment and growth, thus bridging the perception gap over the costs of inflation between economists and the public. We also find evidence that political competition reduces corruption and that corruption is pro-cyclical. [source] The Subjective Valuation of Indexed Stock Options and Their Incentive EffectsFINANCIAL REVIEW, Issue 2 2006A. Louis Calvet G13; G12; J33; J32 Abstract We analyze the potential role of indexed stock options in future pay-for-performance executive compensation contracts. We present a unified framework for index-linked stock options, discuss their incentive effects, argue that indexation schemes based on the capital-asset pricing model (CAPM) are the most suitable for executive compensation, and derive a subjective pricing model for the class of CAPM-based indexed stock options. Contrary to earlier work, executives would not be motivated to take on investment projects with high idiosyncratic risk once their lack of wealth diversification and degree of risk aversion are factored into the analysis. [source] Persistence in capital budgeting reinvestment decisions , personal responsibility antecedent and information asymmetry moderator: A noteACCOUNTING & FINANCE, Issue 1 2002Axel K-D. In this study we examine the effects of personal responsibility and information asymmetry on managers' tendencies to escalate their commitment to poorly performing investment projects. Consistent with the recommendations by critics of the escalation literature (e.g. Bowen, 1987), we provided subjects with unequivocal negative project feedback. However, counter to other recent conflicting studies adopting Bowen's recommendations, we reverted back to Staw's (1976) original methodology and incorporated "free-choice" into our personal responsibility construct. Our results confirm Staw's (1976) original proposition of a positive relation between a manager's personal responsibility for a poorly performing project and his/her subsequent escalation of commitment to the project. Further, we proposed that information asymmetry moderates the relation between the level of personal responsibility and escalation of commitment. Our results did not confirm this proposition. As such, results from our study re-establish personal responsibility as an important antecedent variable to escalation of commitment. [source] La Chevrotière, Coopérative agro-alimentaire,ACCOUNTING PERSPECTIVES, Issue 2 2007Raymond Morissette ABSTRACT L'histoire de La Chevrotière est celle du développement d'une coopérative agricole en milieu rural québécois. Fondée en 1925, la coopérative La Chevrotière a connu une croissance contrôlée en étant à l'affût d'occasions d'affaires correspondant à son orientation de développement, pour et par le milieu agricole régional. Ses principaux secteurs d'activité étaient ceux de la machinerie agricole et de l'approvisionnement de la ferme. Par la suite, La Chevrotière a étendu ses activités aux secteurs de la production porcine, du fromage et de la transformation du lait (beurre et crème glacée). La coopérative emploie aujourd'hui 738 personnes. Le cas se déroule le 9 janvier 2006, lors d'une réunion du conseil d'administration ayant pour objet l'analyse des résultats financiers de l'exercice terminé le 31 décembre 2005, la révision du plan stratégique triennal et l'approbation du budget de fonctionnement pour le prochain exercice. C'est la première fois en dix ans que la coopérative n'a pas atteint ses objectifs financiers. De plus, les membres du conseil d'administration doivent choisir, parmi trois projets d'investissement majeurs, lequel s'arrime le mieux à leur plan stratégique triennal. Nota: Une version anglaise de ce cas ainsi que les notes d'enseignement en français et en anglais sont également disponibles. Les notes d'enseignement relatives aux cas didactiques ne sont pas publiées dans la revue mais sont mises à la disposition des abonnés qui sont membres à part entière de l'ACPC, dans une zone du site Web de l'ACPC protégée par un mot de passe. Rendez-vous à l'adresse http:www.caaa.caAccountingPerspectivesCAPCasesTeachingNotes pour pouvoir consulter ces notes. The "La Chevrotière" case tells the story of the development of a food co-operative ("Co-op") located in rural Quebec. Founded in 1925, the La Chevrotière Co-operative has enjoyed regular growth by pursuing business opportunities aligned with the Co-op's path of development - for and by means of regional agriculture. Initially, its two main sectors of activities were farm machinery and agricultural supplies. With time, La Chevrotière has extended its activities to include pork production, cheese making, and milk processing (butter and ice cream). Today, the Co-op has a staff of 738. The case unfolds on January 9, 2006, during a board of directors meeting whose purpose is to analyze the financial results of the period ended December 31, 2005; to review the three-year strategic plan; and to approve the operating budget for the next period. This is the first time in 10 years that the Co-op has not attained its financial objectives. Moreover, the members of the board of directors must take a hard look at three major investment projects and choose the one which fits in best with their three-year strategic plan. [source] EQUILIBRIUM LENDING MECHANISM AND AGGREGATE ACTIVITY,INTERNATIONAL ECONOMIC REVIEW, Issue 3 2010Cheng Wang We construct a model of the credit market where financial contracting is subject to costly state verification and moral hazard. The economy's aggregate activity and its equilibrium lending mechanism are determined jointly. We analyze how changes in the model's exogenous variables, including the returns of the economy's investment projects and the supply of loans, affect the economy's aggregate output and the types of the credit through which investment is funded. [source] Capital investment appraisal: a new risk premium modelINTERNATIONAL TRANSACTIONS IN OPERATIONAL RESEARCH, Issue 2 2003Rose Baker Net Present Value (NPV) is the principal valuation model of the financial literature. Firms are accordingly directed, as a matter of good practice, to adopt the model for selecting investment projects, yet questionnaire surveys show that the adoption rate has been very slow and the quality of usage questionable. In particular, alternative risk measures are popular amongst practitioners. In this paper we remodel the treatment of risk in the NPV model based on assumptions that seem realistic in an organizational or operational, as opposed to a personal, investment context. We derive formulas for calculating: the appropriate discount rate, a ,risk horizon' (where the risk premium exceeds the expected value), and a maximum default hazard point for projects. These measures provide a rationale for non-NPV approaches to risk measurement in questionnaire responses and offer a practical benefit to investors. [source] Corporate Investments: Learning from RestatementsJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2009ART DURNEV ABSTRACT This study analyzes the information conveyed by the restatements of financial reports. We argue that restatements contain news about the investment projects of the restating firms' competitors. This news causes competitors to revise their beliefs about the projects' value, and to modify their subsequent investment decisions. Accordingly, we hypothesize that changes in competitors' investments after restatement announcements are related to news in the restatements. Consistent with our prediction, we find that changes in competitors' investments following restatement announcements are significantly related to various proxies for news in the restatements, such as competitors' and restating firms' abnormal returns at the restatement announcements. We conclude that restatements convey information about the investment projects of restating firms' competitors. [source] Realizing the Potential of Real Options: Does Theory Meet Practice?JOURNAL OF APPLIED CORPORATE FINANCE, Issue 2 2005Alexander Triantis The idea of viewing corporate investment opportunities as "real options" has been around for over 25 years. Real options concepts and techniques now routinely appear in academic research in finance and economics, and have begun to influence scholarly work in virtually every business discipline, including strategy, organizations, management science, operations management, information systems, accounting, and marketing. Real options concepts have also made considerable headway in practice. Corporate managers are more likely to recognize options in their strategic planning process, and have become more proactive in designing flexibility into projects and contracts, frequently using real options vocabulary in their discussions. Thanks in part to the spread of real options thinking, today's strategic planners are more likely than their predecessors to recognize the "option" value of actions like the following: , dividing up large projects into a number of stages; , investing in the acquisition or production of information; , introducing "modularity" in manufacturing and design; , developing competing prototypes for new products; and , investing in overseas markets. But if real options has clearly succeeded as a way of thinking, the application of real options valuation methods has been limited to companies in relatively few industries and has thus failed to live up to expectations created in the mid- to late-1990s. Increased corporate acceptance and implementations of real options valuation techniques will require several changes coming together. On the theory side, we need more realistic models that better reflect differences between financial and real options, simple heuristic methods that can be more easily implemented (but that have been carefully benchmarked against more precise models), and better guidance on implementation issues such as the estimation of discount rates for the "optionless" underlying projects. On the practitioner side, we need user-friendly real options software, more senior-level buy-in, more deliberate diffusion of real options knowledge throughout organizations, better alignment of managerial incentives with long-term shareholder value, and better-designed contracts to correct the misalignment of incentives across the value chain. If these challenges can be met, there will continue to be a steady if gradual diffusion of real options analysis throughout organizations over the next few decades, with real options eventually becoming not only a standard part of corporate strategic planning, but also the primary valuation tool for assessing the expected shareholder effect of large capital investment projects. [source] Real Options: Meeting the Georgetown ChallangeJOURNAL OF APPLIED CORPORATE FINANCE, Issue 2 2005Thomas E. Copeland In response to the demand for a single, generally accepted real options methodology, this article proposes a four-step process leading to a practical solution to most applications of real option analysis. The first step is familiar: calculate the standard net present value of the project assuming no managerial flexibility, which results in a value estimate (and a "branch" of a decision tree) for each year of the project's life. The second step estimates the volatility of the value of the project and produces a value tree designed to capture the main sources of uncertainty. Note that the authors focus on the uncertainty about overall project value, which is driven by uncertainty in revenue growth, operating margins, operating leverage, input costs, and technology. The key point here is that, in contrast to many real options approaches, none of these variables taken alone is assumed to be a reliable surrogate for the uncertainty of the project itself. For example, in assessing the option value of a proven oil reserve, the relevant measure of volatility is the volatility not of oil prices, but of the value of the operating entity,that is, the project value without leverage. The third step attempts to capture managerial flexibility using a decision "tree" that illustrates the decisions to be made, their possible outcomes, and their corresponding probabilities. The article illustrate various kinds of applications, including a phased investment in a chemical plant (which is treated as a compound option) and an investment in a peak-load power plant (a switching option with changing variance, which precludes the use of constant risk-neutral probabilities as in standard decision tree analysis). The fourth and final step uses a "no-arbitrage" approach to form a replicating portfolio with the same payouts as the real option. For most corporate investment projects, it is impossible to locate a "twin security" that trades in the market. In the absence of such a security, the conventional NPV of a project (again, without flexibility) is the best candidate for a perfectly correlated underlying asset because it represents management's best estimate of value based on the expected cash flows of the project. [source] Is Contemporary Interest Rate in Conflict with Islamic Ethics?KYKLOS INTERNATIONAL REVIEW OF SOCIAL SCIENCES, Issue 1 2008Erhun Kula SUMMARY This paper considers whether the modern interest rate theory is in conflict with Islamic values. Unfortunately, the issue is not sufficiently debated in economic and cognate literature and thus a mist surrounds the Islamic concept of interest (riba) and its use in the Moslem world that contains about 1.3 billion people and hundreds of billions of dollars of surplus funds. A substantial part of this money has not been made available to the commercial banking system as Islamists in particular keep their savings in the form of gold, precious stones or durable foreign currency, in residential or other safe places, believing that earning interest on savings is against the principles of Islam. This attitude by creating a shortage of funds for investment projects is hampering the economic development of many Moslem countries where standards of living are generally low. The finding of the paper is that only one component part of the time preference rate, namely pure time discount, may be objectionable from the Islamic as well as from secular viewpoints; the rest does not appear to be against Muslim ethics. However, a truly competitive financial market structure is likely to wipe away the excessive pure time discount rate leaving the market interest rate free from any objectionable parameter. [source] IMPORT LIBERALIZATION AND PRODUCTIVITY GROWTH IN INDIAN MANUFACTURING INDUSTRIES IN THE 1990sTHE DEVELOPING ECONOMIES, Issue 4 2003Bishwanath GOLDAR Total factor productivity growth in Indian manufacturing decelerated in the 1990s, a decade of major economic reforms in India. Econometric analysis presented in the paper indicates that the lowering of effective protection to industries favorably affected productivity growth. The results suggest that gestation lags in investment projects and slower agricultural growth in the 1990s had an adverse effect on productivity growth. The analysis reveals that underutilization of industrial capacity was an important cause of the productivity slowdown. With corrections for capacity utilization, the estimated productivity growth in the 1990s is found to be about the same as in the 1980s. [source] Information Production and Capital Allocation: Decentralized versus Hierarchical FirmsTHE JOURNAL OF FINANCE, Issue 5 2002Jeremy C. Stein This paper asks how well different organizational structures perform in terms of generating information about investment projects and allocating capital to these projects. A decentralized approach,with small, single,manager firms,is most likely to be attractive when information about projects is "soft" and cannot be credibly transmitted. In contrast, large hierarchies perform better when information can be costlessly "hardened" and passed along inside the firm. The model can be used to think about the consequences of consolidation in the banking industry, particularly the documented tendency for mergers to lead to declines in small,business lending. [source] | |||||||||||||||||||