scholarly journals Optimal Dynamic Capital Budgeting

2018 ◽  
Vol 86 (4) ◽  
pp. 1747-1778 ◽  
Author(s):  
Andrey Malenko
Keyword(s):  
Optimal Design ◽  
Capital Budgeting ◽  
Capital Allocation ◽  
Past Performance ◽  
Investment Projects ◽  
Empire Building ◽  
Allocation Process ◽  
Optimal Dynamic ◽  
Over Time

Abstract I study optimal design of a dynamic capital allocation process in an organization in which the division manager with empire-building preferences privately observes the arrival and properties of investment projects, and headquarters can audit projects at a cost. Under certain conditions, a budgeting mechanism with threshold separation of financing is optimal. Headquarters: (1) allocate a spending account to the manager and replenish it over time; (2) set a threshold, such that projects below it are financed from the account, while projects above are financed fully by headquarters upon an audit. Further analysis studies when co-financing of projects is optimal and how the size of the account depends on past performance of projects.

scholarly journals Capital Budgeting and Risk Taking Under Credit Constraints

2020 ◽  
Vol 66 (9) ◽  
pp. 4292-4314
Author(s):  
Felipe S. Iachan
Keyword(s):  
Capital Budgeting ◽  
Capital Allocation ◽  
External Financing ◽  
Firm Level ◽  
Cross Sectional ◽  
Net Worth ◽  
Investment Projects ◽  
Collateral Constraints ◽  
Financial Hedging ◽  
Allocation Decisions

Limited external financing creates a hedging motive that distorts resource allocation for investment projects. I study these distortions through a dynamic model with endogenous collateral constraints. The hedging motive can be broken into three components: expected future productivity, leverage capacity, and current net worth. Although constrained firms behave as if averse to transitory fluctuations in net worth, they can endogenously pursue increased exposure to both persistent factors that predict future productivity and fluctuations in credit tightness. The most constrained firms abstain from financial hedging, while still distorting capital-allocation decisions, thereby influencing firm-level volatility. These distortions contribute to a potential explanation for the negative cross-sectional relationship between volatility and net worth. This paper was accepted by Gustavo Manso, Finance.

Capital Rationing and Managerial Retention: The Role of External Capital

2011 ◽  
Vol 23 (1) ◽  
pp. 285-304 ◽  
Author(s):  
Ying-Ju Chen ◽  
Mingcherng Deng
Keyword(s):  
Capital Budgeting ◽  
Capital Allocation ◽  
Investment Projects ◽  
Capital Productivity ◽  
External Capital ◽  
Capital Rationing ◽  
New Challenges ◽  
Budgeting Process

ABSTRACT In modern businesses, firms face new challenges of managerial retention in a capital budgeting process. We consider a model in which a manager privately observes the capital productivity of a project and has access to multiple outside financing options. We show that if the manager can obtain funding from either internal or external capital (but not both), the firm may exclude highly profitable investment projects but fund those projects that have moderate capital productivity, even when there is no limit on capital allocation. Furthermore, the firm may voluntarily impose capital rationing in order to keep the projects within the firm, even though it has sufficient capital to fund such profitable projects. However, if the firm can utilize both the internal and external capital, highly profitable projects are always retained and the voluntary capital rationing is not optimal. Our analysis identifies testable empirical predictions on the association between capital budgeting and external capital.

scholarly journals A comparative study between ILS and GBAS approaches: The case of Viseu airfield

2020 ◽  
Vol 10 (2) ◽  
pp. 65
Author(s):  
Pedro Oliveira ◽  
Jorge Silva ◽  
Paulo Soares
Keyword(s):  
Linear Regression ◽  
Technical Aspects ◽  
Investment Projects ◽  
Economic Level ◽  
Economic View ◽  
New Radio ◽  
Different Types ◽  
Regional Airports ◽  
Low Traffic ◽  
Over Time

Purpose: The article aims to show the viability of installing a precision-based approach system in Viseu airfield, in Portugal. This work looks to evidence to what extent the implementation of ILS (Instrument Landing System) or GBAS (Ground Based Augmentation System) in the airfield is viable, and which of the two would be the better option for this case, from a technical and economic view and as a way to increase safety levels.Design/methodology/approach: The article analyses the airfield’s evolution over time and forecasts its movements for the future, over a 10-year period, by utilising two different models: multiple linear regression and IATA traffic forecasts. The different types of airfield taxes were also reviewed and their values were estimated for the following years. The equipment’s technical aspects and individual prices were analysed to accurately determine the time needed for the airfield to recover the investment done, allied with an 80% funding European project.Findings: Approach systems are being modernized, and throughout the years more airports and airfields are starting to replace old approach systems for satellite-based new ones. When compared to ILS, GBAS offers more advantages at a technical and economic level, and even for smaller airfields with a low traffic volume, sometimes it can be technically and economically possible to have such systems implemented.Originality/value: Studies about the implementation of new radio aids are usually prepared for big airports by airport operators or ANSPs before major investment projects. However, for most small regional airports in the country, where traffic is not near as big, such studies don’t exist, and for that reason, investigating the possibility of installing such kind of equipment is very important, especially taking into consideration the safety they provide and other benefits that naturally come up with it.

scholarly journals EXPLANATION OF THE BENEFIT OF THE INVESTMENT PROJECT ON THE CASH BASIS / IZRAŽAVANJE KORISTI INVESTICIONOG PROJEKTA NA GOTOVINSKOJ OSNOVI

2019 ◽  
Vol 16 (2) ◽  
Author(s):  
Dijana Kremenović
Keyword(s):  
Growth And Development ◽  
Investment Decision ◽  
Investment Decisions ◽  
Investment Project ◽  
Capital Budgeting ◽  
Investment Activity ◽  
Investment Projects ◽  
Investment Process ◽  
Additional Value ◽  
Cash Basis

Decisions about the choice of investment projects can significantly affect the destiny of the company, its competitive position in the market, market participation, the direction of further technological development, and even the survival of the company. The aim of this paper is, in the conditions of the current economic reality, to point out the significance of the choice of methods of expressing the benefit of an investment project. In this sense, we have explained in detail all currently applicable methods for assessing the viability of investment projects on a cash basis, comparing the good and bad sides of all the methods presented. In this connection, we especially pointed out the importance of the time value of money. The decision to apply the capital budgeting process, certainly, is the decision of the company itself. However, the outcome of investment activity is borne by a wider circle of consumers, which should be a sufficient reason to encourage education and the application of current methods in this area. If you want to realistically look at the investment process and evaluate the justification of an investment project, it is necessary to identify and analyse the effects of exploitation of a particular investment. In order to ensure the realization of the company’s basic strategic goals and thus ensure its growth and development, it is necessary to make decisions in which the company will focus its investment activities on this investment projects whose effects will ensure the highest return on investment. This work deals with the complex issues of making adequate investment decisions using a method for assessing the viability of investment projects on a cash basis. Bearing in mind the significance of investment activity, we can conclude that for the purpose of making a good investment decision, it is necessary to realistically look at the entire investment process and assess the justification of the implementation of the investment project. In this sense, we identify, measure and quantify the overall effects of the realization of a particular investment. Capital budgeting for the purpose of making an investment decision today is a generally accepted concept in developed economies. There is no doubt that there are many disagreements regarding the choice of the methods of assessing the viability of investment investments, and then the selection of criteria within a certain method. However, it is quite certain that the rich experience of developed countries undoubtedly points to the need for capital budgeting, investment project management, with particular emphasis on the use of discounted methods for assessing the viability of investment investment and respecting both economic and non-economic effects. Implicit benefits that the application of capital budgeting brings to the overall growth and development of the company, in terms of reducing uncertainty in making investment decisions, easier ranking of investment projects, exact measurement of expected benefits, transparency of investment activity criteria, attracting investors and ultimately creating additional value and greater degree of realization of strategic company goals.With this work, we pointed out the fact that capital budgeting is crucial in the process of making an investment decision and in that way has influenced enterprises to seriously deal with the choice of the method of estimating the profitability of investment projects that will surely result in additional value for the company.

scholarly journals Evaluation of Investment Projects: A Case from Turkish Cement Sector

2016 ◽  
Author(s):  
Miyase Karabulut ◽  
Sıtkı Sönmezer ◽  
Vedat Zeki Yenen ◽  
Zeynep Emir
Keyword(s):  
Qualitative Research ◽  
Net Present Value ◽  
Capital Budgeting ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Present Value ◽  
Investment Projects ◽  
Preliminary Results ◽  
Internal Rate ◽  
Exclusive Or

Capital budgeting is crucial for firms that have projects to evaluate especially when the projects are mutually exclusive or financing is scarce. The aim of the study is to determining the most widely used methodologies in capital budgeting decisions and their effectiveness. A qualitative research will provide cement sector specific examples in assessing industry projects and compares the methods of Net Present Value, İnternal rate of Return, Pay-back period, discounted pay-back period and MIRR. Each method is briefly discussed and its drawbacks and advantages are mentioned in detail. Other sectors are also examined in terms of capital budgeting. Our preliminary results indicate that net present value method dominates capital budgeting decisions in the sectors under study.

Gender matters: market perception of future performance

2020 ◽  
Vol 46 (10) ◽  
pp. 1247-1262
Author(s):  
Kylie A. Braegelmann ◽  
Nacasius U. Ujah
Keyword(s):  
Financial Markets ◽  
Gender Bias ◽  
Firm Size ◽  
Market Reaction ◽  
Abnormal Returns ◽  
Capital Allocation ◽  
Event Window ◽  
Content Type ◽  
Window Approach ◽  
Over Time

PurposeThis paper aims to revisit the extant evidence on gender bias in the market. Specifically, it revisits reaction to CEO announcements. Also, it explores whether the development of the bias over time and by firm size aligns with existing theory.Design/methodology/approachThe paper examines cumulative abnormal returns around CEO announcements from 1992 through 2016 using a modified event study methodology. This evidence shown examines market reactions over time and by firm size.FindingsFinancial markets react more favorably to male CEO announcements, with a cumulative abnormal return of 49 basis points above the reaction to their female counterparts. Moreover, the paper finds that market reaction varies over time, which may be because of the increasing proportion of female CEOs, and by firm size, which may be due to the differences in new information available to investors.Research limitations/implicationsLimitations include sample size due to the paucity of female CEO announcements. This paper does not examine the effect of industry, detailed CEO characteristics or announcement content on market reaction. In addition, using an extended event window may increase the likelihood of capturing confounding events, such as mergers or earnings announcements, which limits the interpretability of the results.Practical implicationsGender bias in financial markets creates another institutional barrier for the advancement of female professionals, as well as implies inefficient capital allocation in markets.Originality/valueThe literature in this field is still inconclusive. Furthermore, bias development over time and the effect of information on bias remain unexplored. This study aims to fill that gap; furthermore, it introduces an extended event-window approach.

scholarly journals Do Firms' Characteristics Make a Difference of the Choice of Capital Budgeting Practices? Evidence from Sri Lanka

2017 ◽  
Vol 9 (2) ◽  
pp. 330
Author(s):  
Lingesiya Kengatharan
Keyword(s):  
Investment Decision ◽  
Capital Budgeting ◽  
Decision Makers ◽  
Master Of Business Administration ◽  
Primary Data ◽  
Sri Lankan ◽  
Investment Projects ◽  
Capital Budget ◽  
Similar Vein ◽  
Accounting Rate

The aim of this study was to examine the differences of the choice of capital budgeting practices in terms of firms’ characteristics of Sri Lankan companies. The primary data were garnered from 186 financial officers using self-administered questionnaires. Collected data were then analysed using independent sample t- test. The Results of the study revealed that the use of simple capital budgeting practices were mostly preferred by small sized firms and mainly managed by finance professionals with non-MBA educational qualifications and short tenure. Sophisticated and advanced capital budgeting practices were used mostly by large firms; and were mainly managed by finance professionals with master of business administration qualification and long tenure. According to the industry differences, accounting rate of return was primarily applied by non-MBA qualified financial officers and was also preferred by non-manufacturing firms. None of the other methods made any significant differences in terms of type of industry. Sophisticated capital budgeting practices were determined by the size of the capital budget, advanced capital budgeting practices were determined by both the size of the capital budget and the educational qualifications of the finance professionals. In a similar vein, simple capital budgeting practices were determined by the size of the capital budget, the educational qualifications of the financial officers, and type of industry. Overall, this study has made parametric contributions to the choice of capital budgeting practices in terms of firms’ characteristics of Sri Lankan companies. The findings of the study are useful to the investment decision makers when they are appraising investment projects.

scholarly journals Monitoring of agrophysical properties of the active layer of drained long-frozen peat deposits in Western Siberia

2020 ◽  
Vol 164 ◽  
pp. 07016
Author(s):  
Vasily Novokhatin ◽  
Nadezhda Osipova
Keyword(s):  
Western Siberia ◽  
Soil Reclamation ◽  
Hydromorphic Soils ◽  
Investment Projects ◽  
Long Term Study ◽  
Peat Deposits ◽  
Changes Over Time ◽  
Reclaimed Soils ◽  
Over Time

In this study, the authors considered the dynamics of the main agrophysical properties of hydromorphic geosystems in Western Siberia. In the process of evolution, as well as in the conditions of technogenic impact, the soils of natural-territorial complexes, their properties are subject to significant changes. New hydromorphic geosystems are formed, the soils of which are characterized by changed agrophysical properties. Modern technologies for developing investment projects for soil reclamation of hydromorphic geosystems should be based on agrophysical characteristics of reclaimed soils, on the basis of which it is possible to create the necessary parameters of drainage systems and, as a result, provide optimal soil regimes for agricultural crops for a long period. The difficulty is that these soil characteristics are variable over time. Until recently, agrophysical characteristics of soils obtained in other regions of the country were used in the development of reclamation projects for hydromorphic soils in Western Siberia. The attempt to borrow them has led to the fact that large areas of drained soil have become completely unsuitable and to restore their project productivity, a number of agro-reclamation activities and the attraction of large financial resources are currently required. In this regard, there is a need for a comprehensive, long-term study of the main properties of hydromorphic soils used for agricultural purposes, and especially their changes over time under the influence of anthropogenic load.

scholarly journals Dynamic Procurement under Uncertainty: Optimal Design and Implications for Incomplete Contracts

2016 ◽  
Vol 106 (11) ◽  
pp. 3238-3274 ◽  
Author(s):  
Malin Arve ◽  
David Martimort
Keyword(s):  
Optimal Design ◽  
Risk Aversion ◽  
Incomplete Contracts ◽  
Information Revelation ◽  
Firm Risk ◽  
Basic Service ◽  
Dynamic Contract ◽  
Risk Effect ◽  
Optimal Dynamic

We characterize the optimal dynamic contract for a long-term basic service when an uncertain add-on is required later on. Introducing firm risk aversion has two impacts. Profits for the basic service can be backloaded to induce cheaper information revelation for this service: an Income Effect which reduces output distortions. The firm must also bear some risk to induce information revelation for the add-on. This Risk Effect reduces the level of the add-on but hardens information revelation for the basic service. The interaction between these effects has important implications for the dynamics of distortions, contract renegotiation, and the value of incomplete contracts. (JEL D47, D81, D86)

Management challenges in British Columbia’s healthcare system

2017 ◽  
Vol 31 (4) ◽  
pp. 418-429 ◽  
Author(s):  
Howard Peter Greenwald
Keyword(s):  
Healthcare System ◽  
Participant Observation ◽  
Capital Allocation ◽  
Provincial Government ◽  
Public Programs ◽  
Content Type ◽  
News Reports ◽  
Health Authorities ◽  
Allocation Process ◽  
Regional Health Authorities

Purpose The purpose of this paper is to identify the operational and management challenges in a globally budgeted, regionalized healthcare system and their implications for public service. Design/methodology/approach Concentrating on British Columbia’s regional health authorities (RHAs) and hospitals, this study utilized data from interviews of key informants, documents (histories, legislation, agreements between RHAs and provincial government, and RHA organizational charts), news reports, and participant observation at board meetings. Findings Challenges encountered by the managers include accommodating powerful stakeholders (elected officials, providers, and organized publics), adhering to fixed budgets, obtaining capital from public sources, and adjusting to government turnover. In response, the managers engage in balancing priorities of stakeholders, shifting of resources within and across sites and operating units, and working strategically with the capital allocation process. Responses of managers to these challenges have promoted stability but raise concerns about attaining the system’s goals. Practical implications Management challenges and potential patterns of response should be considered in assessing the options for health system reforms. Many countries periodically reorganize their healthcare systems, and recognition of potential management challenges can contribute to the achievement of objectives sought in these reforms. Originality/value Although studies have demonstrated that management affects the implementation of public programs in several areas, little research has focused on the relationships between features of health systems, management responses, and potential outcomes.

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