Investment-Timing and the Threat of Disruption

<p>An incumbent firm needs to determine how to best manage the risk of the arrival of a disruptive technology. The numerous actions available to the incumbent firm indicates a complex real-options model of investment is required. This thesis investigates the behaviour of an incumbent firm, with assets-in-place, when they have access to an investment opportunity. The incumbent must not only choose when to invest in the opportunity, but also the optimal structure with which to compete against a new entrant who also has this investment opportunity. In order to delay competition in the market the incumbent can elect to permanently abandon the innovative option rather than seek to compete with the new entrant. The assets-in-place contributes significant value to the incumbent and by delaying the competition effect, the incumbent can reduce the cannibalization of assets-in-place. This is despite the fact that the incumbent can attempt to profitably invest in the innovation before the entrant. Clearly the assets-in-place provide a benefit to firm value for the incumbent, but act as a burden for the growth option’s development. Should consumer preferences begin to favour the innovation, then the decision to abandon the growth option loses its value. The incumbent in this instance does not care that they may accelerate the entrant’s investment as they can still profitably preempt the entrant. In a competitive market, when the incumbent efficiently produces the innovation at no extra cost compared to an independent firm, the incumbent will elect to internalise, rather than spin off, the growth option. When the incumbent produces the innovation at a higher cost, than other market participants, they will spin off the growth option instead of internalising. When consumers favour the innovation, the incumbent becomes indifferent between spinning off and internalising the growth option as the objective functions in both cases converge to maximising the value of the growth option.</p>

Investment-Timing and the Threat of Disruption

<p>An incumbent firm needs to determine how to best manage the risk of the arrival of a disruptive technology. The numerous actions available to the incumbent firm indicates a complex real-options model of investment is required. This thesis investigates the behaviour of an incumbent firm, with assets-in-place, when they have access to an investment opportunity. The incumbent must not only choose when to invest in the opportunity, but also the optimal structure with which to compete against a new entrant who also has this investment opportunity. In order to delay competition in the market the incumbent can elect to permanently abandon the innovative option rather than seek to compete with the new entrant. The assets-in-place contributes significant value to the incumbent and by delaying the competition effect, the incumbent can reduce the cannibalization of assets-in-place. This is despite the fact that the incumbent can attempt to profitably invest in the innovation before the entrant. Clearly the assets-in-place provide a benefit to firm value for the incumbent, but act as a burden for the growth option’s development. Should consumer preferences begin to favour the innovation, then the decision to abandon the growth option loses its value. The incumbent in this instance does not care that they may accelerate the entrant’s investment as they can still profitably preempt the entrant. In a competitive market, when the incumbent efficiently produces the innovation at no extra cost compared to an independent firm, the incumbent will elect to internalise, rather than spin off, the growth option. When the incumbent produces the innovation at a higher cost, than other market participants, they will spin off the growth option instead of internalising. When consumers favour the innovation, the incumbent becomes indifferent between spinning off and internalising the growth option as the objective functions in both cases converge to maximising the value of the growth option.</p>

PENGARUH PUBLIC OWNERSHIP DAN GROWTH OPTION TERHADAP KINERJA KEBERLANJUTAN DENGAN INVESTMENT OPPORTUNITY SET SEBAGAI VARIABEL MODERASI

This study aims to determine the effect of public ownership and growth options on sustainability performance with an investment opportunity set as a moderating variable. This type of research is associative quantitative using secondary data taken from the IDX website. The population in this study is manufacturing companies listed on the Indonesia Stock Exchange from 2013 to the end of 2017. The sample selection procedure in this study is using purposive sampling method, only 50 company data that meet the criteria. The results of this study have a significant effect on Public Ownership Sustainability Performance, the influence of growth options on sustainability performance. Opportunity Set is able to moderate the influence of Public Ownership on Sustainability Performance. The Investment Opportunity Set does not moderate the effect of Growth Options on Sustainability Performance.

A Research on Risk Return Analysis of Selected Growth Option Mutual Fund Schemes in India

Mutual funds are one of the best intermediaries in capital markets to mobilize funds from general public. Risk and return are the basic features of mutual fund. The present study evaluates and compares the performance of 26 large-cap equity schemes of five Asset Management Companies (Franklin Mutual Fund, India bulls Mutual Fund, UTI Mutual Fund, SBI Mutual fund, Axis Mutual fund). The period of the study is 5 years from 2013 to 2018. Benchmark index is BSE 100 index has been collected from www.bseindia.com. The research study has analyzed the performance of Large-Cap Equity Mutual Funds of Select Asset Management Companies and to compare the performance of Large-Cap Equity Mutual Funds of Select Asset management Companies. The methodology of the present study includes sampling, data collection and data analysis tools used for the study. The present research study is based on purely secondary data. The NAV data has been obtained from Association of Mutual funds of India (AMFI) website and other secondary data obtained from books, journals and respective mutual fund websites. In this research study, financial tools Sharpe Index, Treynor’s Index and Jensen Alpha etc., are applied for processing the data to give reliable conclusion.

Icepac Limited: Strategic Growth Choices for an SME in the Frozen Food Industry

In 2012, Mr Mansoor Arifeen, CEO of Icepac Ltd/Kold Karrier (Pvt.) Ltd, was considering growth options for his small businesses. Icepac Ltd was the first company to provide branded, value-added frozen vegetables and meat products within Pakistan, and from Pakistan to the export market. He had managed to survive in the challenging frozen food industry by diversifying into logistics (Kold Karrier [Pvt.] Ltd) and warehousing (Icepac Ltd). Over the years, Icepac Ltd/Kold Karrier had grown from microbusinesses in 1988–1990 to small and medium enterprises. The majority ownership still rested with Mr Arifeen for both the businesses. He faced two options for growth. Option one was an investment in warehousing and logistics. Option two was to focus on frozen food business, investing heavily in developing the Icepac brand. Option two could be limited to the local market or expanded to the export market. Each of these decisions had its own pros and cons. However, it was a complex decision for him as he had always been emotionally invested in the frozen food business, as frozen vegetables had been the raison d’être for his entrepreneurial venture.

Probing Into E-commerce Logistics: A Strategic Growth Option of Serbada Company

E-commerce marketplace is prominent in today ‘s society era of buying and selling products without having to leave the doorsteps. One important stakeholder group involved in the process of e-commerce is logistics. Logistic companies facilitate the delivery from one destination to another with punctuality and security of the products keys in establishing trust between the buyer, seller, and the e-commerce hubs. Hence by means of participant observation, this case study research investigates the key success factors of how an e-commerce firm manages its collaborations with logistic partners, as well as how the firm utilizes its strengths and opportunities take advantage of the market while minimizing its weaknesses and threats. The researchers used Business Model Canvas and TOWS in their analytical process

GROWTH OPTION AND DEBT MATURITY WITH EQUITY DEFAULT SWAPS IN A REGIME-SWITCHING FRAMEWORK

We consider a firm with assets-in-place and a growth option. There is a funding gap for the expansion investment, which is covered by entering into an equity-for-guarantee swap or fee-for-guarantee swap. We explicitly derive all contingent claim prices with the pricing and timing of the growth option taking business cycle and debt maturity into account. For short-term loan, we produce an explanation why Chinese government suggests that guarantee fee rate should be approximately the fraction 50% of the interest rate of bank loans with the same maturity, but for long-term debt, we show this fraction is too small.