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This study extends the works of Mauer and Sarkar (2005) and Andrikopoulos (2009) by incorporating a regime-dependent earnings-based bonus into managerial compensation. Examining the individual effects of ownership shares and earnings-based bonus compensation, we find that the former provides...
Persistent link: https://www.econbiz.de/10010599643
This paper connects executive compensation with hedging and analyzes a crucial shareholders and managers agency source that evolves from the pricing of the hedging device. The shareholders are risk-neutral, while the risk-averse manager hedges the price risk of the manufactured quantity, and his...
Persistent link: https://www.econbiz.de/10010603405
We apply a contingent-claims technique and demonstrate how to value an emerging market hydro electric power investment under uncertainty. The investment project depends on reliable weather conditions and the capacity of a river to drive the water turbines. Uganda’s Bujagali dam project located...
Persistent link: https://www.econbiz.de/10009493104
We develop a dynamic model in which a firm exercises an option to expand production on either a small or large scale with cash reserves and costly external funds. An intermediate level of cash reserves, which is insufficient for the large-scale investment but sufficient for the small-scale...
Persistent link: https://www.econbiz.de/10010741764
Most firms face some form of competition in product markets. The degree of competition a firm faces feeds back into its cash flows and affects the values of the securities it issues. Through its effects on stock prices, product market competition affects the prices of options on equity and...
Persistent link: https://www.econbiz.de/10011626663
This study establishes a dynamic model under real options analysis to analyze the optimal timing decision of information technology (IT) investments when the output price for firms is stochastic and benefits of IT investments are arisen from the increasing output price, increasing sale, and cost...
Persistent link: https://www.econbiz.de/10008493082
We develop a new approach to dealing with real options problems with uncertain maturity. This type of situation is typical for R&D investments and mine or oil exploration projects. These types of projects are characterized by significant on-going investment costs until completion. Since time to...
Persistent link: https://www.econbiz.de/10005719947
We provide a real options framework for the analysis of product development that incorporates research and exploration actions, product attribute value-enhancing actions with uncertain outcome, as well as preemption and innovation options. We derive two-stage analytic formulas and propose a...
Persistent link: https://www.econbiz.de/10010591917
This paper embeds an oligopolistic industry structure in a real options framework in which synergy gains of horizontal mergers arise endogenously and vary stochastically over time. We find that (i) mergers are more likely in more concentrated industries; (ii) mergers are more likely in...
Persistent link: https://www.econbiz.de/10010574001
This paper shows that forward default intensities in the Black and Cox (1976) model of corporate default can be expressed in terms of the Mills Ratio (Mills, 1926). The behaviour of the forward default intensity and hence the survivorship functions then follows from inequalities that are...
Persistent link: https://www.econbiz.de/10010753689