Capital Decisions Research Articles

Ramp Area Support System: Limitations of Modeling Approach to an Airport Apron Area

Many factors contribute to the punctuality of the time dependent aviation industry; numerous studies have been performed which attempt to improve efficiencies of the surface movement of aircraft. Modeling results can be used to analyze future projects and can help inform and influence capital decision-making. This work focuses on some of the limitations associated with applying a modeling approach to the dynamic systems found within the ramp area at major metropolitan airports. While modeling can be a valuable tool in short term resource management and planning in aviation, traditional approaches to dynamic modeling of airports do not adequately measure, nor quantify, the effects of industry changes on ramp operations. Without a more holistic approach to modeling the integration of the systems operating in the ramp area, there will always be a statistical probability that the model fails to account for important variables that alter operating practices and make each ramp area unique.

Gender and venture capital decision-making: The effects of technical background and social capital on entrepreneurial evaluations

Research on gender and workplace decision-making tends to address either supply-side disparities between men’s and women’s human and social capital, or demand-side differences in the status expectations of women and men workers. In addition, this work often relies on causal inferences drawn from empirical data collected on worker characteristics and their workplace outcomes. In this study, we demonstrate how tangible education and work history credentials – typically associated with supply-side characteristics – work in tandem with cultural beliefs about gender to influence the evaluative process that underlies venture capital decisions made in high-growth, high-tech entrepreneurship. Using an experimental design, we simulate funding decisions by venture capitalists (VCs) for men and women entrepreneurs that differ in technical background and the presence of important social ties. We demonstrate the presence of two distinct aspects of VCs’ evaluation: that of the venture and that of the entrepreneur, and find that the gender of the entrepreneur influences evaluations most when the person, rather than the venture, is the target of evaluation. Technical background qualifications moderate the influence of gendered expectations, and women receive more of a payoff than men from having a close contact to the evaluating VC. We discuss the implications for future research on gender and work.

The Strength of Strong Ties in an Emerging Industry: Experimental Evidence of the Effects of Status Hierarchies and Personal Ties in Venture Capitalist Decision Making

Drawing from social network theory, scholars have identified two ways in which social ties influence venture capital investment decisions: directly through personal ties and indirectly through status hierarchies. Previous research has examined these effects independently. Our study is the first to perform a joint examination of the role of social ties and status hierarchies in venture capital decision making. We examine the relative importance of these two mechanisms through an adaptive choice‐based conjoint experiment comprising of 3,132 investment decisions made by 86 venture capitalists from the United States and Europe. Our experimental context allows us to explore whether, under high levels of market uncertainty, strong personal ties exert more influence over investment decisions than the presence of a high‐status investor in the deal. We also explore the moderating effects that market structure and experience play in shaping these decision processes. Our findings reveal that personal ties are more important in venture capital decision making when compared to the relative status of other venture capital firms participating in the investment syndicate. Building on our main findings, we show that the influence of personal ties is less pronounced in the European investment community, as compared to more densely networked U.S. investors. We also find a U‐shaped relationship between venture capitalist experience and the influence of personal networks on investment decisions. Copyright © 2014 Strategic Management Society.

Retaliatory Capital Allocation or Defensive Dual Sourcing; the Boeing Dreamliner Case

The General Counsel’s decision to file a complaint in the Boeing case was an appropriate response to a major industrial decision that posed new questions about how to resolve a central tension in the National Labor Relations Act. On the one hand, the Act protects concerted activity by employees to enhance their wages and working conditions, while, on the other hand, the Act maintains the freedom of employers to make important capital allocation decisions. Resolution of this tension requires drawing a fine line, on the basis of a series of Supreme Court decisions, between legal capital allocations that are implemented to protect the employer from the effects of future strikes, and illegal capital allocations that are implemented to retaliate against employees for engaging in past strikes in order to discourage future strikes. Illegal retaliatory capital allocations may include some that do not result in an immediate reduction of employment opportunities.

Stock repurchase effect with loan or idle fund

Purpose – The purpose of this paper is to integrate Modigliani-Miller (MM) theory and stock repurchases strategy to procure a practical concept for capital decision. Design/methodology/approach – No-arbitrage proof model deduction was used in this study. The authors consider corporate tax and funding sources as two crucial factors drawn in the model. The paper derives some propositions by trichotomy property and keeps the key assumptions of MM Capital Structure Theory. Findings – There are two different effects on firm's value through stock repurchases. The positive effect occurs on firm's value through stock repurchases with loan fund. And the negative impact exists on firm's value through stock repurchases with idle fund. Research limitations/implications – Notably, in the real world there are three limitations with such an arbitrage transaction (Stulz, 2000). The first one is the default risk, and the second one is transaction costs and the last one is the perfect credit market assumption. In the near future, the authors suggest it would be interesting to involve the interest rate factor and contingent tax variable into our model. Originality/value – On the basis of no arbitrage opportunity, this paper considers both trichotomy property and MM theory. It proves the share repurchase strategy should be financed by borrowing fund. In contrast, share repurchase should not be executed with idle fund because of opportunity cost.

A Fuzzy Goal Programming Model for Venture Capital Investment Decision Making

The Venture Capital decision making process involves several conflicting and imprecise criteria. The decision to invest is a difficult one with serious adverse selection risk and surrounded with uncertainty. The aim of this paper is to propose a cardinality constrained Fuzzy Goal Programming (FGP) model to deal with such a complex scenario. A FGP model does not require any assumptions on the probability distribution, better fitting with the characteristics of the Venture Capital market. The developed model is illustrated through a numerical example which uses data taken from an Italian venture capital fund.

The Academic Entrepreneur: A Biographical Sketch of Ian C. MacMillan's Contributions to Establishing the Field of Entrepreneurship

Ian C. MacMillan, originally from Africa, is a seminal figure in forging the contours of the present‐day field of entrepreneurship. He was the first to empirically explore topics such as venture capital decision making; entrepreneurial networks; cultural influences on entrepreneurial behavior; and many issues in corporate venturing. Through the creation of vibrant, global, scholarly networks, the founding of the Journal of Business Venturing, his dedication to training and mentoring the next generation of scholars, and establishing the first large‐scale systematic global data collection in the field, Mac has made an irreplaceable contribution to the well‐established field that entrepreneurship has become. He and his students have been acknowledged as having made significant breakthroughs in our understanding of entrepreneurial phenomena, recognized by a burgeoning number of awards and testaments to scholarly recognition. He argues that the challenge for future researchers will be to tackle big, messy problems that do not lend themselves to the popular methodologies employed by academia today. Copyright © 2014 Strategic Management Society.

Freight vehicle dispatching problem with capital constraints by genetic algorithm

Enterprise operation management mainly includes production decisions and capital decisions. This paper proposes a vehicle dispatching decision problem considering capital constraints. First, a freight vehicle dispatching model with capital and time windows constraints is devised with an objective of maximizing profit. Then, a two-stage algorithm is developed. In the first stage, a genetic algorithm is employed to get feasible vehicle routes. In the second stage, a regulation is used to improve the present routes by discarding the customers whose profit ratio of cost is minimized. Finally, a case study illustrates that the profit ratio increases by 54% through the proposed method and the capital investment decreases by 30% when considering the capital constraints.

United but (un)equal: human capital, probability of divorce, and the marriage contract

This paper studies how the risk of divorce affects the human capital decisions of a young couple. We consider a setting where complete specialization is optimal with no divorce risk. Couples can self-insure through savings which offers some protection to the uneducated spouse, but at the expense of a distortion. Alternatively, for large divorce probabilities, symmetry in education, where both spouses receive an equal amount of education, may be optimal. This eliminates the risk associated with the lack of education, but reduces the efficiency of education choices. We show that the symmetric allocation will become more attractive as the probability of divorce increases, if risk aversion is high and/or labor supply elasticity is low. However, it is only a “second-best” solution as insurance protection is achieved at the expense of an efficiency loss. Finally, we study how the (economic) use of marriage is affected by the possibility of divorce.

Towards modelling flood protection investment as a coupled human and natural system

Abstract. Due to a number of recent high-profile flood events and the apparent threat from global warming, governments and their agencies are under pressure to make proactive investments to protect people living in floodplains. However, adopting a proactive approach as a universal strategy is not affordable. It has been argued that delaying expensive and essentially irreversible capital decisions could be a prudent strategy in situations with high future uncertainty. This paper firstly uses Monte Carlo simulation to explore the performance of proactive and reactive investment strategies using a rational cost–benefit approach in a natural system with varying levels of persistence/interannual variability in annual maximum floods. It is found that, as persistence increases, there is a change in investment strategy optimality from proactive to reactive. This could have implications for investment strategies under the increasingly variable climate that is expected with global warming. As part of the emerging holistic approaches to flood risk management, there is increasing emphasis on stakeholder participation in determining where and when flood protection investments are made, and so flood risk management is becoming more people-centred. As a consequence, multiple actors are involved in the decision-making process, and the social sciences are assuming an increasingly important role in flood risk management. There is a need for modelling approaches which can couple the natural and human system elements. It is proposed that coupled human and natural system (CHANS) modelling could play an important role in understanding the motivations, actions and influence of citizens and institutions and how these impact on the effective delivery of flood protection investment. A framework for using agent-based modelling of human activities leading to flood investments is outlined, and some of the challenges associated with implementation are discussed.

Project Capital Allocation Combination Equilibrium Decision Model Based on Behavioral Option Game

Aiming at option value of the project and fairness preference psychological utility features, this paper modified objective function between players by option game equilibrium and utility function of project managers by inequity aversion. Therefore, under the symmetric and asymmetric information conditions, a project capital allocation combination equilibrium decision model has been built. It draws a conclusion that the option value of projects has changed the utility function of shareholders and managers in capital allocation, whereas fairness preferences of the project managers have changed the way of allocation through psychological utility. These two effects have influenced the trigger point of capital allocation decision-making. One is the decrease of trigger point owing to capital allocation decision-making of a CEO affected by the option value; the other is the reaction due to the crowding-out and crowding-in effect of the project manager’s fairness preference, which restrains the severity of underinvestment. Therefore, a good incentive plan should be a balance among insurance, incentive, and fairness, not only a balance between insurance and incentive.

Exploring the Intended and Unintended Consequences of High-Stakes Teacher Evaluation on Schools, Teachers, and Students

Background/ContextThe stakes are getting higher for teachers daily as more and more states adopt hiring, firing, and tenure-granting policies based on teacher evaluations. Even more concerning is the limited discussion about whether or not high-stakes teacher evaluation can meet the intended outcome of improved student achievement, and at what cost. These high-stakes decisions are based on the rationale that firing ineffective teachers (as primarily measured by observation data and value-added scores) will improve student achievement. This premise is challenged by various variables and assumptions (e.g., reliability, validity, percentage fired, and turnover) that, if not met, could result in a number of possible unintended consequences.Focus of StudyThis paper examines the history of high-stakes teacher evaluation and the ways in which teacher evaluation data are being used in today's schools to make human capital decisions. The intended consequences and unintended consequences are explored in great detail.Research DesignThis paper is an analytic essay.Conclusions/RecommendationsThere is no evidence that high-stakes teacher evaluation can produce a more effective teacher workforce and improve student achievement. Even if basic requirements and assumptions are met (e.g., highly reliable and valid measures, retention of effective teachers, and highly effective hires), gains in student achievement may be short lived, insignificant, or practically meaningless. The possible unintended consequences could result in worse, rather than better, student achievement outcomes and increase the gap in opportunity to learn for students attending the most and least affluent schools.

Owner-manager replacement: a venture capitalist decision model

We develop a theory of managerial replacement in which a venture capitalist monitors an investee firm run by a manager of unknown quality (Good or Bad). An informative signal St correlated with performance (value-added) is available to the VC at a cost in each period t. The problem is when to replace him if he underperforms. We derive a solution to this problem that takes the form of an optimal cutoff for each period t, namely, , such that, given his track record, the manager will be replaced if and only if next period’s signal falls below . The probability of manager replacement is lower for managers with good track records, higher incremental values and lower VC discount rates, and is higher the higher the return to professional replacement, the cost of investment and the costs of monitoring manager performance. Replacement is also predicted to enhance company value. G24, G32

Life Cycle Cost Analysis of Ready Mix Concrete Plant

India, being a developing nation is experiencing major growth in its infrastructural sector. Concrete is the major component in construction. The requirement of good quality of concrete in large quantities can be fulfilled by ready mix concrete batching and mixing plants. The paper presents a technique of applying the value engineering tool life cycle cost analysis to a ready mix concrete plant. This will help an investor or an organization to take investment decisions regarding a ready mix concrete facility. No economic alternatives are compared in this study. A cost breakdown structure is prepared for the ready mix concrete plant. A market survey has been conducted to collect realistic costs for the ready mix concrete facility. The study establishes the cash flow for the ready mix concrete facility helpful in investment and capital generation related decisions. Transit mixers form an important component of the facility and are included in the calculations. A fleet size for transit mixers has been assumed for this purpose. The life cycle cost has been calculated for the system of the ready mix concrete plant and transit mixers.

A Demand Side Theory for Bad Politicians

Expertise and experience are frequently held to be universally desirable political attributes. But under what conditions can voters benefits from improvements in the human capital of their politicians? We address this question in a model of electoral control with two districts, built upon three premises. First, both human capital (quality) and effort are key inputs of a politician's performance. Second, ensuring that these inputs are employed to the service of constituents requires the provision of electoral incentives. Third, the reward to politicians from the pursuit of alternative activities to direct constituency service - in particular, pursuing the internal goals of a party or political faction - depends on the human capital and effort decisions of both legislators. Our main result is that an increase in the quality of either politician can worsen electoral control for both voters. As a consequence, voters may be better served by ``outsiders,'' or amateur candidates with lower levels of expertise and prior experience.

Cloud Workload Characterization

This paper describes various computer system workloads and relates them to their underlying resource utilization. Specifically, the paper concentrates on Cloud workload characterization based upon issues, capabilities, and technologies surrounding the categories from the multiple points of view of the various players involved in Cloud Computing. The relationship is established between the categories and key limiting underlying technologies, and the dynamic and measurable low-level metrics and measurements that are used to detect and reduce resource contention, and identify category changes during run-time. Research questions are posed on dynamic low-level measurements and a usage case example with high performance computing (HPC) clusters. The Cloud workload categories can provide a basis for common communication for various viewpoints from players, including facility managers, Cloud IT or service providers, Cloud users, consumers, IT managers, and hardware vendors. This common communication tool will facilitate better service-level agreements (SLAs), capital purchase decisions, and future computer architecture design-decisions.

Investment deposits, risk‐taking and capital decisions in Islamic banks

Purpose – This paper aims to examine the relationship between the volume of investment deposits and capitalization of Islamic commercial banks.

Profitability and Debt Capital Decision: A Reconsideration of the Pecking Order Model

This paper tests for the adherence of firms in third world nations to the pecking-order model (POM) in determining their debt level. We developed two econometric models to query the pecking-order model (POM) as it applies to firms’ financing decision in emerging economies. Cross-sectional dataset was constructed from the annual reports of 45 non-financial companies quoted on the Nigerian stock exchange in the year 2007. We employed Binary Logistic regression and Ordinary least squares (OLS) estimation techniques to estimate our models and to test the study hypotheses. Our results coherently reveal negative relationship between corporate profitability and debt utilization, and corporate debt limit relates positively to firms’ tangibility and size. It therefore suggests that the pecking-order model (POM) applies to firms in third world nations as to firms in developed economies. Therefore, the possibility of a firm attaining an optimal capital structure remains a mirage. Because this study has made used of both proxy and dummy variables, the usual caveats therefore apply. Furthermore, the results are specific to only the sampled firms, thereby may lack generalizability to firms outside the sampled firms. Researchers are encouraged to further extend the suggestions of this study.

Modeling parameter risk in premium risk in multi‐year internal models

PurposeThe purpose of this paper is to illustrate the importance of modeling parameter risk in premium risk, especially when data are scarce and a multi‐year projection horizon is considered. Internal risk models often integrate both process and parameter risks in modeling reserve risk, whereas parameter risk is typically omitted in premium risk, the modeling of which considers only process risk.Design/methodology/approachThe authors present a variety of methods for modeling parameter risk (asymptotic normality, bootstrap, Bayesian) with different statistical properties. They then integrate these different modeling approaches in an internal risk model and compare their results with those from modeling approaches that measure only process risk in premium risk.FindingsThe authors show that parameter risk is substantial, especially when a multi‐year projection horizon is considered and when there is only limited historical data available for parameterization (as is often the case in practice). The authors' results also demonstrate that parameter risk substantially influences risk‐based capital and strategic management decisions, such as reinsurance.Practical implicationsThe authors' findings emphasize that it is necessary to integrate parameter risk in risk modeling. Their findings are thus not only of interest to academics, but of high relevance to practitioners and regulators working toward appropriate risk modeling in an enterprise risk management and solvency context.Originality/valueTo the authors' knowledge, there are no model approaches or studies on parameter uncertainty for projection periods of not just one, but several, accident years; however, consideration of multiple years is crucial when thinking strategically about enterprise risk management.

Venture capital budgeting — Carry and correlation

We analyze venture capital budgeting in a model with agency conflicts among entrepreneurs, venture capitalists, and investors. Our three-player setting is crucial for the analysis of compensation to venture capitalists. We focus on the venture capitalist's decision to invest in correlated enterprises, and we emphasize the importance of information and the venture capitalist's role in resolving adverse selection on the entrepreneurial side. The importance of information increases the minimum carried interest offered to the venture capitalist, whereas correlated projects decrease it. The carried interest is determined by the size and level of correlation in his portfolio. Our analysis provides predictions in line with a number of empirical observations, e.g. that venture capitalists typically receive a carried interest which is “sticky” around a 20% level.