Capital Return Research Articles

New Method of Sensitivity Computation Based on Markov Models with Its Application for Risk Management

Sensitivity analysis is at the core of risk management for financial engineering; to calculate the sensitivity with respect to parameters in models with probability expectation, the most traditional approach applies the finite difference method, whereafter integration by parts formula was developed based on the Brownian environment and applied in sensitivity analysis for better computational efficiency than that of finite difference. Establishing a similar version of integration by parts formula for the Markovian environment is the main focus and contribution of this paper. It is also shown by numerical simulation that our proposed methodology and approach outperform the traditional finite difference method for sensitivity computation. For empirical studies of sensitivity analysis on an NPV (net present value) model, we show the approaches of modeling, especially for parameter estimation of Markov chains given data of company loan states. Applying our newly established integration by parts formula, numerical simulation estimates the variations caused by the capital return rate and multiplier of overdue loan. Furthermore, managemental implications of these results are discussed for the effectiveness of modeling and the investment risk control.

ЗАСТОСУВАННЯ КЛАСТЕРНОГО АНАЛІЗУ В ТУРИСТИЧНІЙ ІНДУСТРІЇ ЄВРОПЕЙСЬКОГО ПРОСТОРУ

It is determined that the cluster approach is a necessary tool for creating the spatial development of the world's tourist regions, and the focus on the formation of competitive advantages of tourist clusters will lead to the production of creative innovative tourism products. The study examines the competitiveness index according to a set of indicators, which are grouped into four subindexes – environmental friendliness, public policy and the creation of favorable conditions, infrastructure, natural and cultural resources. A cluster analysis of the factors that create the regional potential of clusters in the tourism industry of the European space has been carried out. The features of the competitive environment in the tourism services market and its impact on the competitiveness of economic entities of the tourism industry are considered. The number and composition of tourism clusters in the EU member states is demonstrated. With the help of cluster analysis and audit, more competitive tourist clusters of the European space have been identified. A correlation analysis was carried out between the general competitiveness index of the EU member states in the field of travel and tourism and its subindexes. The results of this analysis confirm the existence of a direct relationship between these components. In order to characterize tourist clusters and determine the degree of development of their tourism potential, the process of combining clusters by the Ward method and the K-means method was used, which made it possible to determine various levels of competitiveness of the travel and tourism sector. The forecasting tool is applied by the method of extrapolation of market trends and indicators. The forecast efficiency of the development of the regional potential of tourist clusters is calculated using the growth rates of the final product. As the main indicators of forecasting, such indicators as the growth rate of national income, the rate of dynamics of visits to tourist sites and recreation in the country, the parameter of the degree of labor intensity, labor productivity growth, the parameter of the degree of capital intensity, the growth of capital return are selected.

Modeling the Performance of Amorphous Silicon in Different Typologies of Curved Building-integrated Photovoltaic Conditions

Photovoltaic cells are a significant renewable energy source due to their cheap cost and renewability. In both warm sunny and colder and cloudier conditions, a-Si modules outperform c-Si modules on a normalized energy basis. This study investigated 1 m2 of amorphous photovoltaic silicon on curved surfaces. The Taguchi and response surface methods were utilized to expand the model in real terms. Results demonstrated the technology gap in the use of silicon crystal photovoltaics is eliminated. The maximum power in the Taguchi method test is 59.87 W, while the minimum power is 57.84 W when the system is deployed on a flat surface, and the maximum power in the RSM Test is 61.14 W when the system is deployed on a hemispherical surface, and the minimum power is 56.6 W when the system is deployed on a flat surface. The minimal performance was 7.1% on a level surface. The flat surface produced 810 kWh, the cylindrical surface 960 kWh, and the hemisphere 1000 kWh. The NPV at Flat surface is $697.52, with a 34.81%, IRR and an 8.58-year capital return period. Hemisphere and cylindrical surfaces both get $955.18. The investment yield was 39.29% for cylindrical constructions and 40.47% for hemispheres. On the flat surface, doubling fixed investment improved IRR by 21.3%. The cylindrical system increased by 25.59% and the hemisphere by 24.58%. The developed simulation model is empirically evaluated using a MATLAB computer tool; the key findings from the validation procedure are reported in this study.

Dynamic System Analysis of Investment in Both Production and R&D with Time Delay

This paper, according to the process of capital return, establishes a differential dynamics model of investment with two time delays. When both time delays are zero, it is proved that the model is positively invariant, uniformly bounded, and globally asymptotically stable by using the comparison principle and Bendixson–Dulac theorem. When at least one time delay is not zero, according to Hopf bifurcation theorem, the conditions of local asymptotic stability and existence of periodic solution of investment model are obtained. By using the normal form theory and the center manifold theory, the discriminant formula of periodic solution property of investment model is given. Under the condition of controlled time delay, the model is numerically simulated to verify the correctness of relevant analytical conclusions. Therefore, the investment model describes the dynamic process and development trend of project investment quite closely.

External Loans and Poverty Challenge in Nigeria, 2010-2020: Towards Deconstruction of an Antithesis

This study investigated the correlations between external loans and poverty elimination efforts in Nigeria from 201o to 2020. Owing to several reasons which include inadequacies of her domestic savings and foreign exchange, Nigeria’s macroeconomic space has over time witnessed perennial external borrowings which, for instance, rose from US$4,534.19 billion as at 30th September, 2010 to US$33,348.08 billion as at December 31, 2020 or N12,705,618.48 trillion. The key concern, however, is how the country has leveraged on those borrowings in order to reduce her soaring poverty rates put at over 83 million citizens living below poverty line of $1.90 per day. Consequently, the primary objective of this study was to investigate how impactful the external loans had become on the poverty-alleviation efforts of the developing economy. To achieve the objective, the following hypothesis was posed: how has Nigeria’s external borrowings supported poverty alleviation efforts in the country? Anchored on the Big Push Theory propounded by Paul Rosenstein-Rodan in 1943, the study adopted ex-post facto research design and documentary method for data collection. Qualitative descriptive method was used for data analysis. Among other things, the study found out that Nigeria’s external borrowings have not offered support for poverty alleviation with its characteristic low disbursements. It equally found out that the loans were not invested in productive sectors for beneficial effects on poverty alleviation. In view of the findings, the study recommended that there is need for poverty alleviation to be made the primary focus of Nigeria’s future external borrowings. It also recommended the need for external loans to be massively invested into projects with high capital returns which will produce desired effect on poverty reduction.

CHINA'S HOUSING BUBBLE, INFRASTRUCTURE INVESTMENT, AND ECONOMIC GROWTH

AbstractChina's housing prices have been growing rapidly over the past few decades, despite low growth in rents. We study the impact of housing bubbles on China's economy, based on the understanding that local governments use land‐sale revenue to fuel infrastructure investment. We calibrate our model to the Chinese data over the period 2003–13 and find that our calibrated model can match the declining capital return and GDP growth, the average housing price growth, and the rising infrastructure to GDP ratio in the data. We conduct two counterfactual experiments to estimate the impact of a bubble collapse and a property tax.

Sectoral Allocation of Foreign Aids and Poverty Alleviation in Nigeria, 2010-2020

The study was necessitated by the high rate of poverty in Nigeria regardless of the foreign aids inflow into the country from 2010 to 2020. Whereas the country received foreign aids which could have resulted in poverty alleviation within the period of this study, she antithetically witnessed increase in poverty rate to the extent that the World Bank in May 2018 reported that Nigeria had emerged poverty capital of the world. According to the National Bureau of Statistics’ report, over 82.9 million persons, representing about 40.1 percent of the total population, were considered poor by national standards as at 2019. The poverty challenge inspite of the foreign aids inflow into Nigeria therefore necessitated the question on how sectoral allocation of foreign aids contributed to poverty alleviation in Nigeria from 2010 to 2020. Anchored on the Big Push Theory, the study adopted ex-post facto research design and documentary method for data collection. Qualitative descriptive method was used for data analysis. Among other things, the study found out that sectoral allocation of foreign aid resources did not contribute to poverty alleviation in Nigeria from 2010 to 2020 as those sectors critical for poverty alleviation did not receive massive investments. On the contrary, the foreign aids were split among numerous (consumption) sub-heads which rendered the aids incapable of contributing to poverty alleviation in the country. In view of the findings, the study therefore recommended the need to channel future foreign aids inflow into projects with high capital returns or the productive sectors of the economy in order to achieve a positive outcome on poverty alleviation.

A Study on the Appropriate Rent of Restaurant Franchises Lease Small Commercial Real Estate in Korea

Purpose: The current rent payment structure only serves as a contract rent that does not take into account the tenant’s profits of the franchisee. Therefore, this study studies the appropriate value of tenants and lords as the operators of different businesses in the space of small commercial real estate. Research design, data, and methodology: In the case of the same franchise brand, the profit and loss structure of sales and franchisees differs depending on the region and the commercial area. Therefore, it is necessary to set the appropriate rent considering the profit and loss of the franchisee rather than judging the outward sales of the franchise as a measure of rent evaluation. So, to calculate the the appropriate rent, The wage income of each region was selected as a variable representing the expected income of the franchisee, and the weighted index was given to the difference, and the appropriate rent was calculated by adding the current rent. Results: If the appropriate rent By Region and industry is low in the proportion of negative (-), or has a positive (+) value, it is the case where the profit and loss of the franchisee business is good in the area. In these cases, the lords may consider rent increases, and it is necessary to focus on income returns separately from capital returns. Implications: The profit and loss level of franchisees By Region and industry derived from this study can be the business indicators of franchisees. The appropriate rent will be useful information that can be used for investors to implement win-win rental strategies or to refer to rent negotiations in relation to key franchise stores, even before investment or during the lease operation period.

Renewable versus nonrenewable energy for Canada in a free trade agreement with China

This paper predicts the adjustments in energy sources in Canada entering a free trade agreement FTA with China in an applied specific factors model including agriculture, manufacturing, services, and nonrenewable energy sectors. FTA price change scenarios lead to adjustments in sector outputs and capital returns, wages for five skill groups, and the price of electricity. Electricity is tied to renewable energy and treated as a factor of production. Increases in outputs, capital returns, and wages gains are offset by declines in manufacturing and the operator-handler wage. The declining demand for electricity will favor the nonrenewable sector over renewable energy.

CAPITAL EFFICIENCY AND DEFAULT RISK, EMPIRICAL EVIDENCE FROM COMMERCIAL BANKS IN KENYA

The main objective of this study was to determine effect of capital efficiency on default risk in commercial banks in Kenya. According to the bank supervisory report, the interest rate spread widened to 13 per cent at the end of December 2011 from 10.3 per cent by December 2010 which the CBK Governor termed as a sign of inefficiency in the banking sector. Secondary data was used in the study and descriptive survey design was applied. The target population was 42 Commercial Banks in Kenya out of which 2 were under receivership and 1 was under statutory management. Panel data for 39 commercial banks for the six years period from 2014 to 2019 were obtained from the CBK and individual bank websites. The study was guided by Agency theory, Moral hazard theory and Stakeholders theory. Descriptive statistics, correlation analysis and random and fixed effects were used for secondary data using E-views software. The findings indicated correlation coefficients of capital adequacy and return on equity of -0.14 and -0.11 respectively signifying a negative correlation between capital efficiency and non-performing loans. It was recommended that capital efficiency be strengthened to reduce non perfuming loans.
 
 JEL: G10; G20; G21
 
 <p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/edu_01/0914/a.php" alt="Hit counter" /></p>

Practical Applications of The Role of Contracts in Venture Capital Returns

In <b>The Role of Contracts in Venture Capital Returns</b>, published in the Fall 2021 issue of <b><i>The Journal of Alternative Investments</i></b>, <b>Sarina Liu</b> of <b>Wells Fargo</b> creates a novel dataset to empirically test the hypothesis that traditional methods overestimate the post-money value of startup firms. Data about contract terms display four general convertible preferred stock types that are often provided to venture capitalists (VCs). After combining the data on contract terms with two additional datasets, the author analyzes cash flows to the VCs, revealing several interesting statistics regarding early- and late-stage investors in small and large acquisitions for each of the four types of convertible preferred stocks. While possible outcomes include failures, acquisitions, or initial public offerings (IPOs), most involve small acquisitions. Importantly, the traditional method for estimating the post-money value is inaccurate because the assumption of using common stock does not capture the significant added value of preferred stock.

FACTOR THAT AFFECTING DEBT TO EQUITY RATIO IN THE INDONESIA’S TOURISM INDUSTRY SECTOR

The research aim is to examine the influence of working capital turnover, current ratio, cash ratio, firm size and return on assets toward debt to equity ration in the tourism industry sector listed on the Indonesia Stock Exchange. This is a quantitative research which takes data from the company’s audited financial statement. There are five independent variables which are being examined by descriptive statistical analysis, classical assumption tests, multiple linear regression, and hypotheses testing. The population of this research is tourism companies and stores 10 samples of companies fulfilled certain criteria in the period of 2012-2018 annually. The technique used for multiple linear regression panel data is the random effect model. The outcomes reveal a value of adjusted R-squared towards dependent variable is 33.22% and the independent variables of working capital turnover, current ratio, firm size and return on assets have a significant influence on debt to equity ratio in hypotheses testing. The most significant independent variable influences debt to equity ratio in the tourism industry sector in Indonesia is working capital turnover. High working capital turnover indicates this shortage of working capital which may be due to high inventory turnover, accounts receivable or cash balances that are too small.

Is e-commerce an investment risk priced by retail real estate investors? An investigation

ABSTRACT Over the last 20 years, online shopping has evolved into a major threat to the physical retail store. We investigate whether retail real estate investors price e-commerce as an investment risk. In particular, we analyse whether e-commerce sales have informative value for retail real estate returns. Focusing on institutional-grade shopping centres over the period of 2000 to 2018, we find that e-commerce sales predict total returns in the next quarter. This effect is driven by capital returns, which suggests that e-commerce is indeed priced as an investment risk. While consistent across mall types, this effect is stronger for regional and super-regional malls than neighbourhood and community shopping centres. Explanations for this difference include the types of retail tenants in these different mall categories and the varying impact of e-commerce on their business.

Impact of scaling up prenatal nutrition interventions on human capital outcomes in low- and middle-income countries: a modeling analysis

ABSTRACTBackgroundPrenatal nutrition interventions can lead to improved birth outcomes, which in turn are associated with better education and human capital outcomes later in life.ObjectiveWe estimated the impact of scaling up iron–folic acid (IFA), calcium, multiple micronutrient (MMS), and balanced energy protein (BEP) supplementation for pregnant women, on human capital outcomes in low- and middle-income countries (LMIC).MethodsWe used mathematical modeling with proportional reductions in adverse birth outcomes to estimate the potential gains in school years and lifetime income due to scaling up each prenatal nutrition intervention. Estimates of intervention effects on birth outcomes were derived from meta-analyses of randomized trials. Estimates of the associations between birth outcomes and schooling and lifetime income were derived from de novo meta-analyses of observational studies.ResultsAcross 132 LMIC, scaling up prenatal nutrition interventions to 90% coverage was estimated to increase school years and lifetime income per birth cohort by: 2.28 million y (95% uncertainty intervals (UI): −0.44, 6.26) and $8.26 billion (95% UI: −1.60, 22.4) for IFA; 4.08 million y (95% UI: 0.12, 9.68) and $18.9 billion (95% UI: 0.59, 44.6) for calcium; 5.02 million y (95% UI: 1.07, 11.0) and $18.1 billion (95% UI: 3.88, 39.1) for MMS; and 0.53 million y (95% UI: −0.49, 1.70) and $1.34 billion (95% UI: −1.10, 3.10 billion) for BEP supplementation. South Asia and Sub-Saharan Africa tended to have the largest estimated regional gains in school years for scaling up each intervention due to the large population size and high burden of poor birth outcomes. Absolute income benefits for each intervention were estimated to be the largest in Latin America, where returns to education and incomes are higher relative to other regions.ConclusionIncreasing coverage of prenatal nutrition interventions in LMIC may lead to substantial gains in schooling and lifetime income. Decision makers should consider the potential long-term human capital returns of investments in maternal nutrition.

Practical Applications of The Role of Contracts in Venture Capital Returns

In The Role of Contracts in Venture Capital Returns, published in the Fall 2021 issue of The Journal of Alternative Investments, Sarina Liu of Wells Fargo creates a novel dataset to empirically test the hypothesis that traditional methods overestimate the post-money value of startup firms. Data about contract terms display four general convertible preferred stock types that are often provided to venture capitalists (VCs). After combining the data on contract terms with two additional datasets, the author analyzes cash flows to the VCs, revealing several interesting statistics regarding early- and late-stage investors in small and large acquisitions for each of the four types of convertible preferred stocks. While possible outcomes include failures, acquisitions, or initial public offerings (IPOs), most involve small acquisitions. Importantly, the traditional method for estimating the post-money value is inaccurate because the assumption of using common stock does not capture the significant added value of preferred stock.

Emission targets and coalition options for a small, ambitious country: An analysis of welfare costs and distributional impacts for Norway

We theoretically and numerically analyse the impacts for a small, open country with carbon abatement ambitions of joining a coalition with allowance trading. Besides welfare impacts for both the coalition and the small, open economy joining the coalition, we scrutinise how the studied policy options differ with respect to their distributional impacts across domestic income groups. Our example is the EU 2030 policies and Norway's linking to it. In spite of theoretical ambiguity, the findings suggest that the tighter the links with the EU, the lower the abatement costs for Norway. The distributional profile of the welfare costs tends to be progressive, i.e., the relative (and absolute) incidence of the carbon policy falls more heavily on wealthy households than poor households, regardless of the choice of linking options. However, the less progressive, the lower the overall welfare cost. This indicates a trade-off between efficiency and distribution concerns. A national cap-and-trade system without linking to the EU is the least cost-effective option for Norway but also the most progressive as the higher income deciles face lower capital return and wages.

Equity home bias and consumption-real exchange rate puzzles: A joint solution

In a standard dynamic stochastic general equilibrium model with a complete asset market, home agents should hold a foreign equity biased portfolio to hedge the non-traded labor income risk, which contradicts home equity biased portfolios observed worldwide. As the labor income share increases, the degree of home bias should decrease because there is more incentive to hold foreign equity. In the data, there is not any evidence that the labor income share and the degree of home bias are negatively correlated. The standard model also predicts that the consumption differential-real exchange rate correlation is positive, while it is negative in the data. I show that a combination of market incompleteness, non-tradable goods, and labor supply can explain the three features above. My model can generate a large equity home bias, despite the strong positive correlation of non-traded human capital return with domestic equity return. The home bias is not sensitive to the labor income share. The consumption differential-real exchange rate unconditional correlation generated by my model simulation is zero.

Optimal State Contingent Sovereign Debt Instruments

This paper shows that the optimal sovereign lending contract is state-contingent when a government can default. It provides a theoretical basis for the specification of optimal state-contingent debt instruments (SCDIs) in countries subject to large shocks that can be observed and verified by all parties involved, such as natural disasters or global pandemics. The result is obtained as the endogenous solution to a contracting problem under time-inconsistency when a government cannot credibly commit to honor debt service obligations in all possible states of nature. It is shown that rational investors optimally offer SCDIs that include additional financing when the default constraint is binding, keeping the debtor engaged in the contractual relationship and avoiding asset loss. The debtor benefits because the contract implies net-positive financing when facing a large shock, increasing concurrent welfare, while maintaining access to financing in the future for consumption smoothing at the same terms as with precommitment. SCDIs require maintaining debt at a low level compared to the precommitment case, and also a fiscal consolidation when triggered to contain the increase in debt. Extension of the time inconsistency problem to add the taxation of capital returns shows that the optimal physical capital investment is also state-contingent.

Feasibility Analysis of Freshwater Fish Farming Business at Karya Mulya Fish Farming Group, Banyumas Regency

This study aims to determine the feasibility of freshwater fish farming as an effort to support the minapolitan area of the Banyumas Regency. The research was carried out in Karang Lewas District. Data collection was carried out proportionally by interviewing the fish farmers of each fish farming group. Data analysis on the feasibility of fish farming was performed using the B/C ratio, PP, and BEP (Break-Even Point) criteria. The analysis method of the business feasibility was an analysis of business costs and income. Results of the analysis of B/C ratio value in fish farming was 1.13 to 1.69, BEP calculation used data according to the respondents, while the Payback Period (PP) of the fish farming ranged between 1.00-1.49 meaning that the capital return in less than 5 years. Those values state that the activities of freshwater fish farming have a capital return of more or less over 1 - 1.5 years. It shows that the business of freshwater fish farming in both hatcheries and fish rearing is feasible to maintain.

Risk-adjusted valuation in the worker's economic decision making

We suggest a risk-adjusted valuation approach for workers at retirement risk to make decisions in an overlapping generations economy. The risk-averse workers use greater weights than expected, so-called risk-adjusted probability, on their retirement cash flows to assess the residual lifetime income. This method can be consistently applied to value financial and non-financial assets, and on the risk-adjusted valuations, the workers will make optimal investments. To predict capital returns and economic variables, comparative statics will be numerically implemented via demographic structure, preference, and social security policy by aggregating workers’ decisions.