Ex-ante Performance Research Articles

Development and application of ex-ante performance evaluation framework for health projects in China

China National Health Commission issued an implementation plan for budget performance management in health projects in April 2021, which emphasizes all health projects must be evaluated in advance prior to implementation. The study aims to develop an ex-ante performance evaluation framework for health projects and formulate a self-assessment report template. The study also attempts to gain insights into the ex-ante performance of health projects in China, identify issues and explore the factors that influence the ex-ante performance of health projects and make suggestions about improvement strategies. The framework was established by using a framework development methodology. To develop the framework, the findings from existing research were pooled and organized to create indicators and key points. The preliminary ex-ante performance evaluation framework was refined, validated and tested by the experts. Weight analysis was conducted by using the Analytic Hierarchy Process. Then the indicator system has been transformed into a project ex-ante performance self-assessment report template. Samples of 698 municipal health projects in China from 2021 to 2022 were analyzed. We invited experts to complete the scoring task by using our ex-ante performance evaluation framework. The ex-ante performance evaluation framework primarily examines five aspects, the necessity of the project, economy of input, rationality of performance indicators, feasibility of implementation plans, and compliance of financing. The overall ex-ante performance evaluation score for the sample projects was (91.19 ± 8.02). The sub-scores for necessity of project were (14.74 ± 1.85), economy of input was (34.45 ± 2.43), reasonableness of performance indicators was (8.27 ± 2.28), feasibility of implementation plan was (23.99 ± 3.84), and compliance of financing was (9.75 ± 1.47). Factors such as whether it was an epidemic prevention and control project, the project budget, project content, project objective, and project implementation organization were all influencing the ex-ante performance of health projects (P < 0.05). We have developed a ex-ante performance evaluation framework for health projects and established a project ex-ante performance self-assessment report template. They can offer a sufficient reference for project process management. Project implementation organization should elevate the awareness and proficiency of project managers regarding budget performance management. Government should improve the ability of ex-ante performance evaluation, and eliminate ineffective projects through ex-ante performance evaluation.

Ex-ante performance of REIT portfolios

Ex-ante performance of REIT portfolios

Coherent portfolio performance ratios

In Quantitative Finance 2016, Chen, Hu and Lin (CHL) claimed the following: ‘ … there is yet no coherent risk measure related to investment performance.’ (p. 682). Our paper suggests and analyzes four coherence axioms that portfolio performance ratios should satisfy. Our Portfolio Riskless Translation Invariance axiom must be satisfied to assure separation of the objective decision to optimize a portfolio’s risky composition from the subjective decision to optimize the weight of the portfolio's level of risk-free asset. Performance ratios with fixed thresholds other than the risk-free rate do not satisfy this axiom, allowing portfolio managers to affect an ex-ante performance ratio merely by changing the proportion of the risk-free asset in the portfolio rather than by improving the composition of the portfolio’s risky components. The magnitude of this potential drawback is examined using S&P-500 stock index data. Replacing the fixed threshold, T, with a threshold that equals γ times the portfolio’s risk premium plus (1-γ) times the risk-free rate, eliminates the above shortcoming for any selected γ. In addition, using performance ratios with threshold rather than fixed T, assures consistency of performance ratios of effective stochastic dominance and risk-free asset rules.

Cost structure effects of horizontal airline mergers and acquisitions

The purpose of this research is to test the ex-post cost structure effects in horizontal mergers and acquisitions (M&A). Our proposed methodology quantifies cost structure effects empirically to inform competition policy around M&As in the airline industry. The results show that horizontal M&As involving unprofitable firms significantly reduce variable costs and increase fixed costs ex-post. M&As involving only profitable firms show no significant impact on the cost structure. We offer support that the ex-post cost structure effects of airline M&As depend on the incentives to improve efficiency, reflected in the ex-ante performance of the merging firms. We further argue that market behavior may not just depend on market structure but cost structures too, all of which should be accounted for in antitrust decision making and regulation around airline M&As.

Cross-border investments and uncertainty: Firm-level evidence

This paper studies the impact of uncertainty on cross-border investments. We build a data-set of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average effect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions.

VPP Self-Scheduling Strategy Using Multi-Horizon IGDT, Enhanced Normalized Normal Constraint, and Bi-Directional Decision-Making Approach

This paper presents a new robust self-scheduling strategy for virtual power plants (VPPs) considering the uncertainty sources of electricity prices, wind generations, and loads. Multi-horizon information-gap decision theory (MH-IGDT) as a non-deterministic and non-probabilistic uncertainty modeling framework is proposed here to specifically model the uncertainty sources considering their various uncertainty horizons. Since each uncertain parameter tends to optimize its uncertainty horizon competitively for a particular value of the uncertainty budget, the proposed MH-IGDT model is formulated as a multi-objective optimization problem. To solve this multi-objective problem, enhanced normalized normal constraint (ENNC) method is presented, which can obtain efficient uniformly-distributed Pareto optimal solutions. The proposed ENNC includes augmented normalized normal constraint method and lexicographic optimization technique to enhance the search performance in the objective space. To address the unsolved issue of being risk-averse or risk-seeker for a VPP in the market, a bi-directional decision-making approach is presented. This decision maker comprises an ex-ante performance evaluation method and a forward-backward dynamic programming approach to hourly find the best Pareto solution within the generated risk-averse and risk-seeker Pareto frontiers. Simulation results of the proposed self-scheduling strategy are presented for a VPP including dispatchable/non-dispatchable units, storages, and loads.

The Current Situation, Problems and Improvement of Ex-ante Performance Management in China

Budget decision-making is the first step in the process of budget management, which can have a huge impact on the effect of budget management. The correct decision can make budget expenditure achieve expected output, and the wrong decision will lead to a serious waste of budget funds. Therefore, improving the level of budget decision is the key to the full implementation of budget performance management in China. Ex-ante performance management is located in the front of budget management. It is to collect, sort out and analyze relevant information purposefully and systematically before budget decision-making. So, ex-ante performance management can provide scientific basis for budget decision-making and effectively improve the level of budget decision-making, which is of great significance to ensure the implementation effect of comprehensive budget performance management in China. Therefore, it is necessary to study the current situation of China's performance management in advance, find out the problems existing in the performance management in advance and put forward the corresponding countermeasures. This paper first clarifies the background of the implementation of Ex-ante performance management, then studies the current situation and existing problems of the implementation of Ex-ante performance management from the central and local perspectives, and finally puts forward corresponding countermeasures and suggestions.

Cross-border Investments and Uncertainty: Firm-level Evidence

This paper studies the impact of uncertainty on cross-border investments. We build a data set of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average e_ect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions.

Is It Okay As Long As You Make a Profit? – Further Evidence on a Spillover Effect in Negative Discretionary Bonus Adjustments

To prevent unethical behaviour by employees, many companies include compliance aspects in their compensation schemes. For example, ex-post bonus adjustments allow managers to retract parts of bonuses previously paid to employees in reaction to fraudulent behaviour. We propose that the level of ex-post adjustment due to an employee’s misconduct depends on the employee’s ex-ante objective performance. We further propose that this effect is reduced when the managers must justify their final bonus decision, in which they can adjust a preliminary determined bonus. We conduct two experiments and find evidence confirming our hypotheses. The participants’ subjective ex-post bonus reduction is lower (higher) when the employees’ ex-ante objective performance is higher (lower). Additionally, our data show that increasing participants’ accountability by asking participants to justify their final bonus decision reduces this effect. Further analyses show – in line with what the halo effect proposes – that participants’ perception of employee morality mediates the effect of objective performance on the ex-post bonus reduction. This mediation is moderated by the presence of justification. Our findings expand prior research and can help firms implement remuneration schemes that foster compliant employee behaviour.

Factory-level performance evaluation of buffered multi-state production systems

This paper proposes a performance evaluation model for production systems considering: i) the need of a factory-level performance metric tracking system effectiveness and ii) the need of ex-ante performance evaluation models for buffered multi-state systems. Potentialities of Overall Equipment Effectiveness (OEE) calculation approach and reliability analysis methods are combined. Indeed, even if OEE is widely adopted in the industrial practice, including different inefficiency factors, its use for supporting asset-related decision-making has got two main pitfalls. Firstly, it is limited to equipment level without considering the typical complexity of production systems. Secondly, it is traditionally computed through ex-post analysis of data, being not sufficient for decision-making at the beginning of the asset lifecycle. Conversely, in the reliability theory, different modelling methods are proposed for multi-state systems performance evaluation. Nevertheless, they usually focus on reliability/availability computation, lacking specific consideration of buffers and not measuring the inefficiency factors that may affect a system, relevant for practitioners. The combination of the two approaches is proposed, with the purpose to develop a simulation-based performance evaluation model for buffered multi-state production systems and to compute the Overall Factory Effectiveness (OFE). The model is applied in a manufacturing company to support evaluating improvement scenarios of an existing plant.

State-owned banks in the market for corporate control

We study the pre-deal characteristics of state-owned banks acquiring other companies, relative to their private counterparts. We build a unique international data-set of 3682 deals in the years 2003–2013. Econometric results highlight that those state-owned banks that are acting as acquirers have an ex-ante performance similar to their private benchmarks. The results are driven by the role of development banks. This new finding points to the recent evolution of some types of contemporary state-owned financial players.

Portfolio Construction Based on Stochastic Dominance and Empirical Likelihood

We develop and apply a portfolio optimization framework based on the Stochastic Dominance (SD) decision criterion and the Empirical Likelihood (EL) estimation method. SD and EL share a distribution-free assumption structure that allows for dynamic and non-Gaussian return distributions. The combination of SD and EL can be implemented with standard convex optimization and Linear Programming methods. We apply the SD/EL framework to a range of equity industry momentum strategies. Our moment conditions are based on stylized facts about common risk factors in the stock market. SD/EL yields important ex-ante performance improvements relative to heuristic diversification and optimization based on the Mean-Variance criterion and/or plug-in estimates. Relative to the CRSP all-share index, SD/EL improves average out-of-sample return by more than eight percentage points per annum, with less downside risk, semi-annual rebalancing and no short sales.

Performance of the Heston’s Stochastic Volatility Model: A Study in Indian Index Options Market

This study attempts to analyse one-day-ahead out-of-sample performance of the stochastic volatility model of Heston (SVH) in the Indian context. Also, the study compares the ex-ante performance of the SVH with that of a Two-Scale-Realised-Volatility (TSRV)-based Black-Scholes model (BS) using the liquidity-weighted performance metrics. For the purpose, we utilise the tick-by-tick data of the CNX Nifty index and options thereon, the most liquid equity options in the world in terms of the number of contracts traded1. Additionally, the study compares the two models across subgroups based on the moneyness, volatility of the underlying and time-to-expiration of the options. The results establish that the SVH model is better than the BS model in pricing equity index options. Further, the SVH model appears to be superior across all the subgroups, for both call options and put options.

The Performance of Asset Allocation Strategies Across Datasets and Over Time

This paper evaluates the ex-ante performance of popular asset allocation strategies including the classical mean variance rule, the widely used naive diversification and several newly sprouted risk-based techniques. In terms of risk-adjusted return, I find that there are no significant differences between these strategies for country- and industry-based portfolios. For the individual stock portfolio and multi-asset portfolios (stocks and bonds combined), the differences between strategy performances are relatively large, and the superior strategy changes over time. With respect to strategies’ risk loadings, the mean variance rule leads to the most fluctuating exposures in size, value and momentum factors for all four datasets, the other allocation methods are less so. This paper indicates that currently-used allocation strategies are all far from ex-post optimal.

Corporate Bankruptcy, Soft Budget Constraints, and Business Group Affiliation: Evidence from Indian Firms

We examine the ex-ante performance of 1185 firms that filed for bankruptcy between 1992 and 2009. Evidence suggests that firm specific poor operating performance and industry wide distress are the principal causes (contributing 42% each for cash flow shortfall) of corporate distress. We observe vitiating investment, operating, and financing performance of the sample firms starting from four years prior to their bankruptcy. Further, we report less severe decline in capital expenditure in the case of state controlled firms and business group affiliated firms, indicating the presence of "soft budget constraints" among the sample firms. Logistic regression, estimating firm level distress probabilities offer indirect evidence for "risk sharing argument" among business group affiliates.

"Complexity, Heterogeneity, and Transfer Effects of Joint Venture Experience on Performance"

Joint ventures (JVs) are complex and heterogeneous investment vehicles. Hence, prior JV experience may be difficult to understand and transfer correctly to a subsequent JV. Focusing on differences between minority, majority, and 50-50 JVs, we argue that minority JVs are primary learning vehicles about joint venturing and thus are a springboard from which to launch and learn about the more complex majority and 50-50 JVs. Empirical analyses of 909 JVs formed by 25 Dutch firms over four decades (1966-2005) revealed that minority JV experience enhances ex-ante and ex-post performance benefits associated with majority and 50-50 JV experience. However, transfer effects between majority and 50-50 JV experience were negative.

Architectural Technology and Technological Planning

At least three fundamental aspects of the many singular technological approaches to architectural planning are currently evolving significantly and are ripe for potential development. The first relates to enhanced opportunities for defining the ex-ante characteristics and performance of building products and components, but particularly concerns potential leadership assumptions in planning and the ‘reification’ of architecture through ‘collective’ behaviours. The second relates to the tendency to try and overcome the connotation of architectural projects, inclusive of their entire life cycle. The third relates to current evolutionary developments (either potential or simply implicit) in performance approach.

Worst-case robust decisions for multi-period mean–variance portfolio optimization

In this paper, we extend the multi-period mean–variance optimization framework to worst-case design with multiple rival return and risk scenarios. Our approach involves a min–max algorithm and a multi-period mean–variance optimization framework for the stochastic aspects of the scenario tree. Multi-period portfolio optimization entails the construction of a scenario tree representing a discretised estimate of uncertainties and associated probabilities in future stages. The expected value of the portfolio return is maximized simultaneously with the minimization of its variance. There are two sources of further uncertainty that might require a strengthening of the robustness of the decision. The first is that some rival uncertainty scenarios may be too critical to consider in terms of probabilities. The second is that the return variance estimate is usually inaccurate and there are different rival estimates, or scenarios. In either case, the best decision has the additional property that, in terms of risk and return, performance is guaranteed in view of all the rival scenarios. The ex-ante performance of min–max models is tested using historical data and backtesting results are presented.

Robust optimal decisions with imprecise forecasts

A robust minimax approach for optimal investment decisions with imprecise return forecasts and risk estimations in financial portfolio management is considered. Single-period and multi-period mean–variance optimization models are extended to worst-case design with multiple rival risk estimations and return forecasts. In multi-period stochastic formulation of classical mean–variance portfolio optimization problem, an investor makes an investment decision based on expectations and/or scenarios up to some intermediate times prior to the horizon and, consequently, rebalances or restructures the portfolio. Multi-period portfolio optimization entails the construction of a scenario tree representing a discretized estimate of uncertainties and associated probabilities in future stages. It is well known that return forecasts and risk estimations are inherently inaccurate and there are different rival estimates, or scenario trees. Robust optimization models are presented and imprecise nature of moment forecasts to reduce the risk of making a decision based on the wrong scenario is addressed. The worst-case performance is guaranteed in view of all rival risk and return scenarios and will only improve when any scenario other than the worst-case is realized. The ex-ante performance of minimax models is tested using historical data and backtesting results are presented.

Determinants of Monitoring Capabilities in International Franchising: Foodservice Firms within East Asia

This paper undertakes an exploratory study on determining capabilities of international franchising within East Asia. There is a need to develop a deeper understanding in franchising within East Asia as much of the franchising literature is based on the U.S. experience. Findings from this paper indicate that international franchisors use a combination of mechanisms to prevent franchisee opportunism in East Asia. They include ex-ante bonds, performance schedules and formal controls in brand management. However, the effectiveness of these mechanisms depend on the capabilities of the franchisor to negotiate a high initial franchise fee, select the right franchisee and make adaptation but still maintain brand integrity.