Firm Capacity Research Articles

Coal-to-biomass retrofit in Alberta –value of forest residue bioenergy in the electricity system

Abstract The use of forest residue may mitigate greenhouse gas emissions by displacing the use of coal or other fossil fuels for electricity generation. However, economic viability of bioenergy requires availability of feedstock at appropriate cost. The current work attempts to quantify delivered biomass cost at plant gate and estimate cost and emission benefits to the electricity system associated with the conversion of coal units to bioenergy. This study is carried out with the optimization model OSeMOSYS, analyzing the Alberta electrical system, its mid-term coal phase-out and renewable energy targets. Alternative scenarios were compared to evaluate the effect of a biomass retrofit option on the incentives needed to achieve 30% renewable penetration by 2030. Results show that although bioenergy has a higher levelized cost than wind power, the system requires less backup capacity and less renewable energy credits to meet renewable energy goals when the biomass retrofit is allowed. In addition, the total system cost to 2060 is found to be 5% less than the scenario without the biomass option. The firm capacity provided by biomass compensates for its higher levelized cost of energy.

Capacity investment under uncertainty: The effect of volume flexibility

Real option theory is a central tool in today's investment theory as it integrates uncertainty and managerial flexibility in the analysis and valuation of investment projects. This paper studies the optimal time and size of investment for a monopolistic firm under demand uncertainty and volume flexibility. In our modeling framework, demand is random and the firm first decides the optimal time and size of the production process. After entry, the firm adjusts continuously production volume to match the observed demand. Volume flexibility comes at a cost which depends on both the current output and the established capacity. We study two different models of volume flexibility: Downside volume flexibility allows the firms to produce any quantity below the installed capacity; Upside volume flexibility allows to expand production above the firm's capacity size. In both cases, the option to temporary suspend production is not given a priori, but it is part of the firm's optimal choice. With this feature, the model provides conclusions that contrast some of the most recent theoretical findings on the same subject. We find that an increase of the degree of downside volume flexibility makes the firm willing to invest earlier in a larger plant. We also show that downside volume flexibility reduces the utilization rates, especially in highly uncertain markets. Upside volume flexibility has the joint effect of reducing the size of the investment and the investment threshold at which the firm installs capacity. The utilization rates are significantly higher compared to the case of downside volume flexibility only, and there is an increasing relationship between increased upside flexibility and utilization rates.

Financial Flexibility and Manager–Shareholder Conflict: Evidence from REITs

AbstractUsing equity Real Estate Investment Trust data, we show empirically that the use of unsecured debt, which contains standardized covenants that place limits on total leverage and the use of secured debt, is associated with lower leverage outcomes. We then show that firm value is sensitive to leverage levels, where lower leverage is associated with higher firm value. In the presence of weak managerial governance, our results suggest that unsecured debt covenants function as a managerial commitment device that preserves the firm's debt capacity to enhance financial flexibility.

How do incentives motivate absorptive capacity development? The mediating role of employee learning and relational contingencies

This study explores the antecedents of a firm's absorptive capacity by examining the role of innovation incentives. Building on expectancy theory and equity theory, we argue that innovation incentives enhance absorptive capacity through promoting employees learning; and the effectiveness of incentives is positively moderated by teamwork (i.e., horizontal relation) but negatively moderated by transformational leadership (i.e., vertical relation). To test our hypotheses, we employ a multi-respondent research design based on a sample of 102 Chinese automotive companies. The results show strong support for the hypotheses and demonstrate the positive impact of innovation incentives on a firm's absorptive capacity through the mediating role of employee learning, as well as the moderating effect of the relational context in shaping the influences of innovation incentives.

Equity crowdfunding inTechnology Transfer Strategies and Licensing

The main aim of this study is to investigate to what extent equity crowdfunding could enable firms to outsource research and development activities. Likewise, the present study aims at analysing the relationship between desorptive capacity (DCAP) and equity crowdfunding performance. We also aim at studying the mediation role of ICT firm's capabilities, connective capacity and minor equity ownership. In this regard, this study intends to pioneer into connecting the knowledge management theory with the crowdfunding studies. A sample of 180 projects based on the top ten European equity crowdfunding platforms has been used. Findings indicate that desorptive capacity enables companies in developing external knowledge retention and expoitation which, in turn, enhance equity crowdfunding performance.

The cluster is not flat. Uneven impacts of brokerage roles on the innovative performance of firms

This paper investigates whether and to what extent individual firms improve their innovation from behaving as brokers connecting other actors in the Spanish ceramic tile cluster. The effects of the brokerage roles are analyzed for different innovation levels by means of quantile regressions. Finally, we speculate about the indirect and interactive effects of the distinct individual organization attributes and these benefits. Results show that brokerage activities unevenly influence the broker's innovative performance. In addition, the intensity of the impact varies for different innovation levels and the firm's absorptive capacity moderate the final effect of acting as a broker.

To Share or Not to Share? Capacity Reservation in a Shared Supplier

When a supplier serves multiple buyers, the buyers often reserve the supplier's capacity in advance to secure the supply to fulfill their demand. In this paper, we analyze two common types of capacity reservation: exclusive and first-priority reservations. Both reservations give a buyer first access to its reserved capacity, but the reservations differ in how the leftovers (if any) are used. In most cases, as long as the buyer gets to use the reserved capacity first, it does not pay attention to how the leftover capacity is utilized, leaving that to the supplier's discretion (first-priority). However, in a number of cases, buyers prohibit discretionary use of the reserved capacity (no one touches my leftovers) and implement the restriction by placing an employee at the supplier or installing monitoring devices (exclusive). One potential benefit of first-priority capacity is resource pooling: allowing access to one another's leftovers can reduce the amount of capacity reserved by the buyers while enabling the supplier to satisfy buyers' orders better in some cases. The Operations Management literature suggests that the benefit of resource pooling is greater when the demand correlation is negative and smaller when the correlation is positive. We investigate the capacity reservation type and level that each buyer chooses facing uncertain (and correlated) demand. We investigate how the reservation price and demand correlation affect the equilibrium outcome. We also examine the supplier's decision to set the optimal reservation prices. We find that at least one firm reserves first-priority capacity in equilibrium as long as the supplier offers a discount for first-priority capacity (or charges a premium for exclusive capacity). Depending on the reservation price difference and demand correlation, we find that the equilibrium outcome is inefficient (i.e., not Pareto optimal) for the buyers when they settle in a free-rider or a prisoner's dilemma equilibrium. We show that the supplier always induces both buyers to reserve a large amount of exclusive capacity so that the supplier can make profits from both capacity reservation and production. While this seems like the best scenario for the supplier, we show that, allowing bilateral capacity transfer (e.g., the buyers trading their reserved capacity) can improve not only the buyers' profits but also the supplier's profit.

Knowledge sharing, knowledge leaking in strategic alliances and firm innovation capacity: an empirical study

This study aims to examine the influence of firms’ alliance knowledge on their innovation capacity, under the contingencies of both intentional and unintentional leakage of business-critical knowledge. Based on a survey of 410 staff from 205 allied firms in Tunisia, this study applies the linear regression to investigate the research model. The results show that external knowledge sharing appears to have a positive effect on firms’ innovative capability while high levels of intentional and unintentional knowledge leakage by a focal firms’ employees, turns out to negatively moderate such a relationship. In this paper, actors of focal firm need to distinguish between the firms' critical knowledge, and the one which can be legally shared and exchanged with other partners. Sharing critical knowledge, intentionally or unintentionally, might hurt the focal firms’ innovative capacity. Although the issues of knowledge sharing and innovation have been exhaustively treated in the literature, very little are the research works which have undertaken to study the links between knowledge sharing, knowledge leakage and the firms’ innovation capacity. Thus, this study is designed to foster further enrichment to the literature, by proposing more clear differentiation between unintentional and intentional knowledge leakages and their impact on the firm’s innovation.

Knowledge sharing, knowledge leaking in strategic alliances and firm innovation capacity: an empirical study

This study aims to examine the influence of firms’ alliance knowledge on their innovation capacity, under the contingencies of both intentional and unintentional leakage of business-critical knowledge. Based on a survey of 410 staff from 205 allied firms in Tunisia, this study applies the linear regression to investigate the research model. The results show that external knowledge sharing appears to have a positive effect on firms’ innovative capability while high levels of intentional and unintentional knowledge leakage by a focal firms’ employees, turns out to negatively moderate such a relationship. In this paper, actors of focal firm need to distinguish between the firms' critical knowledge, and the one which can be legally shared and exchanged with other partners. Sharing critical knowledge, intentionally or unintentionally, might hurt the focal firms’ innovative capacity. Although the issues of knowledge sharing and innovation have been exhaustively treated in the literature, very little are the research works which have undertaken to study the links between knowledge sharing, knowledge leakage and the firms’ innovation capacity. Thus, this study is designed to foster further enrichment to the literature, by proposing more clear differentiation between unintentional and intentional knowledge leakages and their impact on the firm’s innovation.

Quantifying the capacity value of natural gas efficiency in New England

Natural gas utilities in New England face increasing natural gas transmission system congestion and volatile spot gas prices. We observe that prevailing evaluation methods for natural gas efficiency programs value avoided firm pipeline capacity based on its total (‘gross') cost. We propose, consistent with deregulated electricity markets, to value avoided firm pipeline capacity at its ‘net’ cost. Specifically, we account for revenues associated with selling excess capacity during periods when the firm capacity holder does not fully utilize its rights. Our evaluation of commercial building efficiency programs suggests that prevailing evaluation methods could over-estimate the value of efficiency programs when those programs are intended to offset new capacity investments (i.e., the utility is in need of additional firm capacity). The situation is more complex for a utility with sufficient firm pipeline capacity to meet forecast load (i.e., consumption). In this case, the prevailing evaluation methods have the potential to under- or over-estimate the value of efficiency programs. The value of avoided infrastructure investments is likely to vary with the specific circumstances of the utility and the expected revenues associated with short-term sales enabled by available capacity. In the future, we recommend that economic regulators of natural gas distribution utilities, the state public utility commissions (PUCs), value avoided infrastructure investments at the ‘net' cost of the investment instead of the ‘gross' cost.

Dynamic SQL Knowledge As A Mechanism For Increasing Individual Absorptive Capacity

Technology continues to evolve rapidly, and organizations need to constantly evolve to keep up with the latest innovations in hardware, software, and processes to strategically select and manage technology. Underlying these firm capabilities are the employees that monitor, plan, and implement technology improvements, thereby it is critical that organizations have employees that can contribute to firm absorptive capacity and who can strategically take advantage of technology innovations. In this theoretical paper, we examine what type of curriculum MIS undergraduate programs might implement to prepare students for careers in the dynamically evolving realm of technology-infused organizations. We posit that students need to go beyond the adage of “learning how to learn”, but instead need to have the skills and the mindset to compete in a technology-enabled environment. Specifically, we examine a learning module on Dynamic SQL delivered in an advanced database course, and analyze why introducing a rigorous and complex learning module can develop and expand students’ absorptive capacity resulting in a competitive advantage when entering the workforce.

The sources of dynamism in dynamic capabilities

Research SummaryWe develop a multi‐level theory of dynamic capabilities (DCs) that explains resource dynamics by giving a central role to persons and interpersonal interactions rather than to abstract, firm‐level entities. Our theory integrates the contrasting approaches to DCs in individual‐, interpersonal‐, and organization‐level scholarship. Existing organization‐level approaches portray DCs as collective endeavors but do not specify how they emerge and operate within organizations, while micro‐foundational approaches illuminate actors’ contributions but reduce a firm's DCs to the cognitions and actions of a few top managers. Our integrated theory instead explains DCs as effortful social accomplishments emerging from individual employees’ capacity to leverage interpersonal relationships conducive to productive dialogue. The framework we propose offers new ground for understanding how DCs can be sources of sustainable competitive advantage.Managerial SummaryHow can firms navigate the transformations that relentlessly raise new threats and opportunities in dynamic environments? We suggest that firms develop dynamic capabilities to navigate change when their employees are connected through high‐quality relationships, empowering their innovative potential. Strategic adaptation is possible when people are given the opportunity to act, think, and feel creatively while performing tasks, thus envisioning opportunities to improve how the firm operates. This ability supports sustainable, firm‐level innovation when employees are connected through interpersonal relationships founded on constructive dialogue. Dialogue allows participants to advance and accept proposals for change even in the presence of conflicting interests and viewpoints. Managers may therefore enhance their firm's capacity for change by fostering individual integration and developing contexts that facilitate dialogue and constructive opposition.

Corporate governance drivers of firm innovation capacity

AbstractWe investigate the predictive factors of firm innovation capacity (FIC), proxied by intangible assets, as a means towards sustainable competitive advantage in a world of global change and innovation. The primary aim of this paper is to identify the key factors shaping a firm's innovation capacity management style. We use panel data for 1,942 firms (20,171 observations) in Germany, France, Italy, the United Kingdom, United States, and Spain, over the period 1999 to 2014. Our results show that capabilities driven by corporate governance mechanisms currently constitute the pivotal support for firms' innovation capacity (FIC). Our main findings are that corporate governance drivers such as executive incentives (E‐P) and the presence of independent nonexecutive directors (INEDs) have a bearing on FIC. Meanwhile, managerial performance (MP) and institutional shareholder activism (AI) emerge as basic motivational instruments and mechanisms of alignment between firm ownership and control. The influence of incentives and INEDs is found to be negative and that of institutional shareholder activism and MP to be positive. With respect to the business context, we find evidence of higher efficiency in firm disciplinary mechanisms in the Anglo‐American than in the Continental corporate governance model.

Collaboration with higher education institutions for successful firm innovation

Firms need to open up their boundaries to attain valuable knowledge from external partners because external partners can support their innovation activities by providing knowledge and resources. In this context, higher education institutions (HEIs) are an important source of innovation. Yet, despite the importance of universities, this topic has received scant academic attention. Thus, this research examines the effect of specific activities supported by universities on the innovation outcomes of firms. The study also investigates the moderating role of a firm's absorptive capacity in the relationship between universities' involvement and firm innovation outcomes. The findings show that specific types of HEI activities positively affect a firm's innovation performance, while absorptive capacity has differential effects on the relationships between HEI activities and firm innovation outcomes.

Quantifying the importance of power system operation constraints in power system planning models: A case study for electricity storage

The realized and expected growth of variable renewable energy sources challenges both power system operation and power system planning. A decreasing share of dispatchable generation technologies in electricity generation and an increasing need for short-term flexibility means that the added value of alternative short-term flexibility providers, such as electricity storage, becomes important. This paper studies the way in which alternative flexible resources, here storage technologies, generate added value by running various set-ups of a power system planning model with different levels of operational detail. Firstly, this allows to identify the different roles flexible technologies play in power system operation, and the subsequent impact on power system planning. Secondly, this allows to determine the importance of operational detail in power system planning models to accurately assess the value of flexibility. Results show that storage technologies have the technical ability to provide firm capacity, smoothen the residual load curve, manage the impact of hourly dispatch constraints and provide reserve capacity. Nevertheless, the extent to which this is translated into investment depends on how cost-effectively a technology can offer these services. Results further show that to fully capture the added value of flexibility providers high operational detail is needed in planning models.

Absorptive capacity, technology spillovers, and the cross-section of stock returns

Abstract In the presence of potential technology spillovers, I demonstrate that a firm's absorptive capacity (AC), as proxied by R&D investments, is crucial to benefit from spillovers. I find that higher AC firms, when exposed to large potential spillovers, exhibit stronger future real outcomes (cite-weighted patents and operating performance) and market value. Importantly, however, this value-relevant information does not appear to be immediately incorporated into stock prices, leading to high future abnormal stock returns for firms with high AC and spillover exposure. Furthermore, the undervaluation is most pronounced among low investor attention stocks, suggesting that limited attention contributes to the undervaluation.

High solar photovoltaic penetration in the absence of substantial wind capacity: Storage requirements and effects on capacity adequacy

The penetration of solar photovoltaic (PV) generation is increasing in many countries, with significant implications for the adequacy and operation of power systems. This work considers the Nord bidding zone within Italy, which hosts 7.7 GW of PV and almost no wind power. We simulate the implications of different PV penetration levels on the need for firm generation capacity and on ramping requirements over one to several hours. We compare ten years of synthetic hourly PV generation series derived from CM-SAF SARAH satellite data and observed load. The analysis also provides insights into the storage capacity required to smooth residual load over different time horizons. Results show that without storage (i) the penetration of PV in the region does not sensibly reduce the need for firm generation; (ii) the marginal contribution of PV to meet power demand decreases with its penetration; and (iii) high penetrations lead to larger and more frequent ramps, although extreme ramp rates do not last more than 1 h. The availability of storage significantly alters these results, but large storage capacities are required. Smoothing net load by a few hours requires 2–7 GWh of storage per GW of PV installed.

Capacity Planning Under Uncertainty and the Cost of Capital

ABSTRACT We explore how risk aversion affects optimal capacity and pricing decisions within the economic setting of Banker and Hughes (1994). A risk-averse firm invests in fixed capacity and sets a product price, but can also purchase spot capacity at higher unit cost. Initial capacity and price are set by maximizing the firm's mean-variance certainty equivalent. We find that, contrary to common intuition, optimal capacity or list prices can increase under greater risk aversion depending on exogenous fundamentals. We show how the firm's capacity and price choices affect the economic trade-off between the mean and the risk of the firm's uncertain payoffs. We also show that the cost of capital is affected not only by the firm's covariance with other assets, but also by its payoff mean. The objective of minimizing the cost of capital is, therefore, fundamentally inconsistent with maximizing project value.

Preliminary Study on Policy Mix Effects on Economic Viability of Carbon Capture and Storage Project in Japanese Steel Industry

This paper explores policy mix effects on economic viability of CCS project in Japanese integrated steel plant. We conducted a Monte Carlo simulation under uncertainties of firm's capacity factor (pre-tax profit) and carbon price. The results indicate that tax credit (35 US$/tCO2) improve economic viability of CCS in the case of favorable business conditions. Subsidies for CCS costs improve economic viability of CCS even in the case of recessions; however, the subsidy effect is sensitive to carbon price. Tax credit could be one of key policy measures as a part of policy mix both for Japanese economy and CO2 mitigation.

What is the Value of CCS in the Future Energy System?

Ambitions to produce electricity at low, zero, or negative carbon emissions are shifting the priorities and appreciation for new types of power generating technologies. Maintaining the balance between security of energy supply, carbon reduction, and electricity system cost during the transition of the electricity system is challenging. Few technology valuation tools consider the presence and interdependency of these three aspects, and nor do they appreciate the difference between firm and intermittent power generation. In this contribution, we present the results of a thought experiment and mathematical model wherein we conduct a systems analyses on the effects of gas-fired power plants equipped with Carbon Capture and Storage (CCS) technology in comparison with onshore wind power plants as main decarbonisation technologies. We find that while wind capacity integration is in its early stages of deployment an economic decarbonisation strategy, it ultimately results in an infrastructurally inefficient system with a required ratio of installed capacity to peak demand of nearly 2.. Due to the intermittent nature of wind power generation, its deployment requires a significant amount of reserve capacity in the form of firm capacity. While the integration of CCS-equipped capacity increases total system cost significantly, this strategy is able to achieve truly low-carbon power generation at 0.04 tCO2/MWh. Via a simple example, this work elucidates how the changing system requirements necessitate a paradigm shift in the value perception of power generation technologies.