Generic Investment Research Articles

Developing a shared supplier with endogenous spillovers

Firms who buy from suppliers often engage in supplier development to reduce the supplier's production cost. Being aware that their efforts may benefit a rival firm when there is a shared supplier, some buyers only invest in “specific supplier development,” that is, in those processes or technologies where spillover cannot occur. Other buyers willingly accept the spillover that arises from supplier development, and invest in “generic supplier development.” Our game‐theoretic model captures a buyer's choice to invest in these distinct supplier development types as a way to endogenize spillovers. In contrast to the literature, this paper considers the benefits of investing in a combination (i.e., portfolio) of cost‐reducing generic and specific supplier development. We demonstrate how supplier development affects a shared supplier's wholesale pricing decisions; whereas generic supplier development lowers wholesale prices equally across buyers, specific supplier development only lowers the wholesale price of the investing party. Our model shows that buyers should treat the spillovers from generic supplier development as an investment opportunity rather than a threat. In equilibrium, a buyer will always invest in a portfolio of both supplier development types, and having a better generic than specific investment capability may even make generic supplier development the most prevalent option for him, depending on the level of competition. Moreover, even if the buyers can commit to only investing in specific supplier investment, the resulting equilibrium gives lower buyer profits than a portfolio that includes generic investments. We also find that the presence of specific investments may raise generic supplier development, benefiting all supply chain actors. However, incorporating specific supplier development into a supplier development portfolio or a commitment to investment in only specific supplier development can lead to a prisoner's dilemma in terms of buyer profits. We show how investment capabilities and competitive intensity drive the buyers' investment decisions and supply chain actors' profits. The paper's main results also hold for asymmetric generic investment capabilities, though we highlight that the least capable buyer will free‐ride on his rival's investments, consequently making him earn higher profits.

Offshore Mysteries, Narrative Infrastructure: Oil, Noir, and the World-Ocean

Situated within debates of world literature, petrocultures, and the blue humanities, this article provides a methodological approach to interpreting genre, energy forms, and world-literature. This relies on Dominic Boyer’s concept of ‘energopolitics’ (adapted from Foucault’s biopolitics), which considers the codependence of political power, electricity, fuel and energy infrastructure. Echoing Fredric Jameson (1981) and Patricia Yaeger (2011), the article argues that looking for a text’s ‘energopolitical unconscious’ is a means of discerning the way energopolitics and energy are encoded in world-literary plot, form, and genre. Then, it turns to a comparative reading of two novels, Carlos Fuentes’s The Hydra Head (1978) and Ian Rankin’s Black & Blue (1997), to argue that such novels provide an understanding of relationships between world-literary genre, forms of energy, and the world-oceanic regime of the offshore. The offshore is a juridical-spatial regime that circumvents nation-state regulation through extraterritorial ownership practices. It is a political and infrastructural power over the oceanic flows of capital and energy, to produce a spatial environment that exceeds the juridical boundaries of nation-states. Thus, if the world-ocean is the space upon which fossil capital depends for its realisation, the offshore is the legal form of fossil capital in the world-ocean. Finally, the article argues that noir mysteries are the genre of the offshore, as it is a genre particularly capable of indexing its social tensions. Noir’s settings and atmospheres are intimately connected with petromodernity’s infrastructure: hotels, highways, flickering streetlights and eerie hinterlands, ports and warehouses; the mystery is an excellent formal device, providing both narratorial motivation and a code for traversing imagined territories and detecting their secrets. At the same time, noir’s generic investment in investigations of legality and power—its ‘legal grammar’—makes it a useful stage through which to pursue questions of sovereignty, ocean-space, territory, and juridical forms.

White Label Funds: A No-Nonsense Design Handbook

White label funds (WLFs) are generic investment structures constructed using a specific mix of underlying funds to provide a simple but rich exposure to an asset class. These funds offer many benefits to participants because they are tailored to the objectives of the plan, not the goals of the individual fund managers. Nonetheless, WLFs need extra resources and require more effort to unlock their benefits. They can be used to solve a capacity problem with current fund options, shape the choices for participants to a safer range without sacrificing quality, capitalize on access to good low-cost defined benefit plan managers, or correct issues that are the focus of lawsuits. The authors believe that these funds, with their potential pricing efficiencies and improved governance, are the next breakthrough for fiduciaries of large defined contribution plans committed to providing their participants with the best solutions. <b>TOPICS:</b>Retirement, pension funds

Firm Type, Feed‐in Tariff, and Wind Energy Investment in Germany: An Investigation of Decision Making Factors of Energy Producers Regarding Investing in Wind Energy Capacity

SummaryThe development of renewable and sustainable energy is advanced by public financial support. This is particularly so in the German Energiewende, which seeks to replace nuclear and fossil electricity generation with wind, sun, and biomass. We study the impact of the (changes in the) feed‐in tariff (FIT) policy on the investment in wind electricity generation capacity in Germany in the period 2000–2014. We estimate a generic investment model that includes this support mechanism, the cost of capital, investment risks such as wind and price volatility, and manufacturing costs. We discuss specific features for different types of wind energy investors, such as the incumbents, small private investors, diversified companies, and independent power producers. We find that a change in the FIT has a negative impact on investment capacity regarding the generation of wind energy: A one monetary unit increase in the variation of the tariff is to be associated with a decrease by 0.17 megawatts of wind capacity installed. We argue that it is policy uncertainty that makes investors shy away from making real investments. We also argue that the drivers for wind energy investment can differ along different types of firms. For the traditional power producers, especially electricity price volatility, construction costs, and carbon prices seem to matter. But for the other investor types, the FIT is crucial indeed.

Removing barriers to women entrepreneurs’ engagement in decentralized sustainable energy solutions for the poor

Rapidly falling renewable technology costs and new business models mean that decentralized energy solutions hold great promise to accelerate universal sustainable energy access. Across developing countries, women are typically the primary household energy managers. Close to their customers, women entrepreneurs have the potential to lower customer acquisition and servicing costs and drive these new decentralized solutions. However, they remain under-represented in the industry. This paper attempts to understand the root causes of this gender gap. It formulates the research hypothesis that market transformation policies intended to reduce investment risks to accelerate energy access may not benefit men and women entrepreneurs equally because of the existing structural barriers that women face. To test this hypothesis, the paper conducts a gender sensitive investment barrier and risk analysis, overlaid onto an existing gender neutral taxonomy of investment barriers and risks for decentralized sustainable energy solutions. A key finding is that for women entrepreneurs, existing structural impediments to gender equality translate into additional investment barriers as well as increased likelihood of occurrence and severity of the financial impact of generic investment risks. The paper offers an illustrative theory of change to facilitate a dialogue on the specific interventions needed to address these gender differentiated risks locally. It concludes that market transformation efforts for universal sustainable energy access must include targeted policy measures to ensure equal benefits to men and women entrepreneurs, and optimize the use of public resources to catalyze private investment and reduce poverty.

WOULD THE PER SE ILLEGAL TREATMENT OF REVERSE PAYMENT SETTLEMENTS INHIBIT GENERIC DRUG INVESTMENT?

“Reverse payment” patent settlements between brand and generic pharmaceutical manufacturers have received substantial scrutiny in recent years. While much has been written about the appropriate antitrust policy towards these settlements, the literature has paid little attention to the effect that changes in that policy might have on the incentives of generic manufacturers to develop generic drugs and challenge branded patents. We present a basic economic model of generic manufacturers' investment decisions and argue that these incentives should be taken into account in evaluating policy issues. We conclude that a per se rule against “reverse payment” patent settlements could chill the incentives for generic investment by increasing the cost and uncertainty of patent litigation, and could deprive consumers of benefits from lower cost generic drugs.

South Africa government's support of the automotive industry: prospects of the productive asset allowance

In 2000 the South African Government introduced an investment incentive for the automotive industry, the Productive Asset Allowance (PAA). This was intended to support the objectives of the Motor Industry Development Programme (MIDP). This paper presents an empirical assessment of the PAA's prospects for supporting the competitiveness of South Africa's automotive industry. It provides a historical overview of the MIDP and the introduction of the PAA and analyses industry performance data on investment and competitiveness from 1998 to 2004. The findings reveal that while the industry succeeded in increasing exports, the share of domestically produced vehicles in the local market decreased. Moreover, investment in R&D, as an indicator for future competitiveness, was insignificant. The offer of a generic investment incentive like the PAA seems to have a significant and positive effect on industry investment, but limited ability to support long-term industry competitiveness through R&D and innovation.

Investment Mistakes of Individual Investors and the Impact of Financial Advice

Extensive research has demonstrated and analyzed deviations in individual investors' investment decisions from recommendations of financial theory. As there is still no structured framework for evaluating investment mistakes, we introduce a generic investment process for individual investors as guiding structure. Going along this investment process we compare findings from existing research, contrasting normative recommendations with empirical evidence about actual behavior of individual investors. We show that these deviations lead to considerable welfare losses. Therefore we present financial advice as (potentially) correcting factor in this process and construct a simple model to capture its very impact on individual investors' investment success, measured in risk-adjusted return and wealth.

Time Horizon, Costs of Equity Capital, and Generic Investment Strategies of Firms

Recent literature (McNulty, Yeh, Schulze, &amp; Lubatkin, 2002) states that the assumptions behind the capital asset pricing model, in particular the irrelevance of time horizon, do not correspond to the characteristics of firms that prefer long-term investment horizons. I show that family firms display a longer time horizon than most of their nonfamily counterparts, since (1) family firms display a longer CEO tenure, (2) this type of firm strives for long-term independence and succession within the family, and (3) due to the fact that family firms are overrepresented on western European stock markets in cyclical industries in which business cycles inhibit short-term success. As the annual default risk of an investment diminishes with increasing holding period (Hull, 2003), the risk-equivalent cost of equity capital of firms with longer planning horizons (e.g., family firms) can be lower as well. Based on the assumption that economic value to shareholders is created when firms invest in projects with returns above the associated cost of capital (Copeland, Koller, &amp; Murrin, 2000), I argue that long-term-oriented firms can tackle unique investment projects represented by two generic investment strategies—the perseverance and the outpacing strategy. The first one, the perseverance strategy, represents investment strategies in which long-term-oriented firms invest in lower return but equal risk projects than their more short-term-oriented counterparts. The second one, the outpacing strategy, comprises investment projects with higher risk and equal return than the short-term competitors.

Bridging the Gap Between Roe and IRR

Internal rate of return (IRR) measures the level annual return over the life of an investment, whereas return on equity (ROE) measures the return over each accounting period. This paper develops the relationships between IRR and ROE by presenting and proving four algebraic theorems involving IRR and ROE. These theorems are developed using generic investment terminology that does not rely on any specific accounting basis. The relationships are then expressed using U.S. statutory and GAAP terminology. The paper demonstrates that IRR is not just a statutory concept and ROE is not just a GAAP concept. Financial projections for a hypothetical insurance product illustrate these relationships.

A market utility approach to investment valuation

The paper presents a unified approach for determining the market value of any generic investment lottery, through the concept of a market utility function. Rather than making assumptions about individual investor preferences and their aggregation, we turn the problem around by treating the market as a composite decision maker, empirically infering the nature of the market utility function from capital market behavior, and then applying decision theoretic tools to price other risky assets. The proposed approach can be used to value both primary and derivative assets (whether traded or not), is applicable to both CAPM and non-CAPM economies, and does not rely on the ability to trade, replicate or otherwise justify risk neutral valuation in pricing contingent claims. Numerical simulation results suggest that a number of plausible market utility functions (e.g., the quadratic, exponential, generalized logarithmic, and power utilities) can be ‘calibrated’ from market data and then used consistently for valuing company stock and options. The consistency of the market utility valuation lends new support to the rationality of market pricing, and reconciles the market value estimates of finance theory with breakeven reservation values obtained from decision analysis.