Investment Decision Process Research Articles

Using interpretive structural modeling in venture capitalists’ decision-making process

In today’s era, technology and innovative ideas had driven the global economy. A selection of venture investment process is regarded as the most complex task due to its direct or indirect impact on venture’s success rate. Venture capitalists (VCs) use a multi-criteria approach to identify new and incipient entrepreneurs while investing a new venture. At the times of investment, VCs assess several investment proposals based on some key factors such as entrepreneur’s personality, product and market characteristics, financial consideration, management skills and so on. Earlier researchers were concentrated on these factors solely; thus, a holistic approach is required for better understanding of venture capital investment process. To do so, interpretive structural modeling was used to explore and develop an inter-relationship among relevant decision-making factors. Structural self-interaction matrix was used to measure the level partitions at various iteration levels. A digraph facilitates the accomplishment of logical framework based on identified dependent (those affected by drivers) and driver (those affect others) factors. This paper may help VCs and entrepreneurs to better analyze the investment process and provide them a deep understanding of various issues associated with investment decision-making process.

Potential analysis model for case specific quantification of the degree of eligibility of innovative production concepts in the process industry

Several innovative production concepts are currently in the focus of the process industry. These concepts represent alternatives to conventional, established plants. If an investment need for new capacities is identified, innovative concepts seem to be promising in multiple use cases. Comparing and evaluating comprehensively both the innovative and conventional concept in every investment decision process lead to a lot more time and cost efforts in economic and ecological evaluations, though. Therefore, a potential analysis model is developed which quantifies the degree of eligibility for using a defined innovative production concept with respect to the given use case prior to evaluations. Consideration of promising production alternatives with the developed model provide a more comprehensive and accelerated investment decision process. Transformable plant designs and decentralized production are chosen exemplarily as innovative concepts. The model is based on the analytic hierarchy process (AHP). Criteria for eligibility are structured hierarchically into the three clusters market, process/plant and product/logistics. Two scenarios have been implemented to test the model with different use cases. Results indicate that the eligibility of a certain innovative production concept depends on the scenario and the given circumstances like customer locations, demand volatilities or storage costs.

Analyzing Chinese Online P2P Financial Product Purchase Decisions Utilizing the Framing Effect 7)

Purpose – This study examines Chinese P2P investment decision processes from a behavioral economics approach. Research design, data, and...

Heuristics, learning and the business angel investment decision-making process

ABSTRACTThis paper extends the literature on the investment decision-making of business angels.Using insights from the emerging body of research on entrepreneurial learning processes, particularly the use of heuristics and the nature of learning from meagre experience, we explore whether angels learn from experience, how they learn and what they learn. These issues are addressed using verbal protocol analysis, a methodology for examining decision-making in real time, with three groups of business angels with differing levels of investment experience, and with follow-up debriefing interviews with these angels. This reveals some differences in the speed of decision making and the emphasis given to various investment criteria. There is some evidence for the use of heuristics in the decision making process, and for the critical role played by vicarious learning from the experience of others. Learning in the individual angel decision making process is a social as well as an individual phenomenon.

Process of Optimal Social investment Decision Making and Suggestions to Grow Social Investors

Process of Optimal Social investment Decision Making and Suggestions to Grow Social Investors

Organizational Energy: A Behavioral Analysis of Human and Organizational Factors in Manufacturing

This paper seeks to explore the behavior and embodied energy involved in the decision-making of information technology/information systems (IT/IS) investments using a case within a small- to medium-sized manufacturing firm. By analyzing decision making within a given case context, this paper describes the nature of the investment through the lens of behavioral economics, causality, input–output (IO) equilibrium, and the general notion of depletion of executive energy function. To explore the interplay between these elements, the authors structure the case context via a morphological field in order to construct a fuzzy cognitive map of decision-making relationships relating to the multidimensional and nonquantifiable problems of IT/IS investment evaluation. Noting the significance of inputs and outputs relating to the investment decision within the case, the authors assess these cognitive interrelationships through the lens of the Leontief IO energy equilibrium model. Subsequently, the authors suggest, through an embodied energy audit, that all such management decisions are susceptible to decision fatigue (so-called “ego depletion”). The findings of this paper highlight pertinent cognitive and IO paths of the investment decision-making process that will allow others making similar types of investments to learn from and draw parallels from such processes.

Venture Capitalists’ Investment Decision Criteria for New Ventures: A Review

Venture Capitalists (VCs) play the most crucial role to identify high potential and innovative firms. However, VCs adopt different criteria to evaluate the incipient ventures before funding. The purpose of this paper is to discuss the comprehensive literature of the VCs investment evaluation criteria. This study provides a critical review of the conceptual and empirical approaches focusing on how VCs make their investment decision and what are the key influential factors at the times of investment. The critical examination highlights that not all the VCs able to follow the same investment decision process for evaluating new ventures. Some VCs give more importance to entrepreneur's characteristics, while others are more intrigued with financial and marketing perspectives. Thus, findings reveal that VCs follow multi-criteria perspective of the decision-making. This study discusses the various issues and suggestions for future research. The results of the study are useful for both venture capitalists in their decision-making process and entrepreneurs in their venture capital applications to maximize their success rate.

Integrating value and uncertainty in the energy retrofit analysis in real estate investment—next generation of energy efficiency assessment tools

Real estate professionals, such as investors, owner-occupants, and lenders who are involved in the investment decision-making process, are increasingly interested in energy efficiency investment. However, inability of current tools and techniques for a thorough financial assessment of energy retrofits has led the decision makers to focus on simple energy cost analyses as the primary basis for making energy retrofit investment and/or lending decisions. Thus, substantial non-energy cost savings as well as value implications associated with energy efficiency are often ignored and energy retrofits are undervalued. Through an extensive literature review, interviews with real estate experts, and the author’s experience with energy efficiency analytics and tools development, this paper sets forth the rationales and foundations for the development of an integrated energy retrofit assessment tools to include value, risk, and uncertainty. It suggests a systematic value-based assessment process to analyze full costs and benefits associated with energy retrofit options in the context of value, while clearly articulating the risk and uncertainty. The outcome of the proposed process enables users make more informed investment decisions and drives major energy retrofit investments. As a result of applying such a value-based approach, many investment opportunities that were otherwise ignored may be realized, and therefore, the breadth and depth of energy efficiency investment will increase for the benefit of various stakeholders, including real estate professionals, governments, utilities, or other energy efficiency program sponsors.

The Role of Sukuk Financing for Sustainable Development of Smallholder Farmers

The greatest advance made by mankind was probably the agricultural revolution that has been developed into agricultural development along with population growth in the forms of agricultural expansion and agricultural intensification. The global land grab driven by the acquisition of land has caused radical changes in the use and ownership of land and has important implications for equitable and sustainable development in which local people have been moved to marginal locations. To ensure that the agricultural activities are sustained, a balance of three concepts of people, planet, and profit (3P) are critical to achieve long term social, environmental, and economic issues. One of recently popular instruments to fairly treat the people is an equity based Sukuk in which profit will be shared based on pre-agreed ratio between the investors and the people involved. In term of conservation of planet, strategy in selecting the agricultural commodities and the timing of harvesting are critical. An investment decision-making process by using agricultural appraisal process is established to ensure that the agricultural activities are financially profitable.

The Importance of Investment Audit for the Company

Abstract The aim of the paper is presentation of possible approach to realization of enterprise investment audit and also schematic quantification of possible effects in phase of investment utilization during planned economic lifetime of the project. The paper shows that conventional way of the investment process mostly prefers only issue of preparation and implementation phase. Utilization phase is underestimated. The monitoring of planned indicators and identification of deviations (particularly in revenues – Cash Flow) are underrated. Identification of causes of variations as well as acceptance of addressed direct corrections can fill not only economic objectives of the project but also improve whole process of investment and financial decision making of the enterprise. Investment audit in the company is recommended to perform within methodology presented in the paper in particular phases of investment process. This methodology enables correct quantification of investment effects and declaration of the real contribution of investment to corporate performance increase.

Performance Analysis of Private Pension Funds and Collective investment trusts in the Russian Federation

This research has been carried out to study the factors enabling to improve the financial effect and to increase the efficiency of investments and management of portfolios of pension reserves and accruals in the Russian Federation. Key approaches to the analysis of various stages of the investment decision-making have been developed by the authors. The quality of arrangement of the investment decision-making process extensively determines reserves of the performance improvement in managing pension reserves and accruals. Using the sample portfolios managed by Russian participants, it is shown that the profitability of these assets depends to the great extent on the allocation of the assets. The authors have summarized scientific hypotheses explaining the impact of asset allocation on profitability and risks of institutional investors' portfolios on grounds of the data of pension portfolios managed by private pension funds and portfolios of collective investment funds in Russia. The role of asset allocation in profitability and risks of their portfolios has been evaluated.

Electronic Commerce Investment Under Condition Of High Uncertainty: A Real Options Approach

Why managers in electronic commerce investment projects should pay attention to real options logic when they operate in unpredictable environment? Whether existing of real options’ reasoning in these kinds of investments led to better performance and enables firms to manage, handles uncertainty and risk effectively, and minimizes any unexpected results? Which kind of uncertainty will be reduced by using real options reasoning? In the present study, we explore how real options’ reasoning has been conceptualized in the information technology and electronic commerce investment decision processes that are subject to multiple sources of uncertainties. Finally, we show that real options reasoning does not always enhance project performance under conditions of higher uncertainty. We conclude with implications for future empirical research hope that our study stimulates future work on real options and electronic commerce investment. Keywords: uncertainty perception, e- commerce investment, real options, flexibility, project performance

Port Investment Strategies under Uncertainty: The Case of a Southeast Asian Multipurpose Port

Port investment decisions are mainly related to productivity improvement strategies or capacity expansion leading to higher capacity utilization and financial performance. The authors propose an investment decision-making process for future port infrastructure investments taking into account various uncertainties, which can impact the return of the investment over the project's useful life.The methodology has been applied on the expansion evaluation of warehousing facilities in a multipurpose port. For the evaluation of the alternatives, the expected net present value (ENPV) is based on earnings before interest, tax, depreciation and amortization (EBITDA). Results show that the investment strategy for a new 4-level warehouse with a flexible option was the optimal choice when compared with strategies of similar scale. However, depending on the emphasis placed on the various investment metrics the optimal investment strategy seems to be closer to a non-flexible 5-level warehouse.

Hedge Fund Performance Using Scaled Sharpe And Treynor Measures

The Sharpe ratio is widely used as a performance measure for traditional (i.e., long only) investment funds, but because it is based on mean-variance theory, it only considers the first two moments of a return distribution. It is, therefore, not suited for evaluating funds characterised by complex, asymmetric, highly-skewed return distributions such as hedge funds. It is also susceptible to manipulation and estimation error. These drawbacks have demonstrated the need for new and additional fund performance metrics. The monthly returns of 184 international long/short (equity) hedge funds from four geographical investment mandates were examined over an 11-year period.This study contributes to recent research on alternative performance measures to the Sharpe ratio and specifically assesses whether a scaled-version of the classic Sharpe ratio should augment the use of the Sharpe ratio when evaluating hedge fund risk and in the investment decision-making process. A scaled Treynor ratio is also compared to the traditional Treynor ratio. The classic and scaled versions of the Sharpe and Treynor ratios were estimated on a 36-month rolling basis to ascertain whether the scaled ratios do indeed provide useful additional information to investors to that provided solely by the classic, non-scaled ratios.

Socially Responsible Investing - An Emerging Concept in Investment Management

Socially Responsible Investing (SRI), which integrates social and environmental criteria into traditional investment decision process, has emerged as a new concept in investing, especially in the wake of growing concerns for corporate social responsibility. This paper provides an extensive review of literature on the performance of socially responsible investing. We find that almost in every study related to performance evaluation; socially responsible funds/companies perform better or at least not inferior to conventional funds or respective benchmarks. We also find that costs of socially responsible investing were less than or equal to conventional funds. So, there is no penalty for investing in socially responsible stocks. Rather, it is more rewarding especially during the time of financial crisis. The important implication of our review is for investment decisions as investors may start investing in socially responsible companies to reap higher returns at lower risk. We also expect that for SRI/green investment promotion, more and more socially responsible mutual funds or green mutual funds would be launched in India in near future.

The Staged Decision Model of Key Grid Project: Based on the Real Option Theory

With the continuous development of electric power construction and electricity market reform, power grid investment are facing more and more uncertainties. As to the Key Project investment evaluation for grid, single stage evaluation model is too simple to make an appropriate decision, which overlooked the option value of the investment project. Therefore, in view of the periodical characteristics of investment decision-making process of the grid company’s key project, this article based on the real option analysis methods, and divide the power grid’s key projects into multiple stage according to time sequence, to evaluate each stage’s option value, and to determine the overall value of the grid company’s key investment projects, which has also provided an new train? of thought for the assessment of risk investment projects.

A Dynamic Programming approach for evaluating a portfolio of R&D projects with a budget

The Real Options approach has proved to be a suitable methodology for capturing the flexibility in the investment decision process. This is very useful for the financial evaluation of R&D projects where there are several possible decisions concerning to the investment – delaying, improving or abandoning. Since the risk of an R&D project is usually due to singular characteristics of the project and is uncorrelated with the financial markets, the contingent claims analysis may be not adequate to value R&D projects. Based on a dynamic programming evaluation model, presented in Huchzermeier and Loch [1], we propose an approach to valuing a portfolio of R&D projects with a budget. Specifically, considering a budget constraint, we make an extension of the model mentioned above for assessing the projects in the portfolio simultaneously. To test the proposed evaluation procedure, we generated several R&D portfolios with different dimensions and characteristics. According to our computational experience, the main conclusions are presented.

Property investment decision making by Australian REITs

Purpose– The purpose of this paper is to investigate property investment decision making by Australian REITs.Design/methodology/approach– Through an extensive literature review, a normative model of the property investment decision-making process is proposed. Based on semi-structured interviews with senior Australian REIT decision makers, a descriptive model of the property investment decision-making process by Australian REITs is developed. The normative model and descriptive model are compared and a prescriptive model of the Australian REIT property investment decision-making process proposed.Findings– With the four stage, 20-step process proposed in the normative model found to be generally supported by the descriptive model developed, this may potentially comprise an effective prescriptive model for the Australian REIT property investment decision-making process.Research limitations/implications– Further research is required to investigate if the prescriptive model is generalisable across other property investment decision-making groups or over time and whether it may lead to “good” decisions.Practical implications– The prescriptive model proposed may contribute consistency and transparency to the decision-making process, if adopted by Australian REITs, potentially leading to better decisions.Social implications– Greater consistency and transparency in property investment decision making by Australian REITs may lead to the optimal allocation of capital and greater investor confidence in the sector.Originality/value– The findings comprise the first prescriptive model of the Australian REIT property investment decision-making process, forming a basis for comparative investigation of that process adopted by other property investment decision-making groups.

How policy choice affects investment in low-carbon technology: The case of CO2 capture in indirect coal liquefaction in China

An improved understanding of investment decisions on low-carbon technology will greatly facilitate assessing the effectiveness of carbon emissions mitigation policies. We use the example of implementing CCS (carbon capture and storage) within ICL (indirect coal liquefaction), a controversial technology in China, by constructing a RO (real options) model for the investment decision-making process to assess how different climate policies affect low-carbon technology investors under highly uncertain circumstances. We find that a carbon tax provides the strongest signal for investment and that a market-based measure provides firms with flexibility. Moreover, different types of carbon markets generate substantially different effects on firm behavior, and the CO2 price level exerts a more powerful influence on investors than market volatility or the policy's implementation date. Considering the regional disparities among the coal-abundant but less-developed provinces and the affluent coastal regions in China, we suggest that a sub-national CDM (clean development mechanism) would complete the current domestic policy framework to balance the development requirement and CO2 abatement, whereas extraordinary administrative efforts are necessary to raise the current price of CO2 credits to an effective level, to broaden the carbon market coverage and consolidate the carbon market foundation.

A HYBRID MULTIPLE CRITERIA DECISION-MAKING MODEL FOR INVESTMENT DECISION MAKING

Investments are accompanied by risks. How investors choose the right investment tools to assist in the selection of investment targets is a topic worth exploring. Therefore, this study aimed to develop an investment decision-making process to deal with this issue. Firstly, we proposed a globalized modified grey relational analysis to select the representative indicators including the financial indicators and risk measurement indicators. Then we combined financial and risk evaluation indicators, and divided companies into low, moderate and high-risk groups through the grey clustering analysis. Finally, Vlse Kriterijumska Optimizacija Kompromisno Resenje (VIKOR) combined with the grey entropy weighting method was applied to business performance evaluation and sorting of each grouping. In order to verify this study, a combination of 21 financial ratios and four risk indicators was utilized in order to verify the evaluation and decision-making process in the operating performance of 62 listed opto-electronics companies in Taiwan. The results of ranking the operating performance for each group can be made available to company managers as a reference in order to enhance competitiveness and business performance. The results can also be used as the basis for decision-making to aid investors who are facing many investment portfolios.