Low-risk Projects Research Articles

The Technical Default Spread

Abstract We study the quantitative impact of lender control rights on corporate investment, asset prices, and the aggregate economy. We build a general equilibrium model in which the breaching of a loan covenant (technical default) entails a switch in investment control rights from borrowers to lenders. Lenders optimally choose low-risk projects, thus mitigating borrowers’ risk-taking incentives and lowering the cost of equity. This mechanism generates strong macroeconomic effects and mitigates the financial accelerator. Consistent with our model, proximity to technical default in the data is associated with 4.12% lower returns and lower exposure to systematic risk.

From theory to practice: Monetary policy transmission and bank risk dynamics.

This paper investigates the relationship between monetary policy and bank risk-taking by introducing a model wherein banks expend a level of costly monitoring effort to select low-risk projects, thereby reducing the risk associated with the loans they grant. The impact of monetary policy on bank risk-taking is examined through both theoretical models and empirical analysis. The paper compares theoretical models with different assumptions, revealing an unambiguous negative effect without the assumption of limited liability for banks, and an ambiguous effect with the assumption of limited liability for banks, influenced by the equity ratio. The empirical model employs unique quarterly data comprising balance sheet information for top-listed banks in the U.S. banking system from 2000 to 2017. The findings indicate that low-interest rates contribute to an increase in bank risk-taking. Moreover, this effect is more pronounced after the financial crisis and weaker before the crisis. Additionally, the impact is evident for undercapitalized banks and more substantial for those financed with a higher proportion of equity.

ECONOMIC FEASIBILITY ANALYSIS OF A FOREST-LIVESTOCK INTEGRATION SYSTEM IN ALTA FLORESTA, MATO GROSSO STATE, BRAZIL

This study investigates the economic feasibility of a livestock-forest integration system between Nellore cattle and teak species implemented in Fazenda Bacaeri, in the municipality of Alta Floresta, Mato Grosso state, Brazil. The economic analysis was based on the dataset provided by the Embrapa Agrossilvipastoril and used to elaborate a cash flow, as well as on the following selected criteria, Net Present Value, Internal Rate of Return, and Profitability Index, for a Minimum Attractive Rate of 4.15% annually. The risk analysis was also carried out using the Monte Carlo probabilistic method, considering seven variables, such as the clearcut and thinning wood price, lean cattle selling price, animal acquisition and forest harvesting costs, thinning and clearcutting yield. The calculated analyzed economic indexes are as follows R$ 4,083,307.77 NPV, 6.48% IRR and 21.36% PI, which indicates the economic feasibility of the studied integration system. The risk analysis shows that this is a low-risk project since the probability of NPV being negative was calculated as 14.4%. However, no matter how efficient the risk prediction tools are, producers must have technical assistance from trained professionals to adequately interpret and mitigate the risks. The studied forest-livestock integration system is economically feasible and low risk.

How to streamline the low and negligible research ethics and governance review process from 80 to 10 days: submission to decision

Most clinicians find research ethics and governance difficult and time consuming. This study aimed to develop a better local review process for low-risk research. We used real-time processing, leveraged local expertise and streamlined paperwork. As a result, turnaround times decreased from more than 80 days to 10 days, creating an efficient review process for low-risk projects.

Enhanced gas recovery and storability in a high CO2 content gas reservoir

Benefits of CO2 injection into a gas-condensate reservoir were examined based on a real-field data. The observed natural gas reservoir has high content of CO2, therefore it is desirable to inject the produced CO2 back to the reservoir in order to reduce the emissions at the natural gas processing plant and possibly increase hydrocarbon production. Simulation was made as to compare hydrocarbons production with and without CO2 injection. Since the CO2 source is the reservoir itself, CO2 injection is limited by the produced gas quantities. Investments in low-risk projects on already producing natural gas fields can be feasible compared to investments in completely new and high-risk/high-gain projects, as the highest storability, and additional recovery of hydrocarbon part of the gas is achieved near the end of production. As in late production periods the process can be carbon-negative, i.e., more CO2 is injected than produced, such an enhanced gas recovery scheme can be considered as an advantageous preliminary step before converting the reservoir to CO2 storage facility.

The Risk of Caution: Evidence from an Experiment

Innovation is important for firm performance and broader economic growth. However, breakthrough innovations necessarily require greater risk taking than more incremental approaches. To understand how managers respond to uncertainty when making research and development decisions, we conducted experiments with master’s degree students in a program focused on the intersection of business and technology. Study participants were asked to choose whether to fund hypothetical research projects using a process that mirrors real-world research and development funding decisions. The experiments provided financial rewards that disproportionately encouraged the choice of higher-risk projects. Despite these incentives, most participants chose lower-risk projects at the expense of projects more likely to generate a large payoff. Heterogeneity analysis and additional experimental treatments show that individual risk preferences predict greater tolerance of high-risk projects and suggest that more appropriate decision making can be learned. Thus, for firms seeking to fund breakthrough research and development, appropriate screening and training of employees may play important roles in increasing the likelihood of success. This paper was accepted by Gustavo Manso, finance. Funding: This work was supported by the National Science Foundation [Grant SBE-1561257]. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2021.4292 .

Risk Disclosure in Crowdfunding

How should crowdfunding platforms alleviate information asymmetry between creators and crowdfunders? In traditional financial markets, public companies are required to disclose potential risks to their investors, and such risk disclosure requirements are enforced by legal and fiduciary regulations. In the crowdfunding context, however, such information asymmetry concerns are often addressed by crowdfunding platforms. In this study, we examine whether and how a regulation to increase the salience of project risks in crowdfunding affects crowdfunders’ funding decisions. We find that increasing the awareness of project risks is associated with inferior funding outcomes of crowdfunding projects, and the effect exists mainly for high-risk projects but not much for low-risk projects. In addition, high-risk projects benefit from a risk disclosure with relevant information, authentic language, and balanced tones that are not overly negative or optimistic. Despite the negative short-term effects, technology funders tend to interpret risk disclosures rationally over time, suggesting a positive long-term effect. Implications for research and insights for practitioners are discussed, particularly the fact that disclosure policies may make crowdfunding markets more sustainable by reducing information asymmetry and helping crowdfunders make more informed decisions.

Stakeholders’ Perspectives on Market-based Instruments and Trade Policies for Environmental Goods: Evidence from Malaysia

This article investigates policy constraints for the environmental goods sector in Malaysia based on the dimensions of market-based (including regulatory) instruments and trade policies. In-depth structured interviews with the government and key industry players are conducted, and six overarching themes constraining the efficacy of the instruments and policies were identified. The findings suggest that incentives and loans for this sector are skewed to manufacturers and low-risk projects, respectively. The major policy gaps in this sector are mostly related to procedural issues, namely non-transparent information, non-uniformity of requirements and complex documentation for certification, licensing and permits.

Disagreement and Agonistic Chance in Peer Review

The purpose of grant peer review is to identify the most excellent and promising research projects. However, sociologists of science and STS scholars have shown that peer review tends to promote solid low-risk projects at the expense of more original and innovative projects that often come with higher risk. It has also been shown that the review process is affected by significant measures of chance. Against this background, the aim of this study is to theorize the notions of academic judgment and agonistic chance, and to present and analyze situations in which expert reviewers are faced with the challenge of trying to decide which grant proposals to select when there is strong disagreement. The empirical analysis is based on ethnographic observations of ten panel groups at the Swedish Research Council in the areas of natural and engineering sciences. By focusing on disagreement, the study provides a more in-depth understanding of how agonistic chance creeps into the peer review process and becomes part of the consensus that is created.

Project Review Under Canada’s 2012 FisheriesAct: Risky Business for Fisheries Protection

Canada’s Fisheries Act provides essential protection for fish and their habitat. To manage thousands of projects a year, Fisheries and Oceans Canada implements a risk‐based framework requiring authorization and offsetting for the highest risk projects. Projects considered lower risk proceed via letters of advice. Following changes to the Act in 2012, there were concerns about transparency and cumulative effects of low‐risk projects. We used access to information requests to obtain documents and reviewed the department’s 2012–2019 risk‐based framework. Projects reviewed in Manitoba in 2016 were examined and the amount of permanent alteration and destruction approved without authorization was quantified (23,881 and 6,768 m2, respectively). The risk‐based framework focused reviews and regulatory decisions on project‐by‐project effects, rather than cumulative risks from multiple projects. Harm from lower risk projects was not tracked or offset. New mechanisms are needed to manage such projects to achieve the conservation purpose of the Act.

Planning to Fail: When Is Project Planning Counterproductive?

Planning-performance theory suggests that formal planning has a positive impact on performance. Accordingly, traditional project management methodologies advocate formal planning as an essential process in any project. However, alternative recent project management methodologies (e.g., Agile) promote less focus on a formal planning process at the start of a project. In this article, we question when formal planning is effective, when it is counterproductive, and which planning approach (strategic or tactical) is more effective for various project risk levels and performance dimensions (efficiency and effectiveness). Results from analyzing 2002 projects suggest that strategic planning has a higher value than tactical planning. Furthermore, tactical planning has a negative impact on project efficiency in low-risk projects as it increases project duration and cost but adds little value. In practice, in low-risk projects, managers may limit their focus on counterproductive tactical practices, such as risk, and procurement planning, and focus instead on long-term strategic planning, such as human resources planning. Theoretically, this article sets boundaries of effectiveness for planning-performance theory and advances the literature on the planning fallacy.

Presenting and Evaluating Scaled Extreme Programming Process Model

Extreme programming (XP) is one of the widely used software process model for the development of small scale projects from agile family. XP is widely accepted by software industry due to various features it provides such as: handling frequent changing requirements, customer satisfaction, rapid feedback, iterative structure, team collaboration, and small releases. On the other hand, XP also holds some drawbacks, including: less documentation, less focus on design, and poor architecture. Due to all of these limitations, XP is only suitable for small scale projects and doesn’t work well for medium and large scale projects. To resolve this issue many researchers have proposed its customized versions, particularly for medium and large scale projects. The real issue arises when XP is selected for the development of small scale and low risk project but gradually due to requirement change, the scope of the project changes from small scale to medium or large scale project. At that stage its structure and practices which works well for small project cannot handle the extended scope. To resolve this issue, this paper contributes by proposing a scaled version of XP process model called SXP. The proposed model can effectively handle such situation and can be used for small as well as for medium and large scale project with same efficiency. Furthermore, this paper also evaluates the proposed model empirically in order to reflect its effectiveness and efficiency. A small scale client oriented project is developed by using proposed SXP and empirical results are collected. For an effective evaluation, the collected results are compared with a published case study of XP process model. It is reflected by detailed empirical analysis that the proposed SXP performed well as compared to traditional XP.

Real options analysis of climate-change adaptation: investment flexibility and extreme weather events

Investments in climate-change adaptation will have to be made while the extent of climate change is uncertain. However, some important sources of uncertainty will fall over time as more climate data become available. This paper investigates the effect on optimal investment decision-making of learning that reduces uncertainty. It develops a simple real options method to value options that are found in many climate-change adaptation contexts. This method modifies a binomial tree model frequently applied to climate-change adaptation problems, incorporating gradual learning using a Bayesian updating process driven by new observations of extreme events. It is used to investigate the timing, scale, or upgradable design of an adaptation project. Recognition that we might have more or different information in the future makes flexibility valuable. The amount of value added by flexibility and the ways in which flexibility should be exploited depend on how fast we learn about climate change. When learning will occur quickly, the value of the option to delay investment is high. When learning will occur slowly, the value of the option to build a small low-risk project instead of a large high-risk one is high. For intermediate cases, the option to build a small project that can be expanded in the future is high. The approach in this paper can support efficient decision-making on adaptation projects by anticipating that we gradually learn about climate change by the recurrence of extreme events.

Real Options Analysis of Climate-change Adaptation: A Simplified Approach

Investments in climate-change adaptation will have to be made while the extent of climate change is uncertain. However, some important sources of uncertainty will fall over time as more climate data become available. This paper investigates the effect on optimal investment decision-making of learning that reduces uncertainty. It develops a simple real options method to value options that are found in many climate-change adaptation contexts. This method modifies a binomial tree model frequently applied to climate-change adaptation problems, incorporating gradual learning using a Bayesian updating process driven by new observations of extreme events. It is used to investigate the timing, scale or upgradable design of an adaptation project. Recognition that we might have more or different information in the future makes flexibility valuable. The amount of value added by flexibility and the ways in which flexibility should be exploited depend on how fast we learn about climate change. When learning will occur quickly, the value of the option to delay investment is high. When learning will occur slowly, the value of the option to build a small, low-risk project instead of a large high-risk one is high. For intermediate cases, the option to build a small project that can be expanded in the future is high. The approach in this paper can support efficient decision-making on adaptation projects by anticipating that we gradually learn about climate change by the recurrence of extreme events.

Private money creation, liquidity crises, and government interventions

The joint supply of public and private liquidity is examined when financial intermediaries issue both riskless and risky debt and the economy is vulnerable to liquidity crises. Government interventions in the form of asset purchases and deposit insurance are equivalent (in the sense that they sustain the same equilibrium allocations), increase welfare, and, if fiscal capacity is sufficiently large, eliminate liquidity crises. In contrast, restricting intermediaries to investing in low-risk projects always eliminates liquidity crises but reduces welfare. Under some conditions, deposit insurance gives rise to an equilibrium in which intermediaries that issue insured debt (i.e., traditional banks) coexist with others that issue uninsured debt (i.e., shadow banks), despite the two being ex ante identical.

The effect of escalation of commitment and project risk in resources allocation decision

This research aims to examine the causal relationship between escalation of commitment and project risk with decision making in resource allocation (production cost). In this research the allocation of resources is in determining the cost of direct labor and material costs. To trigger cognitive dissonance, the determination of higher labor costs will increase the bonus of individuals working as production managers. When kos production has been set in a certain number, labor costs are high, while factory overhead costs is fixed, cause material costs to be low. The lower the material cost, the lower the product quality. Escalation of commitment is a condition when individuals already know the potential risks in the future, but still take risks for their decisions. This study proposes that the production cost allocation decision in conditions of high commitment escalation will tend to choose decisions that benefit themselves compared to when the escalation of commitment is low (choosing a labor cost allocation is higher than the material cost). This research also predicts that individuals in the face of high-risk projects will tend to allocate resources that benefit themselves. In addition, the interaction of the existence of a low level of escalation of commitment and a low risk project level will reduce the allocation of production costs to direct labor costs. This research uses a laboratory experiment design with 102 accounting students at a private university in Central Java who act as production managers with paper and pencil test. This experiment uses a 2x2 between subject. The results of the research show that there is a causal relationship between the escalation of commitment and the allocation of human resources and there is a causal relationship between the escalation of commitment and project risk. This finding also shows that there is an interaction between escalation of commitment, project risk and resource allocation decisions.

Accountability mechanisms\xa0in international climate change financing

This paper uses agency theory to analyse the incentives that a donor (principal) and recipient (agent) face as actors in an accountability regime for the financing of international climate change projects in developing countries. We address the following question: What accountability measures serve to align the incentives of the donor with those of the recipient in climate change financing? We focus on the relationship between the Green Climate Fund as a donor and one of its Accredited Entities as a recipient. We examine the consequences of misaligned incentives and asymmetric information, looking at a specific set of accountability measures, including performance indicators, penalties for poor performance, as well as the role of pressure exerted by civil society organisations (CSOs). We find that the use of imperfect performance indicators can reduce the risk of project failure if they are strongly correlated with adaptation and mitigation impacts. Penalties can have a positive impact on project outcomes, but impose risks upon the agent, which could lead him to refuse the contract for the implementation of the climate change project. The pressure of CSOs was found to have the potential to motivate donors and recipients to become more efficient and effective in their delivery of projects but could also lead to the donor choosing to finance lower-risk projects with fewer climate change benefits. We suggest that accountability requirements need to be carefully balanced with other objectives, including having a diverse set of entities willing to bid for the delivery of projects.

A fuzzy fault tree analysis based risk assessment approach for enterprise resource planning projects

PurposeEnterprise resource planning (ERP) is assumed as a commonly used solution in order to provide an integrated view of core business processes, including product planning, manufacturing cost, delivery, marketing, sales, inventory management, shipping and payment. Selection and implementation of a suitable ERP solution are not assumed a trivial project because of the challenging nature of it, high costs, long-duration of installation and customization, as well as lack of successful benchmarking experiences. During the ERP projects, several risk factors threat the successful implementation of the project. These risk factors usually refer to different phases of the ERP projects including purchasing, pilot implementation, teaching, install, synchronizing, and movement from old systems toward new ones, initiation and utilization. These risk factors have dominant effects on each other. The purpose of this paper is to explore the hybrid reliability-based method is proposed to assess the risk factors of ERP solutions.Design/methodology/approachIn this regard, the most important risk factors of ERP solutions are first determined. Then, the interactive relations of these factors are recognized using a graph based method, called interpretive structural modeling. The resultant network of relations between these factors initiates a new viewpoint toward the cause and effect relations among risk factors. Afterwards, a fuzzy fault tree analysis is proposed to calculate Failure Fuzzy Possibility (FFP) for the basic events of the fault tree leading to a quantitative evaluation of risk factors.FindingsThe whole proposed method is applied in a well-known Iranian foodservice distributor as a case study. The most impressive risk factors are identified, classified and prioritized. Moreover, the cause and effect diagram between the risk factors are identified. So, the ERP leader can plan a low-risk project and increase the chance of success.Originality/valueAccording to the authors’ best knowledge, such approach was not reported before in the literature of ERP risk assessments.

Development and application of an environmentally friendly ductile alkali-activated composite

This paper presents a development of a ductile alkali-activated fly ash (FA) and ground granulated blast furnace slag (GBFS) based composite as an environmentally friendly material for structural concrete application. For this purpose, polyvinyl alcohol (PVA) fibres and sand aggregate were combined with alkali-activated paste. Workability, setting time, mechanical properties and failure mode of PVA fibres in the mixture were studied by slump test, Vicat needle test, flexural and compression tests, and Scanning Electron Microscopy (SEM) imaging, respectively. Although the mixture sets in a short period of time (less than 30 min), the workability was good and the developed fibre reinforced composite was used for a large scale application in a canoe. Casting a large volume (45 l compared to 3 l, as initially designed) did not affect the workability and the setting time of the mixture. Mechanical properties of specimens coming from “small” (3 l) and “large” (45 l) batches were tested at different ages (up to 120 days) and compared. It was shown that their flexural and compressive strength are similar, i.e. not affected by the upscaling. Furthermore, it was shown that the mixture with PVA fibres exhibits deflection hardening behaviour even with aggregate particles as large as 4 mm, although single crack localization led to failure. The SEM images of fractured surfaces indicated that combined fibre pull-out and fibre rupture occurred, with the latter one causing the final failure. The developed mixture, additionally reinforced with the plastic fiberglass mesh, was used in the 5.8 m long and 16 mm thick canoe for the student competition, which for the very first time, was constructed without the use of Ordinary Portland cement (OPC). The upscaling was successful and the results show the potential of fibre-reinforced alkali-activated FA and GBFS composite to be used as a durable and resistant material suitable for the structural application in thin shell elements, exemplified by the canoe. Such an application and a low risk project was suitable to gain the necessary experience and confidence with this innovative, “concrete like”, material for which no codes or regulations are available. Furthermore, similar applications are the first step for larger scale structural applications, like structural elements in the building industry, bridges and other civil engineering structures.

State contingent and conventional banking: The optimal banking choice model

This paper compares and contrasts the optimality of debt based banking and state contingent banking. We show that the advantage each of these banking types holds over the other might not be universal; rather it may be an outcome of the informational and institutional environment in which they operate. In our model, banks optimize both the riskiness of the project and moral hazard concerns to identify the most profitable banking model. We find that state contingent banking is more profitable where projects are riskier, and debt abased conventional banking is adopted for relatively lower risk projects. Our model also suggests that state contingent banking would be the optimal choice in cases where there exist greater moral hazard concerns. We explore the empirical implications of our model and find that state contingent banking would be more suitable for small firms, emerging markets, community and Islamic banking.