Financial Risk Reduction Research Articles

Impact of Compliance with the International Financial Reporting Standard IFRS No. 9 on Financial Risk Reduction in Banks Listed on the Palestine Stock Exchange

Purpose - This study empirically investigates the impact of compliance with International Financial Reporting Standard (IFRS) No. 9 on reducing financial risks in the banks listed on the Palestine Stock Exchange.
 Design/methodology/approach – The sample of study consists of all financial statements of the banks for the period 2015-2021 that met the study’s criteria. A simple linear regression test was used to examine the study’s hypotheses.
 Findings - The findings of the study show a correlation between the compliance with IFRS No. 9 and the mitigation of financial risks in the banking sector. The study shows an adverse effect of the compliance with IFRS No. 9 on reducing credit and capital risks in the banks under study. It also found that there was an insignificant effect of the compliance with IFRS No. 9 on the reduction of exchange rate and interest rate risks in those banks, while the study observed a positive effect of the compliance with IFRS No. 9 on reducing liquidity risk in those banks.
 Recommendation - The study recommended the necessity to develop and cultivate the banks’ human resources and work on increasing the awareness of the users of financial statements. The study also underscored the need for banks to bolster their capital reserves to meet the expected increase in provisions stipulated within IFRS No. 9.
 Originality/value: Our research highlights the importance of underscored of banks to bolster their capital reserves to meet the expected increase in provisions stipulated within IFRS No. 9. and reducing financial risk in those banks

Offshore wind power generation: An economic analysis on the Brazilian coast from the stochastic LCOE

The interest in offshore wind energy in Brazil is recent, and are scarce investigations about the real competitiveness of the source in the country. In this way, this study proposes a stochastic approach to compare the LCOE for offshore wind farms at five different points on the Brazilian coast, and considering different possibilities of corporate tax, and Tradable Green Certificates (TGC) commercialization. To compare the different scenarios, initially is sized the offshore wind potential of the evaluated locations, modeling the uncertainties related to wind speed in the monthly horizon, in addition to the economic uncertainties associated with the Capital Expenditure (CAPEX), Operational Expenditure (OPEX), and Decommissioning Expenditure (DECEX). Then, are performed 10,000 iterations of the Monte Carlo Simulation to calculate the LCOE, for scenarios with taxation based on Actual Profit Method (APM) and Presumed Profit Method (PPM), and with and without the possibility of TGC. The results reveal that the possibility of taxation by the PPM and the mapping of the best place to exploit wind generation are the factors that most affect the reduction of LCOE and the financial risk of investing in an offshore wind farm in Brazil. In turn, the possibility of negotiating TGC contributes to reducing the LCOE of projects but is not a factor that significantly favors the reduction of financial risk. In addition, the results reveal that the coast region close to the Northeast is where the greatest potential offshore wind in Brazil, and the points located in Rio Grande do Sul and Rio de Janeiro showed some competitiveness, although they are lower than the Northeast.

An assessment of the provider financial risk impacts of adoption of biosimilars in the Medicare Oncology Care Model.

6613 Background: In 2016, Medicare launched the Oncology Care Model (OCM)—a Value-Based Payment (VBP) initiative providing per-beneficiary prospective payment to providers, and performance-based financial incentives/risks based on cost of care in 6-month ‘episodes’ vs. risk-adjusted benchmarks for cancer patients receiving chemotherapy. Oncology biosimilars may play an important role in managing financial risk in the OCM and other VBP models, but the real-world impact remains uncertain. The objective of this study was to quantify the impact of biosimilar adoption on oncology provider financial risk under the OCM using real-world data. Methods: We estimated the impact of biosimilar adoption on provider financial risk from 2019 to 2021 by modeling the methods (episode framing, pricing, & risk adjustment) of the OCM. Cancer episodes were identified from the 5% Medicare Limited Data Set (LDS). The study sample consisted of cancer treatment episodes with use of any of the following agents or their biosimilars: bevacizumab, rituximab, trastuzumab, epoetin alfa, filgrastim, and pegfilgrastim. Financial risk was defined as the difference in observed total cost of care vs. OCM target episode cost. The primary outcome was the difference in financial risk (expressed in nominal $USD) under observed use of reference and/or biosimilars vs. hypothetical use of 100% reference agent. Results: The study sample included 8851 6-month episodes initiating between 1/2019 and 6/2021. Biosimilar adoption resulted in a mean cost reduction of $1,020 per episode vs. hypothetical 100% use of reference agents. Biosimilar use increased markedly over the study horizon--with 24% of episodes with a biosimilar in Half (H)1 2019, increasing to 65% by H1 2021, and driven by increased use of antineoplastic (1% to 36%) vs. supportive care biosimilar agents (23% to 34%). Mean financial risk reduction grew with the rapid adoption of biosimilars over this period. The average risk reduction in episodes initiating in H1 2021 was about 10 times larger than that seen in episodes initiating in the H1 2019 ($2060 vs $201, See Table). Observed mean cost was below the OCM target cost ($48808) in H1 2021 but exceeded the target cost in all other periods (range: +$1451 to +$4966). Conclusions: From 2019 to 2021, rapid adoption of biosimilars in Medicare fee-for-service beneficiaries included in the LDS led to substantial cost savings and reduction in risk for cancer episodes evaluated under the OCM methods. Broad adoption of biosimilars is a key strategy that providers in oncology VBP models will need to consider to manage financial risk. [Table: see text]

Reducing Inpatient Psychiatric Unit Denials: A Case Management Quality Improvement Project.

The purpose of the inpatient psychiatric unit denials reduction project was to establish a taskforce to analyze denials data for root cause and identify an effective solution to prevent denials through improved provider documentation. The development and implementation of the project occurred at Stanford Health Care, a nonprofit Level 1 trauma hospital, with a 29-bed inpatient psychiatric unit containing both open and secured levels of care. The project was led by the Utilization/Denials Management team, which is subteam within the Case Management Department. Team members are Nurse Case Managers specializing in the management of denials and appeals, data analysis and trending of denials, denial avoidance, and reduction of financial risk. Denials data analysis revealed the Psychiatry Service Line was responsible for over 70% of payer denials within the Length of Stay Write-offs category. In early 2019, the Utilization/Denials Management team initiated a quality improvement project using A3 Lean Approach methodology and evidence-based practice to guide the implementation. The partnership and collaboration included Case Management, Revenue Cycle, Clinical Documentation Improvement, Technology and Digital Solutions, and Psychiatry Service Line leadership that had an interest in reducing payer denials. Outcomes measured for the project were based on denials data for (fiscal year) FY19, the preintervention period, compared to FY20 and FY21, the postintervention period. From FY19 to FY20, revenue loss decreased by 42%. The downward trend continued from FY20 to FY21 with a recorded decrease by 69%. The most important implication of the project was improved physician documentation and medical necessity supporting the severity and intensity of inpatient psychiatric level of care, and medical justification for the inpatient stay not only to prevent medical necessity denials but to accurately reflect the care that was provided. High-quality documentation correlates to the high quality of care being provided. This project is far reaching not only for psychiatric units but also reproducible for other acute hospital service lines. Case Management is a multidisciplinary role, and this work is most meaningful for a Nurse Case Manager engaged in care coordination, including utilization and denials management.

Measuring and explaining firm-level exchange rate exposure: The role of foreign market destinations and international trade

How does international trade affect the exchange rate exposure of firms? Trade induces greater economic exposure to exchange rate volatility. But more diversification in trade destinations and foreign supply and demand strategies may offer financial risk reduction depending on market conditions. In this paper, we focus on the role of trade and offer an integrated analysis on measuring and explaining exchange rate exposure. Using Dutch firm-level weekly data from 2011 to 2015, we find that: (1) distinguishable communities of firms based on their exchange rate exposure exist; (2) under varying market conditions, buying from and selling to foreign and more diverse markets is a way for firms to reduce exchange rate exposure; (3) firms that hedge during market downturns experience less exchange rate exposure. Our findings provide new insights for policy makers and investors interested in exchange rate exposure (measurement and drivers).

Forecasting surgical costs: Towards informed financial consent and financial risk reduction

BackgroundHealth care expenditure is increasing around the world and surgery is a major cause of financial hardship to patients and their families. Using pancreatoduodenectomy (PD), one of the most complex, morbid and costly operation as an example, this study aimed to identify the cost drivers of surgery, estimate relative contribution of these drivers, and derive and validate a cohort-specific cost forecasting tool. MethodsData on the costs of 1406 patients undergoing PD in three tertiary hospitals in India, Italy and the United States were analysed. Cost drivers were identified and cost models developed using a 4-stage process. ResultsThere was a significant difference in overall cost of PD between the 3 cohorts. The cost drivers common to the 3 cohorts included duration of hospital stay and the outcome of death (Clavien-Dindo 5). Significant cohort-specific cost drivers included co-morbidities, operating theatre utilisation times and operative blood loss, development of pancreatectomy-specific complications (POPF, DGE, PPH), and need for interventional radiology to manage complications. Based on this, a cost forecasting tool was developed. ConclusionsDrivers of costs for a surgical procedure (e.g. PD) are different between hospitals. Developing cost models/nomograms to predict the expected cost of surgery and perioperative care will not be applicable between hospitals. However, the approach could be used to develop context-specific data that will provide patients (at the time of the informed financial consent) and funding agencies with a more realistic cost estimate for a given operation. The developed cost forecasting tool warrants future validation.

Tradeoffs in Supplier Attribute Ratings in Supplier Selection across Strategic versus Non-Strategic Purchases

ABSTRACT Purpose: This research identifies a customer perspective that is often ignored, neglected, or undervalued in B-to-B sales – the nature of the product itself. The pivot point is whether the product/service desired is strategic (critical to the company’s mission) or non-strategic (not critical to the company’s mission). Methodology/Approach: A conjoint analysis was conducted for both types of purchases (strategic and non-strategic), assessing the tradeoffs and espoused preferences of four key attributes involving both the supplier and the product across three performance levels – (1) stability of the supplier, (2) reliability, (3) competitive pricing and (4) product quality. Findings: The results indicate that B-to-B customers do make tradeoffs between suppliers based on stability, reliability, pricing and product quality. The direction of the tradeoffs depends on whether the purchase is a strategic or non-strategic acquisition. The results suggest that suppliers would benefit from understanding the relationship of their products and services to the B-to-B customer’s mission when the supplier is deciding how to improve performance. Research implications: Too often there is a disconnect between B-to-B salespeople and their customers resulting in suppliers failing to reach performance goals. The research focuses on the importance of B-to-B salespeople uncovering whether or not the customer considers the nature of the product being considered as strategic or non-strategic to their business. The research helps to explain some of the mixed findings in the supplier selection literature. Practical implications: The research points to the fact that customers analyze and make decisions differently depending on the type of product. Additionally, the research highlights the importance to customers of understanding the potential legal and financial risk of suppliers. This is important in that traditionally suppliers tend to focus on product features and benefits in their selling efforts. These results indicate that they should spend significant time discussing factors that illustrate legal and financial risk reduction to the customer of dealing with their companies. Originality/Value/Contribution: The study offers a new look at an age-old problem of enhancing sales performance through a new lens by considering the nature of the product (strategic versus non-strategic) through the perspective of the customer. The findings help to explain the mixed results of previous research. To date, the nature of the product and tradeoffs of attributes that customers are willing to make depending on that product classification have not been the focus, though the results suggest that understanding customer decision-making through this lens may enhance supplier success.

Lifting the burden: State Medicaid expansion reduces financial risk for the injured.

Injuries are unanticipated and can be expensive to treat. Patients without sufficient health insurance are at risk for financial strain because of high out-of-pocket (OOP) health care costs relative to their income. We hypothesized that the 2014 Medicaid expansion (ME) in Washington (WA) state, which extended coverage to more than 600,000 WA residents, was associated with a reduction in financial risk among trauma patients. We analyzed all trauma patients aged 18 to 64 years admitted to the sole level 1 trauma center in WA from 2012 to 2017. We defined 2012 to 2013 as the prepolicy period and 2014 to 2017 as the postpolicy period. We used a multivariable linear regression model to evaluate for changes in length of stay, inpatient mortality, and discharge disposition. To evaluate for financial strain, we used WA state and US census data to estimate postsubsistence income and OOP expenses for our sample and then applied these two estimates to determine catastrophic health expenditure (CHE) risk as defined by the World Health Organization (OOP health expenses ≥40% of estimated household postsubsistence income). A total of 16,801 trauma patients were included. After ME, the Medicaid coverage rate increased from 20.4% to 41.0%, and the uninsured rate decreased from 19.2% to 3.7% (p < 0.001 for both). There was no significant change in private insurance coverage. Medicaid expansion was not associated with significant changes in clinical outcomes or discharge disposition. Estimated CHE risk by payer was 81.4% for the uninsured, 25.9% for private insurance, and less than 0.1% for Medicaid. After ME, the risk of CHE for the policy-eligible sample fell from 26.4% to 14.0% (p < 0.01). State ME led to an 80% reduction in the uninsured rate among patients admitted for injury, with an associated large reduction in the risk of CHE. However, privately insured patients were not fully protected from CHE. Additional research is needed to evaluate the impact of these policies on the financial viability of trauma centers. Economic analysis, level II.

Exploring the relationship between mechanisms, actors and instruments in supply chain finance: A systematic literature review

Supply Chain Finance (SCF) deals with the management of financial flows along the supply chain. Its core objective is to facilitate the reduction of financial risk in a supply chain by improving the collaborative cash-to-cash cycle and working capital. In order to fulfil its objective, SCF involves the coordination of supply chain actors, SCF instruments, and supply chain processes. Existing studies focus either on SCF actors, such as buyers, suppliers, banks, and logistics service providers (LSPs), or on specific SCF instruments, such as reverse factoring, inventory financing and discounting. However, an analysis of the relationship between actors and instruments, as well as of the factors influencing this relationship, requires further development. In light of this gap, this paper systematically reviews the literature on SCF with the objective of clarifying the relationship between SCF actors, instruments, and contextual factors. The review identified three main archetypes for this relationship: fixed-asset financing (fixed asset-centric), inventory financing (inventory-centric), accounts receivable/accounts payable financing (buyer-centric and supplier-centric). Based on the results of the review, the authors discuss the implications for practitioners and further research for academics.

Outcomes-Based Contracting Experience: Research Findings from U.S. and European Stakeholders.

Outcomes-based contracts (OBCs), a type of risk-sharing arrangement (RSA), have emerged as a promising avenue for payers to engage with pharmaceutical manufacturers to share risk and improve patient access to medicines via evaluation of real-world outcomes. To assess the level of recent OBC activity and stakeholder perceptions of these arrangements, as well as the outlook for future OBC activity from a payer and manufacturer perspective in the United States and EU-5 (France, Germany, Italy, Spain, and the United Kingdom). Using a structured questionnaire, interviews were conducted with 27 experts, including 14 U.S. payers, 5 EU-5 national payers, and 8 manufacturer pricing/market access executives (4 U.S., 4 EU-5). We also used the University of Washington's Performance Based Risk-Sharing (PBRS) database and other targeted publicly available information. Publicly disclosed information on OBCs understates the level of OBC activity, since many arrangements are confidential. Overall, U.S. and EU-5 interviewees generally expected that 2 to 3 times more OBCs would be implemented in the next 5 years than in the previous 5 years. Key drivers included the introduction of a national OBC framework in Spain, potentially a similar framework in the United Kingdom, a growing sickness fund activity in Germany, and a U.S. movement towards accountable care. Motivation for OBCs varied markedly across markets and stakeholders, with operational feasibility noted as a significant hurdle in the United States and France. Along with improving health outcomes, cost and financial risk reduction were the primary OBC motivators for payers, while potential access or reimbursement gains were key factors for manufacturers. Using direct input from U.S. and EU-5 payer and pharmaceutical manufacturer decision makers, this research suggests that high OBC growth is expected in the EU-5 and, to a more moderate extent, in the United States, particularly if clear, simpler OBC frameworks can be developed. This study was funded by Novartis Pharmaceuticals. Novartis employees were involved in all aspects of this study. Vegesna and Sasane are employed by and own stock in Novartis. Nazareth and Ko were employees of Novartis at the time of this study. Frois, Demean, Carpenter, and Wu are or have been employed by Analysis Group, which received a grant from Novartis for this research. Navarro received consulting fees from Novartis for his involvement in this research. Study concept and design were contributed by Sasane, Frois, Nazareth, and Wu. Navarro, Demean, and Frois took the lead in data collection, assisted by Carpenter, Ko, and Nazareth. Data interpretation was provided by Frois, Carpenter, Nazareth, and Ko, along with Sasane, Demean, Wu, and Navarro. The manuscript was written by Frois, Demean, Nazareth, and Ko, along with Sasane, Carpenter, Wu, and Navarro, and revised by Frois, Ko, and Vegesna, along with Sasane, Nazareth, Wu, and Navarro.

Financial risk protection from social health insurance

This paper estimates the impact of social health insurance on financial risk by utilizing data from a natural experiment created by the phased roll-out of a social health insurance program for the poor in India. We estimate the distributional impact of insurance on of out-of-pocket costs and incorporate these results with a stylized expected utility model to compute associated welfare effects. We adjust the standard model, accounting for conditions of developing countries by incorporating consumption floors, informal borrowing, and asset selling which allow us to separate the value of financial risk reduction from consumption smoothing and asset protection. Results show that insurance reduces out-of-pocket costs, particularly in higher quantiles of the distribution. We find reductions in the frequency and amount of money borrowed for health reasons. Finally, we find that the value of financial risk reduction outweighs total per household costs of the insurance program by two to five times.

Corporate social responsibility and firm financial risk reduction: On the moderating role of the legal environment

AbstractApproaching the institutional environment through its regulative component, we distinguish between shareholder‐oriented and stakeholder‐oriented countries. Identifying first this classification with the distinction between common law versus civil law countries and using a large sample of 5,716 firm‐year observations that represents 1,169 individual firms in 25 countries between 2001 and 2011, we show that Corporate Social Responsibility (CSR) significantly reduces firms’ idiosyncratic risk in civil law countries but not in common law countries. Using then a more direct classification based on shareholder and employee protection scores, our findings suggest that CSR negatively affects firms’ idiosyncratic and systematic risks only in less shareholder‐oriented and more stakeholder‐oriented countries, respectively. These findings are similar in the different components of CSR with two notable exceptions: a high score in corporate governance reduces firm risk only in common law countries, and community involvement increases idiosyncratic risk in more shareholder‐oriented and less stakeholder‐oriented countries, respectively. Taken together, our results strongly support the view that the relationship between CSR and financial risk is moderated by the institutional context of the firm.

Corporate Social Responsibility and Firm Financial Risk Reduction: On the Moderating Role of the Legal Environment

Approaching the institutional environment through its regulative component, we distinguish between shareholder-oriented and stakeholder-oriented countries. Identifying first this classification with the distinction between common law versus civil law countries and using a large sample of 5,716 firm-year observations that represents 1,169 individual firms in 25 countries between 2001 and 2011, we show that Corporate Social Responsibility (CSR) significantly reduces firms’ idiosyncratic risk in civil law countries but not in common law countries. Using then a more direct classification based on shareholder and employee protection scores, our findings suggest that CSR negatively affects firms’ idiosyncratic and systematic risks only in less shareholder-oriented and more stakeholder-oriented countries, respectively. These findings are similar in the different components of CSR with two notable exceptions: A high score in corporate governance reduces firm risk only in common law countries, and community involvement increases idiosyncratic risk in more shareholder-oriented and less stakeholder-oriented countries, respectively. Taken together, our results strongly support the view that the relationship between CSR and financial risk is moderated by the institutional context of the firm.

ECONOMIC OPPORTUNITIES OF DEVELOPMENT FOR AGRICULTURAL ENTERPRISES IN CRISIS CONDITIONS

The article examines opportunities of formation and using of specific development potential of the agricultural enterprises in crisis conditions, which is relevant to the modern economy. The authors allocate the following economic development opportunities of agricultural enterprises in crisis conditions: the accretion of the customers number, the correction of the products range, the increase demand for products against the background of the import substitution, the attraction of additional investments in the agricultural sector, the participation in the agricultural cooperation, the workforce optimization, the reduction of financial risk by contracting primarily with trustworthy partners. These measures will allow to enhance the effectiveness of agricultural enterprises functioning.

How economic performance of a stand increases due to decreased failure risk associated with the admixing of species

A new modeling approach which combined survival probabilities for spruce with financial optimization showed a considerably reduction in financial risk in spruce (Picea abies [L.] Karst.) stands with an admixture of a 20% proportion of beech (Fagus sylvatica L.). The admixture enhanced the stability of the spruce component against natural hazards, such as storm or insect damage. Here, these new survival investigations were integrated into a bio-economic modeling approach called silvicultural economics. A new failure model which includes the benefits of ecological interactions for decreasing hazard risk for spruce was developed. The modeling technique is based on Monte-Carlo-Simulation and on simultaneous portfolio optimization of management strategies under risk. Area proportions were allocated as decision variables to each tree species and to regeneration harvests at various points in time in order to achieve the maximum financial return given a predefined, acceptable risk. The simultaneous optimization led to a mixed – and, through long regeneration periods – to an uneven-aged forest stand, for almost all predefined risk-levels. In addition, for a selection of possible even-aged tree species compositions, a stand-level mixture (including the species interactions of the new model) was compared with the same species proportion at the stand level, but consisting of two separated parts of spruce and beech (thus excluding species interactions). For all even-aged and interacting mixtures that were investigated, a higher expected return and a lower financial risk were achieved when compared to the identical even-aged mixture proportions without interactions. When the timing and distribution of regeneration harvests was also optimized (as opposed to using a clear-cut strategy) there was a slight loss in financial return, but the reduction in risk was even greater, given the same tree species proportion – especially in cases with a low beech admixture. Compared to the simulation which excluded the stabilizing effect of beech on spruce, the variant with interacting tree species allowed for higher spruce proportions and shorter regeneration cycles for the same acceptable risk.

The Silent Screenwriter: The Re-discovered Scripts of Eliot Stannard

Before any film is made it is an idea – a ‘screen idea’. I use this term here as a descriptor for what is to become the film, before it is complete. As such, the writer, producer, director and others discuss it, fight over it, compromise or triumph over parts of it. The screenplay describes it, but it never exists in concrete form until it is produced as the screenwork; it is something that exists only as an understanding between people. It is there, in the ether between people, not an object but referred to as an object. It is subject to social pressures, normative pressures, power struggles, inaccurate description and misunderstandings, and conventional ways of working. It occupies a space in which forces are at work struggling to reconcile what is being proposed with many other things, including individual perceptions of what is ‘good’ in this context, and with what Pierre Bourdieu called consecrated work.1 So this is a dynamic space, a ‘field of force’ in the sense that Joe Kember uses it, where it ‘usefully emphasizes the play of social pressures taking place between intricately positioned agents and institutions in any communicative transaction’.2 It involves the habitus and dispositions of those agents, but as an industrial process it involves formalization for the sake of efficiency, clarity and financial risk reduction. One of the documents produced as part of this formalization is the script or various versions of the script. It can tell us not only about the screen idea under discussion at that point, but also the assumptions being made about what constitutes a good screen idea, the elements seen as essential for an understanding of the screen idea, about what is expected from a writer and therefore others such as the director, about institutionalized practice in general, and also about the writer’s own responses to these.

The Impact of Structural Breaks on the Integration of the Asean-5 Stock Markets

This paper examines the ASEAN-5 countries and explores the impact of structural breaks on the level of financial integration in that region. An extended cointegration procedure allowing for three types of structural break, is employed and compared with the standard Johansen procedure, for daily and weekly returns. The empirical results suggest a higher level of integration within the ASEAN-5 markets than previously found, suggesting that financial risk reduction benefits from diversifying investments across the region are less than previously thought. Further, Singapore and Thailand are the main long-term drivers in the region; Malaysia and Indonesia are more short-term drivers. Structural breaks are found to correspond with the Asian financial crisis in 1997/98 and a possible Y2K effect in late 1999. Results are verified using another structural break model and method, where break dates are treated as known.

The impact of structural breaks on the integration of the ASEAN-5 stock markets

This paper examines the ASEAN-5 countries and explores the impact of structural breaks on the level of financial integration in that region. An extended cointegration procedure allowing for three types of structural break, is employed and compared with the standard Johansen procedure, for daily and weekly returns. The empirical results suggest a higher level of integration within the ASEAN-5 markets than previously found, suggesting that financial risk reduction benefits from diversifying investments across the region are less than previously thought. Further, Singapore and Thailand are the main long-term drivers in the region; Malaysia and Indonesia are more short-term drivers. Structural breaks are found to correspond with the Asian financial crisis in 1997/98 and a possible Y2K effect in late 1999. Results are verified using another structural break model and method, where break dates are treated as known.

Admixing broadleaved to coniferous tree species: a review on yield, ecological stability and economics

For several reasons the conversion of mono-species into mixed-species forests is presently a major concern of forest management and policy in Central Europe. Although it is possible to show a clear trend in favour of mixed-species forests, private forest owners and some forest economists have often not favoured mixed forests, assuming that they are less profitable. The trend towards mixed forests seems mainly for ecological reasons, while sound economic analysis of mixed forests is still rare. Based on this background the objective of the study is to answer the following four questions: (1) Does the yield of mixed-species forests differ from that of pure forests? (2) Does the mixing of tree species influence the ecological stability of forests? (3) Is the economic value of a mixed forest less than that of a monoculture? (4) How do forest economic models integrate the findings on yield and ecological stability of mixed forests? To answer these questions a literature review was conducted on the possible impacts of mixed-species forests. In comparison to pure stands a greater yield is not necessarily given in mixed stands. Yet, mixed-species stands are better able to compensate disturbances than monocultures. Moreover, there is substantial evidence that mixed-species stands are more resistant against biotic and abiotic disturbances. Applying an extended forest economic model, it was possible to demonstrate that mixing large blocks of native broadleaf species into pure conifer forests may lead to a significant reduction of financial risk. From a risk-averse perspective the economic value of a mixed-species forest may thus be greater than that of a mono-species forest. Yet, it became clear that forest economists do not often integrate the research findings on yield and ecological stability of mixed stands in modelling, but rather apply simple bioeconomic modelling. Moreover, in the context of mixed forests economists also largely ignore even classical financial approaches, which consider risk and risk preferences. We concluded that forest economics has to close substantial research gaps. Firstly, the knowledge of how to integrate biophysical properties of mixed forests in bioeconomic modelling is still an open question. Secondly, forest economists have to adopt the modern approaches of financial theory and management science to value mixed forests.

Subsidized Loan Financing and its Impact on the Cost of Capital and Levered Firm Value - A Non-Technical Reply to 'Adjustment of the WACC With Subsidized Debt in the Presence of Corporate Taxes: The N-Period Case'

Debt financing with subsidizes interest rate has a multidimensional impact on the firm. Value of the levered equity, value of the debt and overall firm value will be different of those values with debt financing at market rate. Subsidized interest rate on debt does not create any additional cash flow and all the changes in values and the cost of capital are the result of the redistribution of cash flows among debt, equity and government, and subsequent reduction in financial risk due to lower leverage. In this note we show that the levered firm value with the loan provided at a rate below market rate is lower (or equal, in a no tax world) compared to the same firm value with the loan at market rate. For the given nominal value of debt the cost of capital of the levered firm with the subsidized interest rate is higher than the cost of capital of the same firm with the market cost of debt, and intuitive adjustment of the WACC by direct substitution of the contractual interest rate into the classic WACC formulation produces inconsistent cost of capital estimate and flawed valuation. Debt financing with subsidized interest rate converts into the gain for the levered equity. This value gain originates from the value transfer from debt to equity and to ensure correct and consistent cost of capital and value estimates we need properly incorporate the effect of the subsidy in the interest rate on the cost of the levered equity. Required return to the levered equity with subsidized debt financing does not depend on the contractual interest rate. Extended APV valuation performed by adding value of the loan subsidy to the sum of the unlevered firm value and the value of the tax shield is based on inconsistent value relationship and leads to false results. To illustrate our non-technical discussion we use perpetuity model and simple numerical example.