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on Project, Program and Portfolio Management |
| By: | Danijela MiloÃÂàÃÂá (Faculty of Economics and Business, University of Zagreb); Metka TekavÃÂÃÂÃÂÃÂiÃÂÃÂÃÂÃÂ; ÃÂàÃÂýeljko ÃÂàÃÂàeviÃÂÃÂÃÂà|
| Abstract: | This paper presents the extensive literature survey based both on theoretical rationales for hedging as well as the empirical evidence that support the implications of the theory regarding the arguments for the corporate risk management relevance and its influence on the companyÃÂâÃÂÃÂÃÂÃÂs value. The survey of literature presented in this paper has revealed that there are two chief classes of rationales for corporate decision to hedge - maximisation of shareholder value or maximisation of managersÃÂâÃÂÃÂÃÂàprivate utility. If corporate hedging decisions are capable of increasing firm values, they can do so by reducing the volatility of cash flows. The literature survey presented in this paper has revealed that, by hedging financial risks firms can decrease cash flow volatility, what leads to a lower variance of firm value. This means that not only a firm value is moving less, but that the probability of occurring low values is smaller than without hedging. Reduced volatility of cash flows results in decreased costs of financial distress and expected taxes, thereby enhancing the present value of expected future cash flows. Additionally, it reduces the costs associated with information ÃÂâÃÂÃÂÃÂÃÂasymmetriesÃÂâÃÂÃÂÃÂàby signalling management's view of the company's prospects to investors, or it reduces agency problems. In addition, reducing cash flow volatility can improve the probability of having sufficient internal funds for planned investments eliminating the need either to cut profitable projects or bear the transaction costs of obtaining external funding. However, it needs to be emphasised that there is no consensus as to what hedging rationale is the most important in explaining risk management as a corporate policy. It can be concluded that, the total benefit of hedging is the combination of all these motives and, if the costs of using corporate risk management instruments are less than the benefits provided via the avenues mentioned in this paper, or any other benefit perceived by the market, then risk management is a shareholder-value enhancing activity. |
| Keywords: | corporate risks, rationales of risk management |
| JEL: | G32 G39 |
| Date: | 2007–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:zag:wpaper:0714&r=ppm |
| By: | Lechner, Michael; Melly, Blaise |
| Abstract: | In an evaluation of a job-training program, the influence of the program on the individual earnings capacity is important, because it reflects the program effect on human capital. Estimating these effects is complicated because earnings are observed for employed individuals only, and employment is itself an outcome of the program. Point identification of these effects can only be achieved by usually implausible assumptions. Therefore, weaker and more credible assumptions are suggested that bound various average and quantile effects. For these bounds, consistent, nonparametric estimators are proposed. In a reevaluation of Germany's training programs of 1993 and 1994, we find that the programs considerably improve the long-run earnings capacity of its participants. |
| Keywords: | Bounds; causal effects; program evaluation; treatment effects |
| JEL: | C21 C31 J30 J68 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6400&r=ppm |
| By: | Eduardo Engel; Ronald Fischer; Alexander Galetovic |
| Abstract: | Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are desirable because the private sector is more efficient, the contract that optimally trades demand risk, user-fee distortions and the opportunity cost of public funds is characterized by a minimum revenue guarantee and a cap on the firm's revenues. Yet income guarantees and revenue sharing arrangements observed in practice differ fundamentally from those suggested by the optimal contract. The optimal contract can be implemented via a competitive auction with realistic informational requirements; and risk allocation under the optimal contract suggests that PPPs are closer to public provision than to privatization. |
| JEL: | H21 H54 L51 R42 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13284&r=ppm |
| By: | Raff, Horst; Ryan, Michael; StÃÂÃÂÃÂähler, Frank |
| Abstract: | This paper studies why multinational firms often share ownership of a foreign affiliate with a local partner even in the absence of government restrictions on ownership. We show that shared ownership may arise, if (i) the partner owns assets that are potentially important for the investment project, and (ii) the value of these assets is private information. In this context shared ownership acts as a screening device. Our model predicts that the multinationalÃÂâÃÂÃÂÃÂÃÂs ownership share is increasing in its productivity, with the most productive multinationals choosing not to rely on a foreign partner at all. This prediction is shown to be consistent with data on the ownership choices of Japanese multinationals. |
| Keywords: | Foreign direct investment, ownership, joint venture, productivity |
| JEL: | F23 L20 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:5684&r=ppm |