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on Project, Program and Portfolio Management |
| By: | Auriol, Emmanuelle (TSE, ARQADE and IDEI); Picard, Pierre (CREA, University of Luxembourg and CORE, Université Catholique de Louvain) |
| Abstract: | In this paper, we discuss the choice for build-operate-and-transfer (BOT) concessions when governments and rm managers do not share the same information regarding the operation characteristics of a facility. We show that larger shadow costs of public funds and larger information asymmetries entice governments to choose BOT concessions. This result stems from a trade-o¤ between the government’s shadow costs of nancing the construction and the operation of the facility and the excessive usage price that the consumer may face during the concession period. The incentives to choose BOT concessions increase as a function of ex-ante informational asymmetries between governments and potential BOT concession holders and with the possibility of transferring the concession cost characteristics to public rms at the termination of the concession. |
| Keywords: | Public-private-partnership, privatization, adverse selection, regulation, natural monopoly, infrastructure, facilities |
| JEL: | L43 L51 D83 L33 |
| Date: | 2011–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24307&r=ppm |
| By: | Krüger, Philipp; Landier, Augustin; Thesmar, David |
| Abstract: | We document investment distortions induced by the use of a single discount rate within firms. According to textbook capital budgeting, firms should value any project using a discount rate determined by the risk characteristics of the project. If they use a unique company-wide discount rate, they overinvest (resp. underinvest) in divisions with a market beta higher (resp. lower) than the firm's core industry beta. We directly test this consequence of the WACC fallacy and establish a robust and significant positive relationship between division-level investment and the spread between the division's market beta and the firm's core industry beta. Consistently with bounded rationality theories, this bias is stronger when the measured cost of taking the wrong discount rate is low, for instance, when the division is small. Finally,we measure the value loss due to the WACC fallacy in the context of acquisitions. Bidder abnormal returns are higher in diversifying mergers and acquisitions in which the bidder's beta exceeds that of the target. On average, the present value loss is about 0.7% of the bidder's market equity. |
| Keywords: | Investment, Behavioral finance, Cost of capital |
| JEL: | G11 G31 G34 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24151&r=ppm |
| By: | Ufuk Akcigit; Qingmin Liu |
| Abstract: | Technological progress is typically a result of trial-and-error research by competing firms. While some research paths lead to the innovation sought, others result in dead ends. Because firms benefit from their competitors working in the wrong direction, they do not reveal their dead-end findings. Time and resources are wasted on projects that other firms have already found to be dead ends. Consequently, technological progress is slowed down, and the society benefits from innovations with delay, if ever. To study this prevalent problem, we build a tractable two-arm bandit model with two competing firms. The risky arm could potentially lead to a dead end and the safe arm introduces further competition to make firms keep their dead-end findings private. We characterize the equilibrium in this decentralized environment and show that the equilibrium necessarily entails significant efficiency losses due to wasteful dead-end replication and a flight to safety – an early abandonment of the risky project. Finally, we design a dynamic mechanism where firms are incentivized to disclose their actions and share their private information in a timely manner. This mechanism restores efficiency and suggests a direction for welfare improvement. |
| JEL: | D83 D92 O31 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17602&r=ppm |
| By: | Bourjade, Sylvain; Germain, Laurent |
| Abstract: | The aim of this paper is to study what is the best structure of a Board of Directors when collusive aspects between the Board and the CEO are taken into account. We analyze how shareholders should select the members of the Board in a framework with asymmetric information and uncertainty about the optimal projects for the firm. In particular, we examine the optimal degree of independence of the Board from a shareholders perspective. This allows us to state when it is beneficial for shareholders to have an insider-oriented board or an outsider oriented board with a majority of independent directors when collusion is a major threat. |
| Keywords: | Collusion; Corporate Governance; Asymmetric Information; Uncertainty |
| JEL: | D81 G34 D82 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34814&r=ppm |
| By: | Agustí Segarra (Research Group of Industry and Territory, Department of Economics, Universitat Rovira i Virgili.) |
| Abstract: | This paper explores the factors that determine firm’s R&D cooperation with different partners, paying special attention on the role of tertiary education (degree and PhDs level) in facilitating the connection between the firms and the to scientific bodies (technology centres, public research centres and universities). Here, we attempt to answer two questions. First, are innovative firms that carry out internal and external R&D activities more likely to cooperate on R&D projects with other partners? Second, do Spanish innovative firms with a high participation of researchers with degrees or PhDs tend to cooperate more with scientific partners? To answer both questions we apply a three-dimensional approach on a firm level Panel Data with a sample of 4.998 manufacturing and services Spanish firms. First, we run a complementary test between external R&D acquisition and skilled research workers and find that firms which carry out external R&D activities obtain a greater return on R&D cooperation when they have skilled workers in R&D, especially in high-tech manufactures and KIS services. Second, we carry out a 2-step tobit model to estimate, in the first stage, the determinants that explain whether Spanish innovative firms cooperate or not; and in the second stage the factors that affect the choice of partners. And third, we apply an ordered probit model to test the marginal effects of explanatory variables on the different partners. Here we contrast some of the most interesting empirical hypotheses of previous studies, and which emphasize the role of employees with degrees and PhDs in facilitating cooperative R&D between firms and scientific partners. |
| Keywords: | Determinants R&D cooperation, industry-university flows, PhD research workers |
| JEL: | O31 O33 O38 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:xrp:wpaper:xreap2011-17&r=ppm |
| By: | Albert Plugge (Faculty of Technology, Policy and Management Delft University of Technology, The Netherlands); Jacques Brook (Maastricht School of Management, the Netherlands) |
| Abstract: | Since firms’ rationale to outsource parts of their IT function are mainly based on cost reduction, many vendors applied a high level of standardization in organizing the delivery of IT services to decrease their cost level. As the environment of firms changes frequently, it is of key importance for vendors to assess how these exogenous developments affect their organizational structure. Changing the organizational structure, however, may affect the cost structure of the outsourcing arrangement over time. Drawing on the Transaction Cost Economics the objective of our study is to examine how environmental uncertainty and asset specificity affect vendors’ functional organizational structure and, in turn, influences ex-post transaction costs. A retrospective view on a case study was investigated from the perspective of a global outsourcing vendor. Studying various client episodes and the vendor’s response we find that an increase of the degree of asset specificity leads to higher transaction costs. Our results suggest that the vendor’s functional organizational structure can be considered as a mediator in minimizing the ex-post transaction costs. Executives and managers need to be aware that uncertainty and asset specificity may lead to an increase of the coordination costs. Therefore, vendors should need to reassess their organizational structure regularly and implement adjustments to control their ex-post transaction costs. The paper concludes with implications for practitioners that can help vendors in managing their cost structure. |
| Keywords: | outsourcing, strategic management, organizational structure, transaction cost |
| JEL: | M19 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:msm:wpaper:2011/12&r=ppm |
| By: | Alex Edmans; Itay Goldstein; John Y. Zhu |
| Abstract: | This paper studies optimal contracting under synergies. We define influence as the extent to which effort by one agent reduces a colleague's marginal cost of effort, and synergy to be the sum of the (unidimensional) influence parameters across a pair of agents. In a two-agent model, effort levels are equal even if influence is asymmetric. The optimal effort level depends only on total synergy and not individual influence parameters. An increase in synergy raises total effort and total pay, consistent with strong equity incentives in small firms, including among low-level employees. The influence parameters matter only for individual pay. Pay is asymmetric, with the more influential agent being paid more, even though the level and productivity of effort are both symmetric. With three agents, effort levels differ and are higher for more synergistic agents. An increase in the synergy between two agents can lead to the third agent being excluded from the team, even if his productivity is unchanged. This has implications for optimal team composition and firm boundaries. Agents that influence a greater number of colleagues receive higher wages, consistent with the salary differential between CEOs and divisional managers. |
| JEL: | D86 J31 J33 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17606&r=ppm |