VALUATION OF GROWTH FIRMS: THEORETICAL MODELING

This study models the value of growth firms using the modified investment opportunities approach to valuation. The proposed model suggests that the value of a growth firm is function of: 1) profit margins, 2) investments in growth, and 3) the level of growth opportunity. Theoretical predictions suggest that the value is maximized when: 1) the growth opportunity exists and profitability multipliers are significant, 2) profit margins are high, and 3) the investment in growth is optimal

Lost: Sesquicentennial Sanity. If found, please contact Borough of Gettysburg.

If you were in Gettysburg during the summer of 2013, you surely encountered the ubiquitous 150th Gettysburg logo branded on everything from promotional materials to souvenirs. The latter – tacky at best and irreverent at worst – filled the town to the point of excess, making some of us wonder how many people completely missed the point of the sesquicentennial. Anniversaries exert a powerful force on the American historical psyche, but it is dubious whether Gettysburg’s celebration exerted an appropriate one. The sesquicentennial was a wonderful opportunity to refocus on the events of July 1863, but sadly many businesses in Gettysburg seemed unable to look past their profit margins. [excerpt

How Much Did Capital Forbearance Add to the Cost of the S&L Insurance Mess

Federal regulators characterize capital forbearance as an efficient way of nursing weak banks and thrifts back to health. An alternative hypothesis is that forbearance reflects inefficient costs of agency that fall on federal deposit-insurance funds. Divergences between regulatory measures of a troubled institution's net worth and GAAP and market-value measures relieved FSLIC from having to book de facto encumbrances that industry losses were imposing on the FSLIC fund. This omission protected the reputations and careers of top officials. Delays in insolvency resolution intensified FSLIC exposure to future losses by distorting management and risk-taking incentives and squeezing profit margins for surviving thrifts. Besides accumulating projects with negative net present value, delay hurt FSLIC indirectly by undermining the average profitability of the industry it insured. This paper seeks to measure the opportunity cost of FSLIC forbearance during 1985-1989. Although the opportunity cost of delay did not increase every year, it did increase on average. Had opportunity-cost standards of capital adequacy been routinely enforced, FSLIC guarantees would not have displaced private capital on a mammoth scale, surviving members of the industry would have proven more profitable, and investments in commercial real estate would have been restrained.

Measuring the Values for Time

Most economic models for time allocation ignore constraints on what people can actually do with their time. Economists recently have emphasized the importance of considering prior consumption commitments that constrain behavior. This research develops a new model for time valuation that uses time commitments to distinguish consumers' choice margins and the different values of time these imply. The model is estimated using a new survey that elicits revealed and stated preference data on household time allocation. The empirical results support the framework and find an increasing marginal opportunity cost of time as longer time blocks are used.

Opportunity costs and non-scale free capabilities: profit maximization, corporate scope, and profit margins

The resource-based view on firm diversification, subsequent to Penrose ( 1959 ), has focused primarily on the fungibility of resources across domains. We make a clear analytical distinction between scale free capabilities and those that are subject to opportunity costs and must be allocated to one use or another, thereby shifting the discourse back to Penrose's ( 1959 ) original argument regarding the stock of organizational capabilities. The existence of resources and capabilities that must be allocated across alternative uses implies that profit-maximizing diversification decisions should be based upon the opportunity cost of their use in one domain or another. This opportunity cost logic provides a rational explanation for the divergence between total profits and profit margins. Firms make profit-maximizing decisions to increase total profit via diversification when the industries in which they are currently competing become relatively mature. Due to the spreading of these capabilities across more segments, we may observe that firms' profit-maximizing diversification actions lead to total profit growth but lower average returns. The model provides an alternative explanation for empirical observations regarding the diversification discount. The self-selection effect noted in recent work in corporate finance may not be indicative of inferior capabilities of diversifying firms but of the limited opportunity contexts in which these firms are operating. Copyright © 2010 John Wiley & Sons, Ltd.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/75778/1/845_ftp.pd

Opportunity cost and prudentiality : an analysis of futures clearinghouse behavior

Margin deposits, which serve as collateral to protect the clearinghouse, are typically the most important tool for risk management. The authors develop a model that explains how creating a futures clearinghouse may allow traders simultaneously to reduce both the risk of default and the total amount of margin that members post. Optimal margin levels are determined by the need to balance the deadweight costs of default against the opportunity cost of holding additional margin. Both costs are a consequence of market participants'imperfect access to capital markets. The simultaneous reduction in default risk and in the opportunity cost of margin deposits is possible because the creation of the clearinghouse facilitates multilateral netting. The authors characterize the conditions under which multilateral netting will dominate bilateral netting. They also show that it is credible for the clearinghouse to expel members who default, further reducing the risk of default. Finally, they show that it may (but need not) be optimal for the clearinghouse to monitor the financial condition of its members. If monitoring occurs, it will reduce the amount of margin required, but need not affect the probability of default. The empirical tests run by the authors indicate that the opportunity cost of margin plays an important role in determining margin. The relationship between volatility and margins indicates that participants face an upward-sloping opportunity cost for margin, which appears to more than offset the effects that monitoring and expulsion would be expected to have on margin setting.Environmental Economics&Policies,Banks&Banking Reform,International Terrorism&Counterterrorism,Economic Theory&Research,Insurance&Risk Mitigation

A Mesolithic settlement site at Howick, Northumberland: a preliminary report

Excavations at a coastal site at Howick during 2000 and 2002 have revealed evidence for a substantial Mesolithic settlement and a Bronze Age cist cemetery. Twenty one radiocarbon determinations of the earlier eighth millennium BP (Cal.) indicate that the Mesolithic site is one of the earliest known in northern Britain. An 8m core of sediment was recovered from stream deposits adjacent to the archaeological site which provides information on local environmental conditions. Howick offers a unique opportunity to understand aspects of hunter-gatherer colonisation and settlement during a period of rapid palaeogeographical change around the margins of the North Sea basin, at a time when it was being progressively inundated by the final stages of the postglacial marine transgression. The cist cemetery will add to the picture of Bronze Age occupation of the coastal strip and again reveals a correlation between the location of Bronze Age and Mesolithic sites which has been observed elsewhere in the region

Comparing the Adoption of Genetically Modified Canola in Canada and Australia: The Environmental and Economic Opportunity Costs of Delay

This thesis evaluates the opportunity costs of incorporating a socio-economic consideration (SEC) into national regulation on genetically modified (GM) crops. Australia approved the cultivation of GM canola through a science-based risk assessment in 2003, but allowed state moratoria to be instituted on an SEC-based on potential trade impacts over the period 2004 to 2008 and 2010 in the main canola growing states. This analysis constructs a counterfactual assessment, using the Canadian experience to create an S-curve of adoption, to measure the opportunity costs of the SEC-based moratoria through environmental and economic impacts between 2004 and 2014. The impacts will be assessed through a per hectare analysis of canola, by variety, and subsequently aggregated into GM and non-GM variables in New South Wales, Victoria, and Western Australia, and Australia as a whole. These variables, and their respective number of canola hectares are used to create a cumulative impact of the delay from the SEC-based moratoria through comparison of the scenario under the S-curve and the one reflecting the actuality. The environmental impacts will be assessed through the amount of active ingredients applied during pest management, the Environmental Impact Quotient, and greenhouse gas emissions as a by-product of fuel use from the change in machinery passes from cultivation and spray applications. The economic impacts will be measured through the variable costs of the weed control programs, yield, and producer margins, comparing impacts between gross margins, comparative margins, and a calculated contribution margin. The objective of this work is to gain insight into the opportunity cost and impact of incorporating SECs into GM crop regulation

The Doha Trade Round and Mozambique

This paper considers the potential implications of the Doha Development Agenda, as well as other trade liberalization scenarios, for Mozambique. An applied general equilibrium model, which accounts for high marketing margins and home consumption in the Mozambique economy, is linked to results from the GTAP model of global trade. In addition, a microsimulation module is used to consider the subsequent implications of trade liberalization for poverty. The implications of trade liberalization, particularly the Doha scenarios, are found to be relatively small. Presuming that a more liberal trading regime will positively influence growth in Mozambique, an opportunity exists to put in place such a regime without imposing significant adjustment costs.Environmental Economics&Policies,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Consumption,Access to Markets

Should profit margins play a more decisive role in merger control? A rejonder to Jorge Padilla

In a recent article in this journal,1 Dr Jorge Padilla discusses a speech that one of us had given on the interrelation between merger control and profit margins.2 The speech had pointed out that, according to empirical research, recent decades have been characterised by a secular trend towards higher profit margins, in particular in the US. From an economic perspective, increased pricing power implies that future horizontal mergers involving firms with high margins are more likely to be problematic than would otherwise be the case. Merger control should therefore be more vigilant when facing an expansion of profit margins in specific sectors or in the economy at large. In his paper, Dr Padilla questions these conclusions. Although he acknowledges that profit margins have a useful role to play in merger analysis, he argues that mergers involving firms with high margins should not be viewed more critically than other transactions. According to his paper, subjecting mergers in industries with high margins to stricter controls would lead to systematic enforcement errors and cannot be justified economically. We welcome the opportunity to continue discussing this important topic and, in this rejoinder, we respond to his arguments. Section II first summarises the economic implications of increased profit margins for merger enforcement. Section III then responds to Dr Padilla’s criticism and the arguments he puts forward to support a cautious application of margin analysis in merger control. Section IV, finally, concludes