Optimal capital structure and investment options in finite horizon

Agliardi, Elettra; Koussis, Nicos

doi:10.1016/j.frl.2010.10.001

Cited by 3 publications

(2 citation statements)

References 23 publications

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“…A comparison of the values with sensitivity analysis shows that the numerical solution approximates the analytic quite well and captures the directional effects of each variable. See also Broadie and Kaya (2007) and Agliardi and Koussis (2011), who work with lattice models in a similar context.…”

Section: The Modelmentioning

confidence: 99%

Optimal capital structure and the impact of time-to-build

Agliardi¹,

Koussis²

2013

Finance Research Letters

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Section: The Modelmentioning

confidence: 99%

Optimal capital structure and the impact of time-to-build

Agliardi¹,

Koussis²

2013

Finance Research Letters

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“…In our fixed timing setting (see e.g., Agliardi and Koussis, 2011), the client acts as a leader in the sense that he controls the outsourcing quantity and timing while the vendor is a follower who sets her pricing conditions. We model ambiguity using the multiple-priors ambiguity specification or so-called "worst-case" ambiguity aversion heuristic 2 , addressing the following practical questions: What is the client's outsourcing quantity with and without trust?…”

Section: Introductionmentioning

confidence: 99%

Accounting for ambiguity and trust in partial outsourcing: A behavioral real options perspective

Gao

Driouchi

2018

Journal of Business Research

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Concerned with the hidden costs of outsourcing, this paper examines the role of ambiguity and trust in partial outsourcing decisions from the perspective of real options theory. We study pricing and quantity dynamics between an ambiguity averse vendor and a less (more) trusting client in a leader-follower framework with fixed timing. We find that the client's partial outsourcing quantity increases with the vendor's ambiguity if outsourcing is meant for cost-saving purposes. The effect of trust on outsourcing quantity, meanwhile, is jointly moderated by the vendor's ambiguity and quality of shared information forecasts when cost advantages are exaggerated. In terms of pricing effects, the vendor increases (decreases) her threshold with increasing ambiguity for long-term (short-term) contracts. These insights hold under the multiple-priors and worst-case ambiguity specification. When Choquet ambiguity and rank-dependent utility are considered, more complex and subtle dynamics are obtained. Ambiguity has additional non-linear effects on outsourcing quantity due to heterogeneity in ambiguity preferences (seeking vs. aversion) and probability weighting. The vendor's price not only increases (decreases) with increasing ambiguity-seeking for long-term (short-term) contracts, but also with ambiguity aversion when specific risk-return ratio conditions are met. Trust effects are qualitatively similar under both ambiguity specifications.

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