Optimal timing and capacity choice with taxes and subsidies under uncertainty

Azevedo, Alcino; Pereira, Paulo Jorge; Rodrigues, Artur

doi:10.1016/j.omega.2020.102312

Cited by 25 publications

(6 citation statements)

References 44 publications

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“…On the other hand, if the realized demand is high, a large capacity will generate a high revenue. Since Bar-Ilan and Strange (1999) and Dangl (1999) develop real options models to study the capacity choice for an individual firm, a considerable number of papers have investigated the timing-capacity optimization in various dynamic investment settings (see, e.g., Azevedo et al, 2021;Della Seta et al, 2012;Hagspiel et al, 2016;Sarkar, 2021;Sarkar & Zhang, 2020;Paxson et al, 2022;Wen et al, 2017). In these studies, demand uncertainty is characterized by a geometric Brownian motion (GBM) process.…”

Section: Introductionmentioning

confidence: 99%

Optimal investment timing and size decision‐making with jump risk and time‐inconsistent preferences

Wang,

2024

Manage Decis Econ

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This paper analyzes a firm's investment timing and capacity decision by considering the manager's time‐inconsistent preferences and continuous economic depreciation of the capital stock cannot be completely offset. The demand shock of the underlying product evolves according to a double exponential jump‐diffusion process. Within a real options framework, we derive the explicit expressions for the optimal investment threshold and investment size when the manager is sophisticated. We find that time‐inconsistent preferences will lead the firm to delay investment when capital depreciation rate is low and accelerate investment when the rate of capital depreciation is high. Further, we show that capital depreciation rate has a monotonic positive effect on the investment size of a time‐consistent manager but a non‐monotonic effect on that of a sophisticated manager. A sophisticated manager tends to choose a smaller investment size than a time‐consistent manager. Finally, we demonstrate that compared with the geometric Brownian motion, the firm invests later with a larger capacity under the jump‐diffusion model.

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Section: Introductionmentioning

confidence: 99%

Optimal investment timing and size decision‐making with jump risk and time‐inconsistent preferences

Wang,

2024

Manage Decis Econ

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“…The tax system is one of the factors that drive a corporation’s investment. Many previous studies have provided empirical evidence that the tax system can affect the investment behavior of a corporation and have suggested that tax credits can affect these investments (Ahn, 2011; Azevedo et al, 2021; Cummins et al, 1996; Egger et al, 2020; Pham, 2020; Rao, 2016; Sen & Turnovsky, 1990).…”

Section: Introductionmentioning

confidence: 99%

Do Governmental Tax Reliefs for Investment Lead to Investment Efficiency and Sustainability for SMEs? Evidence From South Korea

Cho

Yoon

2023

Sage Open

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Tax credits for investment in productivity enhancement facilities, R&D facilities, and employment-creating initiatives are available to corporate taxpayers in Korea. These incentives are intended to motivate corporations to invest by providing financial support to improve their efficiency and help sustain their survival. This study aims to analyze whether corporations that claim investment tax credits (ITCs) in Korea actually achieve investment efficiency and increase corporate value. This study’s results are as follows. First, based on the statistical analysis of samples from small- and medium-sized enterprises (SMEs) and all corporations, we find empirical evidence that investments through claimed tax credits are inefficient from the standpoint of Tobin’s Q. This finding may be interpreted to mean that corporate taxpayers, including SMEs, consider tax savings more than investment efficiency in claiming ITCs. Second, in testing the investment efficiency for each ITC, we find that SMEs’ investment via employment-creating ITCs is more efficient than other investments with tax credits. This finding implies that SMEs should not only invest in physical facilities, but also retain human resources for sustainability. These results provide policy implications that employment creation should be considered when granting ITCs for SMEs’ efficient investments.

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“…Financial subsidy plays an important role in the promotion of electric vehicle adoption; however, it also results in a great financial burden for the government and weakens the technology innovation incentive of automobile manufacturers [6,7]. To upgrade the new energy vehicle technology and reduce the fuel consumption of traditional vehicles, the "Measures for the Parallel Management of Average Fuel Consumption and EV Credits for Passenger Car Companies (Dual-Credit Policy)" is introduced in 2017 [8].…”

Section: Introductionmentioning

confidence: 99%

Effects of Dual Credit Policy and Consumer Preferences on Production Decisions in Automobile Supply Chain

Peng

Liu

2021

Sustainability

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New energy vehicles have a significant advantage in energy saving and environmental pollution reduction in the transportation industry; however, they are still at a disadvantage in the market competition. The Chinese government has introduced lots of policy measures to promote the mass adoption of new energy vehicles (NEVs), specifically the dual credit policy. Moreover, consumer’s preferences are vital factors in their purchase decision making. This study focuses on the production decisions of automobile manufacturers under the decentralized and centralized supply chain, considering the factors of both consumer preferences and dual credit policy. First, under the centralized decision mode, higher demand drives the manufacturer to expand production; however, retailers’ profits are harmed. With the increase in consumers’ environmental preference and cognition of endurance ability, market pricing and demand increase under the decentralized decision mode. The cross effects of preferences bring more profits for manufacturers and retailers. Second, the difference in prices and profits widens, under the two decision modes, as increases in consumer preferences’ value. When consumers have higher environmental preferences, manufacturers and retailers should increase the new energy vehicle pricing. Otherwise, they should decrease pricing to increase the market penetration ratio. In addition, the impacts of one preference on the profit difference are related to the other preference.

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Optimal timing and capacity choice with taxes and subsidies under uncertainty

Cited by 25 publications

References 44 publications

Optimal investment timing and size decision‐making with jump risk and time‐inconsistent preferences

Optimal investment timing and size decision‐making with jump risk and time‐inconsistent preferences

Do Governmental Tax Reliefs for Investment Lead to Investment Efficiency and Sustainability for SMEs? Evidence From South Korea

Effects of Dual Credit Policy and Consumer Preferences on Production Decisions in Automobile Supply Chain

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