scholarly journals Time Horizon, Costs of Equity Capital, and Generic Investment Strategies of Firms

2007 ◽  
Vol 20 (1) ◽  
pp. 1-15 ◽  
Author(s):  
Thomas Zellweger
Keyword(s):  
Default Risk ◽  
Time Horizon ◽  
Family Firms ◽  
Economic Value ◽  
Equity Capital ◽  
Investment Strategies ◽  
Cost Of Equity Capital ◽  
Short Term ◽  
Investment Projects

Recent literature (McNulty, Yeh, Schulze, & Lubatkin, 2002) states that the assumptions behind the capital asset pricing model, in particular the irrelevance of time horizon, do not correspond to the characteristics of firms that prefer long-term investment horizons. I show that family firms display a longer time horizon than most of their nonfamily counterparts, since (1) family firms display a longer CEO tenure, (2) this type of firm strives for long-term independence and succession within the family, and (3) due to the fact that family firms are overrepresented on western European stock markets in cyclical industries in which business cycles inhibit short-term success. As the annual default risk of an investment diminishes with increasing holding period (Hull, 2003), the risk-equivalent cost of equity capital of firms with longer planning horizons (e.g., family firms) can be lower as well. Based on the assumption that economic value to shareholders is created when firms invest in projects with returns above the associated cost of capital (Copeland, Koller, & Murrin, 2000), I argue that long-term-oriented firms can tackle unique investment projects represented by two generic investment strategies—the perseverance and the outpacing strategy. The first one, the perseverance strategy, represents investment strategies in which long-term-oriented firms invest in lower return but equal risk projects than their more short-term-oriented counterparts. The second one, the outpacing strategy, comprises investment projects with higher risk and equal return than the short-term competitors.

scholarly journals Maturity, Indebtedness, and Default Risk

2012 ◽  
Vol 102 (6) ◽  
pp. 2674-2699 ◽  
Author(s):  
Satyajit Chatterjee ◽  
Burcu Eyigungor
Keyword(s):  
Standard Deviation ◽  
Default Risk ◽  
Sovereign Debt ◽  
External Debt ◽  
Equilibrium Price ◽  
Short Term ◽  
Price Function ◽  
Output Ratio ◽  
Novel Method

We advance quantitative-theoretic models of sovereign debt by proving the existence of a downward sloping equilibrium price function for long-term debt and implementing a novel method to accurately compute it. We show that incorporating long-term debt allows the model to match Argentina's average external debt-to-output ratio, average spread on external debt, the standard deviation of spreads, and simultaneously improve upon the model's ability to account for Argentina's other cyclical facts. We also investigated the welfare properties of maturity length and showed that if the possibility of self-fulfilling rollover crises is taken into account, long-term debt is superior to short-term debt. (JEL E23, E32, F34, O11, O19)

Velocity Optimization and Robust Energy Management of Connected Power-Split Hybrid Electric Vehicles

2021 ◽  
Author(s):  
Seyedeh Mahsa Sotoudeh ◽  
Baisravan HomChaudhuri
Keyword(s):  
Energy Management ◽  
Time Horizon ◽  
Control Method ◽  
Optimization Approach ◽  
Management Problem ◽  
Energy Management Strategy ◽  
Short Term ◽  
Power Split ◽  
Energy Manager

Abstract This paper focuses on an eco-driving based hierarchical robust energy management strategy for connected automated HEVs in the presence of uncertainty. The proposed control strategy includes a velocity optimizer, which evaluates the optimal vehicle velocity, and a powertrain energy manager, which evaluates the optimal power split between the engine and the battery in a hierarchical framework. The velocity optimizer accounts for regenerative braking and minimizes the total driving power and friction braking over a short control horizon. The hierarchical powertrain energy manager employs a long- and short-term strategy where it first approximately solves its problem over a long time horizon (the whole trip time in this paper) using the traffic data obtained from vehicle-to-infrastructure (V2I) connectivity. This is followed by a short-term decision maker that utilizes the velocity optimizer and long-term solution, and solves the energy management problem over a relatively short time horizon using robust prediction control methods to factor in any uncertainty in the velocity profile due to uncertain traffic. We solve the long-term energy management problem using pseudospectral optimal control method, and the short-term problem using robust tube-based model predictive control(MPC) method. Simulation results show the competence of our proposed approach, where our proposed co-optimization approach with long- and short-term solution results in ≈ 12% more energy efficiency than a baseline co-optimization approach.

scholarly journals Assessing the Opportunities and Challenges of Green Finance in Italy: An Analysis of the Biomass Production Sector

2019 ◽  
Vol 11 (2) ◽  
pp. 517 ◽  
Author(s):  
Pasquale Falcone ◽  
Edgardo Sica
Keyword(s):  
Government Policies ◽  
Short Term ◽  
Production Sector ◽  
Environmentally Sustainable ◽  
Investment Projects ◽  
Policy Interventions ◽  
Green Finance ◽  
Effective Policy ◽  
Financial Issues

The present paper provides empirical evidence of the opportunities and challenges surrounding green finance (GF), looking at the financial issues that might prevent the investment decisions of green companies. To this end, we explore the case of Italian biomass producers by means of a discourse analysis supported by a survey administered to a pool of experts. Although our findings suggest that GF provides an opportunity for achieving environmentally sustainable innovation pathways, experts recognize that it does not actually prevent biomass producers from facing institutional and financial criticalities in funding their investment projects. Such criticalities include: uncertainty about government policies, the minimal involvement of financial suppliers in the biomass sector, the short-term orientation of financial instruments and the limited knowledge of financing options and technical expertise within companies. The results indicate that effective policy interventions should ensure that objectives are orientated towards the long term with the aim of reducing the risks perceived by financial institutions in funding biomass producers.

Long-Term Decision-Making: Biological and Psychological Evidence

2009 ◽  
Vol 9 (3) ◽  
pp. 9-19 ◽  
Author(s):  
Thomas Princen
Keyword(s):  
Decision Making ◽  
Time Horizon ◽  
Cultural Factors ◽  
Structural Factors ◽  
Short Term ◽  
Environmental Decision Making ◽  
Human Decision ◽  
Psychological Evidence ◽  
Widespread Belief

A central conundrum in the need to infuse a long-term perspective into climate policy and other environmental decision-making is the widespread belief that humans are inherently short-term thinkers. An analysis of human decision-making informed by evolved adaptations—biological, psychological and cultural—suggests that humans actually have a long-term thinking capacity. In fact, the human time horizon encompasses both the immediate and the future (near and far term). And yet this very temporal duality makes people susceptible to manipulation; it carries its own politics, a politics of the short term. A “legacy politics” would extend the prevailing time horizon by identifying structural factors that build on evolved biological and cultural factors.

Short-Term Versus Long-Term Effects of the Louisville Enterprise Zone Incentives: A Response to Sumei Zhang

2020 ◽  
Vol 34 (3) ◽  
pp. 294-298
Author(s):  
Thomas E. Lambert
Keyword(s):  
Economic Development ◽  
Time Horizon ◽  
Local Economic Development ◽  
Jefferson County ◽  
Long Term Effects ◽  
Short Term ◽  
Enterprise Zone ◽  
Letter To The Editor ◽  
Development Policies

Zhang wrote that the Louisville enterprise zone (EZ) was more successful than what previous research showed and that variations in research design have led to conflicting or mixed reviews of many local economic development policies that are based on the EZ concept. She mentions a study and an article on the Louisville, Kentucky EZ and implies the time horizon used to evaluate it was too short. This Forum/Letter to the Editor points out that the Louisville EZ went through multiple transformations and expansions over its history from 1983 to 2003, and as noted in the first of two studies, the original zone showed virtually no progress from 1983 to 1990. Several other unpublished papers pointed out the same results when the original EZ and other parts of the expanded EZ were analyzed up to the last years of the 20th century. Finally, this Forum/Letter to the Editor argues that and provides reasons for the methodology employed by Lambert and Coomes as a superior way of analyzing the Louisville EZ when compared with the methods employed by Zhang. The main reason why Zhang showed success in the EZ is because she mostly evaluates it in its final form in the late 1990s after it had annexed many sections of Jefferson County, which were not as nearly economically disadvantaged as the original Louisville EZ established in 1983.

How do Spanish unlisted family firms rebalance their capital structures?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zélia Serrasqueiro ◽  
Fernanda Matias ◽  
Julio Diéguez-Soto
Keyword(s):  
Capital Structure ◽  
Transaction Costs ◽  
Family Firms ◽  
Adjustment Costs ◽  
Dynamic Panel Data ◽  
Future Research ◽  
Short Term ◽  
Content Type ◽  
Speed Of Adjustment

PurposeThis paper seeks to analyze the family firm's capital structure decisions, focusing on the speed of adjustment (SOA) as well as on the effect of distance from the target capital structure on the SOA towards target short-term and long-term debt ratios in unlisted small and medium-sized family firms.Design/methodology/approachMethodologically, we use dynamic panel data estimators to estimate the effects of distance on the speeds of adjustment towards those targets. Data for the period 2006–2014 were collected for two research sub-samples: one sub-sample with 398 family firms; the other sub-sample contains 217 non-family firms.FindingsThe results show that the deviation from the target debt ratios impacts negatively on the speeds of adjustment towards target short-term and long-term debt ratios in unlisted family firms. These results suggest that family firms, deviating from target debt ratios, face deviation costs, i.e. insolvency costs, inferior to the adjustment costs, i.e. transaction costs. Therefore, family firms stay away from the target debt ratios for a long time than do non-family firms.Research limitations/implicationsThe research sample comprises a low number of family firms, therefore for future research we suggest increasing the size of the sample of family firms to get a deeper understanding of family firms' SOA towards capital structure. Additionally, we suggest the analysis of other potential determinants of the speed of adjustment towards target capital structure.Practical implicationsThe results obtained suggest that the distance from the target short-term and long-term debt ratios can be avoided if these firms do not depend almost exclusively on internal finance to adjust towards target capital structure. Moreover, for policymakers, we suggest the creation/promotion of alternative external finance sources, allowing reduced transaction costs that contribute to a faster adjustment of small family firms towards target capital structure.Originality/valueThe most previous research focusing on capital structure decisions have focused on listed family firms. To fill this gap, this study examines the speed of adjustment towards target debt ratios in the context of unlisted family firms. Moreover, transaction costs are a function of debt maturity, therefore this study examines separately the speeds of adjustment towards target short-term and long-term debt ratios. This paper shows that the adjustment costs (i.e. transaction costs) could hold back family firms from rebalancing its capital structure.

Does underconfidence matter in short-term and long-term investment decisions? Evidence from an emerging market

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maqsood Ahmad
Keyword(s):  
Decision Making ◽  
Stock Exchange ◽  
Emerging Market ◽  
Investment Decision ◽  
Investment Decisions ◽  
Investment Strategies ◽  
Short Term ◽  
Content Type ◽  
Investment Decision Making

PurposeThe purpose of this article is to clarify the mechanism by which underconfidence heuristic-driven bias influences the short-term and long-term investment decisions of individual investors, actively trading on the Pakistan Stock Exchange.Design/methodology/approachInvestors' underconfidence has been measured using a questionnaire, comprising numerous items, including indicators of short-term and long-term investment decision. In order to establish the influence of underconfidence on the investment decisions in both the short and long run, a 5-point Likert scale questionnaire has been used to collect data from the sample of 203 investors. The collected data were analyzed using SPSS and AMOS graphics software. Hypotheses were tested using structural equation modeling technique.FindingsThis article provides further empirical insights into the relationship between heuristic-driven biases and investment decision-making in the short and long run. The results suggest that underconfidence bias has a markedly negative influence on the short-term and long-term decisions made by investors in developing markets. It means that heuristic-driven biases can impair the quality of both short-term and long-term investment decisions.Practical implicationsThis article encourages investors to avoid relying on cognitive heuristics, namely, underconfidence or their feelings when making short-term and long-term investment strategies. It provides awareness and understanding of heuristic-driven biases in investment management, which could be very useful for finance practitioners' such as investor who plays at the stock exchange, a portfolio manager, a financial strategist/advisor in an investment firm, a financial planner, an investment banker, a trader/broker at the stock exchange or a financial analyst. But most importantly, the term also includes all those persons who manage corporate entities and are responsible for making its financial management strategies. They can improve the quality of their decision-making by recognizing their behavioral biases and errors of judgment, to which we are all prone, resulting in more appropriate investment strategies.Originality/valueThe current study is the first to focus on links between underconfidence bias and short-term and long-term investment decision-making. This article enhanced the understanding of the role that heuristic-driven bias plays in the investment management and more importantly, it went some way toward enhancing understanding of behavioral aspects and their influence on the investment decision-making in an emerging market. It also adds to the literature in the area of behavioral finance specifically the role of heuristics in investment strategies; this field is in its initial stage, even in developed countries, while, in developing countries, little work has been done.

Debt Maturity and Asymmetric Information: Evidence from Default Risk Changes

2013 ◽  
Vol 48 (3) ◽  
pp. 789-817 ◽  
Author(s):  
Vidhan K. Goyal ◽  
Wei Wang
Keyword(s):  
Asymmetric Information ◽  
Private Information ◽  
Default Risk ◽  
Important Determinant ◽  
Debt Maturity ◽  
Short Term ◽  
Information Models ◽  
Asset Volatility ◽  
Distance To Default

AbstractAsymmetric information models suggest that a borrower’s choice of debt maturity depends on its private information about its default probabilities, that is, borrowers with favorable information prefer short-term debt while those with unfavorable information prefer long-term debt. We test this implication by tracing the evolution of debt issuers’ default risk following debt issuances. We find that short-term debt issuance leads to a decline inborrowers’ asset volatility and an increase in their distance to default. The opposite is true for long-term debt issues. The results suggest that borrowers’ private information about their default risk is an important determinant of their debt maturity choices.

Keys to the Survival of the Family Firm

2020 ◽  
pp. 234-259 ◽  
Author(s):  
César Camisón ◽  
José Antonio Moreno
Keyword(s):  
Competitive Advantage ◽  
Economic Performance ◽  
Time Horizon ◽  
Dynamic Capabilities ◽  
Sustainable Competitive Advantage ◽  
Short Term ◽  
Functional Capabilities ◽  
The Family ◽  
Short And Long Term

The purpose of this research is to carry out an in-depth exploration of the causes of the family firm's success over short and long term, analysing which capabilities are the most valuable sources of sustainable competitive advantage in every time horizon. The results confirm only functional capabilities have a positive and significant effect on short-term economic performance, whereas dynamic capabilities are the only ones that have a positive and significant impact on long-term economic performance.

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