scholarly journals New Concepts about DOL-DFL Nexus: The Relationships with Market Sensitivities, Firm-Specific Risk and Other Issues

2021 ◽  
Vol 14 (1) ◽  
pp. 16
Author(s):  
Marco A. Paganini
Keyword(s):  
Economies Of Scale ◽  
Price Change ◽  
Unit Price ◽  
Management Decision ◽  
Uncertainty Range ◽  
Specific Risk ◽  
Risk Rate ◽  
Operating Leverage ◽  
The Impact ◽  
Growth Volatility

This paper investigates several issues related to the Degree of Operating Leverage (DOL) and the Degree of Financial Leverage (DFL) in the light of advanced concepts on the matter proposed by recent studies. In particular, the paper treats mainly the relationships between DOL and market sensitivities and the impact of the uncertainty on DOL and DFL volatility together with minor issues. We used the DOL function already developed to analyse what market conditions facilitate or hinder, with or without economies of scale, Revenue development or a profit-maximising policy. DOL records the reaction coming from the factor and product markets together with the management decision process. DOL highlights whether the current economic strategy is, or not, successful and why, so that management can perceive clues to evaluate both the policy and its implementation. The uncertainty related to six fundamental economic variables determining EBIT and Net Profit growth volatility eventually contaminates DOL and DFL. Not all such variables impact DOL and DFL volatility, but when it happens, the firm’s risk is representable through the asymptotes of the DOL and DFL curves generated by each specific variable. Such a risk rate is independent of the chosen uncertainty range and is firm unique in any financial period. In normal economic conditions, DOL undervalues firm-specific risk while DFL carries out a containment function. The higher risk rate comes from the unit price change, that coupled with a sturdy quantity/mix growth, could induce negative economic and financial results.

scholarly journals Effects of Regional Bank Merger on Small Business Borrowing: Evidence from Japan

2015 ◽  
Vol 7 (11) ◽  
pp. 62
Author(s):  
Hironobu Miyazaki ◽  
Hiroyuki Aman
Keyword(s):  
Small Business ◽  
Small Businesses ◽  
Economies Of Scale ◽  
Loan Portfolio ◽  
Small Business Lending ◽  
Borrowing Costs ◽  
Bank Merger ◽  
Regional Bank ◽  
Small Business Loans ◽  
The Impact

This study examines the impact of a regional bank merger in Japan on borrowing by small businesses, focusing on firms that borrow from the acquiring bank, the acquired bank, or both. First, we find that post-merger borrowing costs declined. This result suggests that small borrowers enjoy more favorable post-merger financing conditions because efficiencies from economies of scale lead to lower costs. Second, we<strong> </strong>find that post-merger borrowing costs decline for firms that borrow only from the acquiring or acquired bank, whereas they did not decline for firms that borrow from both. Third, we find that only small business loans to firms that borrow from both the acquiring and acquired banks decrease post-merger. This result suggests that small business lending might decline because of a merged bank’s loan portfolio and lending strategy.

Analytical redefinition of DOL and managerial investment decisions

2014 ◽  
Vol 40 (7) ◽  
pp. 734-754 ◽  
Author(s):  
Yoram Kroll ◽  
David Yechiam Aharon
Keyword(s):  
Large Scale ◽  
Investment Decision ◽  
Production Level ◽  
Fixed Cost ◽  
Theoretical Formulation ◽  
Optimal Production ◽  
Demand Shocks ◽  
Content Type ◽  
Operating Leverage ◽  
The Impact

Purpose – The purpose of this paper is to develop alternative analytical measures for the degree of operating leverage (DOL) that reflect the impact of uncertain demand shocks in the product's market on optimal production levels, sales and profits of the firm. Design/methodology/approach – The elasticity measures are constructed according to a theoretical formulation of optimal production level that corresponds to demand shocks for given predetermined levels of fixed cost. Findings – The paper suggests two main findings. First, the analytical marginal DOL is at least twice the traditional DOL depending on the structure of the shock, the production function and demand's elasticity. The traditional DOL is equal to the measure only when large-scale negative demand prompts the firm to abandon production. Second, the paper also provides an analytical measure of DOL in terms of elasticity of profit to sales rather than to production level. Both theoretically and empirically elasticity of profit to sales can be better measured and better reflects risk. Research limitations/implications – This paper should be extended to encompass multiple shocks on demand and supply while investigating the empirical multi variants distribution of the shocks. Practical implications – The model can be used by managers who are well informed about the fixed and variable costs of their firm. The model determines the mean profit- risk trade off which is an important factor in all investment decision problems. Originality/value – Surprisingly and according to the best knowledge, this paper is the first attempt in the literature for alternative analytical DOLs’ formulations that is coherent with basic economic theories of optimal production level under risk.

The impact of corporate bankruptcy on strategic management: using a textual analysis approach to analyze executives’ opinions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Raphael Nagel ◽  
Carmen Aviles
Keyword(s):  
Strategic Management ◽  
Global Economy ◽  
Textual Analysis ◽  
New Technologies ◽  
Organizational Structures ◽  
Analysis Approach ◽  
Management Decision ◽  
Content Type ◽  
Emergency Situations ◽  
The Impact

Purpose In the past decade, the development of the global economy, the change in organizational structures and the maturing of new technologies have led to considerable changes in business structures. Emergency situations, such as the recent COVID-19 pandemic, have led many companies to declare bankruptcy. In this context, the present study aims to analyze strategic opinions of company executives in a declaration of bankruptcy. Design/methodology/approach To this end, an innovative approach is applied to strategic management and business. First, the authors conducted 14 interviews with executives, and the interview data were transcribed. Second, using textual analysis and data mining techniques, the transcripts were analyzed to understand the importance of indicators identified as relevant in companies in a declaration of bankruptcy. Findings This resulted in identification of 10 relevant indicators perceived by executives to avoid or anticipate a state of bankruptcy, including innovation, business adaptability, room for improvement in production processes, time to react to situations of alarm, layoffs, support from public institutions, suppliers, international and national regulations, impact on the industry, credits and debts. Originality/value The paper concludes with a discussion of important theoretical and practical implications of these findings for the industry. Also, strategic management decision-making strategies are presented as a result of the innovative textual analysis approach used.

Labor Unions and Product Quality Failures

2021 ◽  
Author(s):  
Omesh Kini ◽  
Mo Shen ◽  
Jaideep Shenoy ◽  
Venkat Subramaniam
Keyword(s):  
Product Quality ◽  
Labor Unions ◽  
Product Recalls ◽  
Employee Morale ◽  
Product Recall ◽  
Quality Outcomes ◽  
Panel Regressions ◽  
Broad Cross Section ◽  
Operating Leverage ◽  
The Impact

In this paper, we study the impact of labor unions on product quality failures. We use a product recall as our measure of quality failure because it is an objective metric that is applicable to a broad cross-section of industries. Our analysis employs a union panel setting and close union elections in a regression discontinuity design framework to overcome identification issues. In the panel regressions, we find that firms that are unionized and those that have higher unionization rates experience a greater frequency of quality failures. The results obtain even at a more granular establishment level in a subsample in which we can identify the manufacturing establishment associated with the recalled product. When comparing firms in close elections, we find that firms with close union wins are followed by significantly worse product quality outcomes than those with close union losses. These results are amplified in non–right-to-work states, where unions have a relatively greater influence on the workforce. We find that unionization increases firms’ costs and operating leverage and, consequently, crowds out investments that potentially impact quality. We also find some suggestive evidence that unions may compromise quality by hurting employee morale and by resisting technological upgrades in the firm. Overall, our results suggest that unions have an adverse impact on product recalls, and thus, product quality is an important dimension along which unions impact businesses. This paper was accepted by Gustavo Manso, finance.

scholarly journals Model sensitivity studies of the decrease in atmospheric carbon tetrachloride

2016 ◽  
Vol 16 (24) ◽  
pp. 15741-15754 ◽  
Author(s):  
Martyn P. Chipperfield ◽  
Qing Liang ◽  
Matthew Rigby ◽  
Ryan Hossaini ◽  
Stephen A. Montzka ◽  
...  
Keyword(s):  
Carbon Tetrachloride ◽  
Transport Model ◽  
Three Dimensional ◽  
Montreal Protocol ◽  
Chemical Transport Model ◽  
Uncertainty Range ◽  
The Past ◽  
Systematic Biases ◽  
Lifetime Uncertainty ◽  
The Impact

Abstract. Carbon tetrachloride (CCl4) is an ozone-depleting substance, which is controlled by the Montreal Protocol and for which the atmospheric abundance is decreasing. However, the current observed rate of this decrease is known to be slower than expected based on reported CCl4 emissions and its estimated overall atmospheric lifetime. Here we use a three-dimensional (3-D) chemical transport model to investigate the impact on its predicted decay of uncertainties in the rates at which CCl4 is removed from the atmosphere by photolysis, by ocean uptake and by degradation in soils. The largest sink is atmospheric photolysis (74 % of total), but a reported 10 % uncertainty in its combined photolysis cross section and quantum yield has only a modest impact on the modelled rate of CCl4 decay. This is partly due to the limiting effect of the rate of transport of CCl4 from the main tropospheric reservoir to the stratosphere, where photolytic loss occurs. The model suggests large interannual variability in the magnitude of this stratospheric photolysis sink caused by variations in transport. The impact of uncertainty in the minor soil sink (9 % of total) is also relatively small. In contrast, the model shows that uncertainty in ocean loss (17 % of total) has the largest impact on modelled CCl4 decay due to its sizeable contribution to CCl4 loss and large lifetime uncertainty range (147 to 241 years). With an assumed CCl4 emission rate of 39 Gg year−1, the reference simulation with the best estimate of loss processes still underestimates the observed CCl4 (overestimates the decay) over the past 2 decades but to a smaller extent than previous studies. Changes to the rate of CCl4 loss processes, in line with known uncertainties, could bring the model into agreement with in situ surface and remote-sensing measurements, as could an increase in emissions to around 47 Gg year−1. Further progress in constraining the CCl4 budget is partly limited by systematic biases between observational datasets. For example, surface observations from the National Oceanic and Atmospheric Administration (NOAA) network are larger than from the Advanced Global Atmospheric Gases Experiment (AGAGE) network but have shown a steeper decreasing trend over the past 2 decades. These differences imply a difference in emissions which is significant relative to uncertainties in the magnitudes of the CCl4 sinks.

scholarly journals The impact of operating leverage on the capital structure of Johannesburg Stock Exchange-listed firms before and after the 2008 global financial crisis

2018 ◽  
Vol 11 (1) ◽  
Author(s):  
Matabane T. Mohohlo ◽  
Johan H. Hall
Keyword(s):  
Financial Crisis ◽  
Capital Structure ◽  
South African ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Johannesburg Stock Exchange ◽  
The Global Financial Crisis ◽  
Operating Leverage ◽  
The Impact ◽  
The Capital Structure

The financial leverage-operating leverage trade-off hypothesis states that as financial leverage increases, management of firms will seek to reduce the exposure to operating leverage in an attempt to balance the overall risk profile of a firm. It is the objective of this study to test this hypothesis and ascertain whether operating leverage can indeed be added to the list of factors that determine the capital structure of South African firms. Forty-six firms listed on the Johannesburg Stock Exchange between 1994 and 2015 are analysed and the impact of operating leverage is determined. The results are split into two periods, that is, the period before the global financial crisis (1994–2007) and after the global financial crisis (2008–2015). The impact of operating leverage during these two periods is then compared to determine whether a change in the impact of operating leverage on the capital structure can be observed especially following the crisis. The results show that the conservative nature of South African firms leading up to 2008 persisted even after the global financial crisis. At an industry level, the results reveal that operating leverage does not have a noticeable impact on capital structure with the exception of firms in the industrials sector of the South African economy.

The U.K. With-Profits Life Insurance Industry: A Market Analysis

2009 ◽  
Vol 15 (3) ◽  
pp. 747-777
Author(s):  
C. D. O'Brien
Keyword(s):  
Life Insurance ◽  
Economies Of Scale ◽  
Lower Cost ◽  
Insurance Industry ◽  
Significant Degree ◽  
Potential Effect ◽  
Market Analysis ◽  
Life Insurers ◽  
Life Insurance Industry ◽  
The Impact

ABSTRACTThis paper reviews the market structure of the U.K. with-profits life insurance market and the potential effect on how life insurers operate. We consider the competitiveness of the market, quantifying the increase in the degree of concentration since 2000, and establishing that inherited estates may offer some protection from competition for incumbent firms. However, there is a significant degree of mobility in market positions of leading firms. Analysis of costs indicates some large differences between firms, with larger firms experiencing lower cost ratios, indicative of economies of scale. There are some marked differences in insurers' prices, the data showing that charges tend to be lower on unit-linked than on with-profits policies. The paper suggests that while there are potential concerns about how the market operates for consumers, the impact is limited by the dramatic reduction in new with-profits business.

scholarly journals Chemistry–climate interactions of aerosol nitrate from lightning

2017 ◽  
Vol 17 (2) ◽  
pp. 1125-1142 ◽  
Author(s):  
Holger Tost
Keyword(s):  
Climate Model ◽  
Statistical Significance ◽  
Aerosol Particles ◽  
Internal Variability ◽  
Aerosol Size Distribution ◽  
Upper Troposphere ◽  
Uncertainty Range ◽  
Mixing Ratios ◽  
Microphysical Properties ◽  
The Impact

Abstract. Lightning represents one of the dominant emission sources for NOx in the troposphere. The direct release of oxidised nitrogen in the upper troposphere does not only affect ozone formation, but also chemical and microphysical properties of aerosol particles in this region. This study investigates the direct impact of LNOx emissions on upper-tropospheric nitrate using a global chemistry climate model. The simulation results show a substantial influence of the lightning emissions on the mixing ratios of nitrate aerosol in the upper troposphere of more than 50 %. In addition to the impact on nitrate, lightning substantially affects the oxidising capacity of the atmosphere with substantial implications for gas-phase sulfate formation and new particle formation in the upper troposphere. In conjunction with the condensation of nitrates, substantial differences in the aerosol size distribution occur in the upper troposphere as a consequence of lightning. This has implications for the extinction properties of the aerosol particles and for the cloud optical properties. While the extinction is generally slightly enhanced due to the LNOx emissions, the response of the clouds is ambiguous due to compensating effects in both liquid and ice clouds. Resulting shortwave flux perturbations are of   ∼ −100 mW m−2 as determined from several sensitivity scenarios, but an uncertainty range of almost 50 % has to be defined due to the large internal variability of the system and the uncertainties in the multitude of involved processes. Despite the clear statistical significance of the influence of lightning on the nitrate concentrations, the robustness of the findings gradually decreases towards the determination of the radiative flux perturbations.

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