On the Learning Benefits of Resource Flexibility

Resource flexibility, arguably among the most celebrated operational concepts, is known to provide firms facing demand uncertainty with such benefits as risk pooling, revenue-maximization optionality, and operational hedging. In this paper, we uncover a heretofore unknown benefit: we establish that resource flexibility facilitates learning the demand when the latter is censored, which could, in turn, enable firms to make better-informed future operational decisions, thereby increasing profitability. Further, we quantify these learning benefits of flexibility and find that they could be of the same order of magnitude as the extensively studied risk-pooling benefits of flexibility. This suggests that flexibility’s learning benefits could be a first-order consideration and that extant theories, which view flexibility only as the ability to act ex post, could be underestimating its true value when learning the demand is desirable, for example, when it enables managers to make better ex ante capacity, assortment, or pricing decisions in future periods. This paper was accepted by Vishal Gaur, operations management.

Apakah Financial Dan Operational Hedging Efektif Mengurangi Eksposur Nilai Tukar?

n the midst of regulators' efforts to deepen the market by encouraging foreign exchange derivative transactions, this study aims to observe the effect of these derivative instruments from company perspective in reducing exchange rate exposures. In addition to hedge using derivative instruments (financial hedging), this study also observed hedging performed through firm’s operational activity (operational hedging) with control variables of export sales and foreign debt. The research object is manufacturing companies listed in IDX (Indonesia Stock Exchange) during 2010-2018 using panel data regression as data analysis method. Empirical results show that financial hedging reduce exchange rate exposures faced by companies while operational hedging has no effect. Export sales provide positive exchange rate exposures and foreign debt provide negative exchange rate exposures.

Management of Exchange Rate Risk in SMEs

Exchange rate fluctuations represent a challenge for the internationalization of all firms, both big and small. This paper reflects on two aspects of the exchange rate challenge - (i) the exchange rate pass-through and (ii) hedging of exchange rate risk and how SMEs manage these two aspects of exchange rate risk. The exchange rate challenges that SMEs face might differ from the risks larger firms are exposed to, and their management of the risks might vary. In family-owned SMEs, longer planning horizons than listed firms might imply a weaker exchange rate pass-through, while smaller financial buffers might pull pass-through rules in the opposite direction for the same SMEs. When considering hedging, the paper argues for both operational hedging and external hedging to represent a management challenge for SMEs, pushing the exchange rate risk towards the forefront of the factors hampering internationalization among SMEs.

Impact of Acquisition on cost efficiency, operational hedging and returns of acquirer firms in Pakistan

The current study is aimed at checking the impact of the acquisition on the various short-run and long-run firm characteristics like abnormal returns, cost efficiency, and operational hedging of acquirer firms. Results have been analyzed for Pakistan Stock Exchange for a period of 2006 to 2019. The acquisition may signal the future prospects of both acquirer and target firms. The event study technique indicates the significant abnormal returns after 3 days of the acquisition announcement. However, pre-event statistics indicate abnormal returns for 5 out of 7 days before acquisition announcement. Researchers have calculated the cost efficiency scores for bidding firms three years prior to the acquisition and three years post-acquisition. Overall results suggest an improvement in the efficiency of the financial firms' overtime period. The non-financial sector is indicating opposite results where most of the firms are showing a declining trend in efficiency after the acquisition. Next, the impact of the acquisition on the operational volatility is checked. The empirical results have shown a large level decrease in the operational income volatility after the takeover deal. It shows that combined firms after acquisition brings the benefit of diversification thus reducing volatility and increasing operational hedging which may ultimately reduce financial hedging. The findings of the study may help regulators as well as acquiring companies to know the potential effects of the acquisition announcement.

The Impact of Operational and Financial Hedging to the Airline Operating Performance

The airline is a low-profit margin and high competition industry. Increasing competition makes airline unable to easily charge their costs to customers and raise their fare, so that airlines have a narrow profit margin. One of the major costs in the airline industry is jet-fuel cost. International Air Transport Association (IATA), predict that total global fuel cost for period 2019 will rise to USD 200 billion from about USD 180 billion in 2018. In average, Jet fuel will contribute 24.2 percent of total 2019 Airline’s operating cost (IATA [1]). Like most of commodities, jet-fuel price is highly volatile which encourages companies to engage in hedging activities. This paper examines the impact of operational and financial hedging to airline operating performance. We perform an empirical study by using the airline data from 2013 to 2017. To test the impact of hedging in airline operating performance, we regress the operating cost to revenue ratio, operational hedging, financial hedging and other control variables. This study found that financial derivative hedge can reduce the dollar needed to generate airline revenue, while operational hedging increase it. Keywords: Fuel Hedging, Operational Hedging, Financial Hedging, Airline Performance