Media multiplicity and collaborative innovation with suppliers: evidence from China

PurposeBased on media choice theories and real option theory, this study aims to explore the role of communication media portfolio in achieving collaborative innovation with suppliers.Design/methodology/approachUsing data of the Study of Competitiveness, Technology and Firm Linkages 2002 collected by the World Bank and the Enterprise Survey Organization of the Chinese National Bureau of Statistics, this study employed logit model to test the hypotheses. Moreover, some robustness analyses were conducted.FindingsThis study suggests that media multiplicity increases the probability for a firm to achieve collaborative innovation with suppliers on the basis of real option theory. Furthermore, distance from the suppliers and relationship formality make media multiplicity further important in collaborative innovation with suppliers.Originality/valueThrough investing how communication media portfolio affecting collaborative innovation with suppliers and the contingency factors, this study complements existing studies just concentrating on supplier capabilities, relationships with suppliers and characteristics of supplier network. Moreover, this study contributes in the information system field by exploring the role of media portfolio rather than individual media.

Decision Making on Government Subsidy for Highway Public-Private Partnership Projects in China Using an Iteration Game Model

Government subsidy is an important responsibility of fiscal expenditure in public-private partnership (PPP) projects. However, an improper subsidy strategy may cause over-compensation or under-compensation. In this research, an iteration game model combining game theory and real option is established to describe the periodic decision-making process. The strategy game model is applied to characterize the behavioral interactions between stakeholders, and the real option theory is used to predict the project performance under the influence of their decisions. Besides, two new indicators, the efficiency of fund (SE) and the total extra cost paid by the private sector (ME), are proposed to evaluate the extra project revenue caused by each unit of the subsidy and the incentive effects of the subsidy. Consequently, the preliminary results indicate that a periodic and iterative negotiations regarding the subsidy will effectively improve the efficiency of fund compared to the traditional way. The results also show that it is important for the public sector to give incentives, encouraging the private sector to make more efforts on the project, rather than merely providing fund support. Further study will focus on more detailed and complicated behaviors of stakeholders based on the model proposed in this paper.

Party determinants of FDI: Evidence from governing party fractionalization in government

Based on real option theory and transaction cost theory, we hypothesize that a high level of governing party fractionalization in the host country’s government fosters FDI because high governing party fractionalization is associated with low economic policy uncertainty. By using the data of governing party fractionalization in 135 host countries and greenfield FDI projects from China from 2003 to 2015, the findings of the study confirm the positive effect of governing party fractionalization on FDI. Moreover, the results of our studies confirm that the positive effect of governing party fractionalization on FDI is weakened for investing firms with experience in host countries and with central government ownership, for FDI projects conducted in natural resource industries, and in host countries with high GDP growth and low capital abundance. We further confirm that economic policy uncertainty is a mechanism through which governing party fractionalization influences FDI.

TIMING DECISIONS OF HOUSING SALES AND DEVELOPMENT BASED ON REAL OPTION THEORY

Based on the real option theory, this paper studies the impact of uncertainty on the timing decisions required in housing development and sales. Data of newly-built houses and corresponding plots in Hangzhou, China, are used for empirical analysis. In order to better reflect the changes in market demand under frequent policy intervention, in addition to the usual price volatility, this paper introduces the volatility of trading volume to measure the uncertainty of China’s real estate market. The results show that the volatility of trading volume has a significant impact on timing decisions. Also, trading volume volatility can better reflect the characteristic of deferred option than can price volatility, especially during the sales phase. This study provides evidence to support Bar-Ilan and Strange’s (1998) research of sequential investment. Because of the existence of the second option, i.e., sales timing, the starts in the first stage are not too sensitive to uncertainty. In the case of the second option, the longer the construction period is, and the lower the cost of the first stage is, the higher will be the probability of triggering the start. In addition, the characteristics of market risk aversion are obvious in the study area, especially in the suburban area.

Influence of cooperative period of municipal PPPs on transaction cost – a case study

PurposeThe purpose of the study is to numerically investigate the relationship between the increase in transaction cost and prolongation of cooperative period acting as a nonmonetary incentive for municipal PPP projects.Design/methodology/approachA model that combines real option theory and the concept of prospect theory is proposed in the study. Three municipal road PPP projects published by China Public Private Partnerships Center are selected as cases. The data of these cases are analyzed based on the model established.FindingsThe prolongation of the cooperative period affects the increase in transaction cost, which gradually decreases when the prolonged cooperative period increases. Furthermore, the large-investment PPP projects own more transaction cost compared with less-investment projects. The decrease in transaction cost in the former is less than that in the latter. The increase in transaction cost is evidently alleviated in a project with less investment when the cooperative period is prolonged further.Originality/valueThe study systematically analyzes the relationship among transaction cost economics, real option theory and prospect theory and proposes a theoretical flowchart of the effect of nonmonetary incentive on the transaction cost. A model to quantify the effect of nonmonetary incentive (i.e. prolongation of cooperative period) on the transaction cost is proposed for the first time. The results of the study verify that the nonmonetary incentive affects transaction cost.

Real options in franchise contracting: an application of transaction cost and real options theory

Previous research has not explained the use of real option clause in franchise contracting. The real option clause has two economic functions: To reduce transaction costs by mitigating opportunism risk and to increase strategic rents by exploiting the profit potential from future upside opportunities under uncertainty. We argue that franchisors will more likely use a real option clause (ROC) in franchise contracts under high behavioral uncertainty, high franchisors’ transaction-specific investments relative to franchisees’ and long contract duration. In addition, by combining transaction cost theory and real option theory, our study provides a new explanation for the impact of environmental uncertainty on the use of ROC in franchise networks by showing that there exists a U-shaped relationship between environmental uncertainty and the franchisor’s use of ROC. Overall, the data from German and Swiss franchise systems provide support of the research model.

A Real Option Approach to Sustainable Corporate Tax Behavior

Aggressive tax planning has become a sustainability problem, as governments have to cope with less tax revenue, which is crucial for investments in sustainable development goals. The OECD and the EU authorities have taken several initiatives against aggressive tax planning, such as the Action Plan against BEPS. However, these initiatives lack effectiveness, and aggressive tax planning is still omnipresent. We analyze the fight against aggressive corporate tax planning from a Real Option Theory perspective, in order to find an explanation for the difficult shift of companies’ aggressive tax planning strategies to more sustainable tax behavior. The Real Option Theory shows that, as long as the option to ‘delay’ the investment in sustainable tax behavior has too much value because the benefits of such investment are uncertain, companies will wait. Based on this new understanding, we suggest additional public policy interventions against aggressive tax planning. These interventions aim directly at reducing this real option value (of waiting).

Research on Quantitative Evaluation Model of Investment Value of Power Grid Enterprises’ New Business Based on Real Options

With the continuous advancement of the power system reform, especially after the introduction of equipment capital to participate in the competition, the business development of power grid companies is facing increasingly severe internal and external tests. While continuing to do a good job in regulated businesses centered on transmission and distribution business, vigorously develop new businesses and strive to achieve high-quality development in a complex market environment. Through the evaluation of the intrinsic value of new businesses of power grid companies, investors can clarify the true value of new businesses, better identify and avoid potential risks, and encourage investors to invest rationally. This article first expounds the types of new businesses of power grid companies, introduces the basic overview of real option theory, and constructs a value evaluation model of discounted cash flow model plus real option theory pricing model, and through case analysis, the feasibility of empirical option theory in the evaluation of new business of power grid investment value is verified.