the appraisal of industrial investments a new method and a case study abstract a general method of investment projects evaluation proposed by the second author is outlined it consists in decomposing in period quotas myers adjusted present value the analysis of these quotas provides satisfactory insight into the profitability of the project per se and its profitability through an adequate funding policy a case from real life concerning a large scale industrial investment is briefly discussed and some advantages of the method are highlighted

measuring forecast uncertainty by disagreement the missing link using a standard decomposition of forecast errors into common and idiosyncratic shocks we show that aggregate forecast uncertainty can be expressed as the disagreement among the forecasters plus the perceived variability of future aggregate shocks thus the reliability of disagreement as a proxy for uncertainty will be determined by the stability of the forecasting environment and the length of the forecast horizon using density forecasts from the survey of professional forecasters we find direct evidence in support of our hypothesis our results support the use of garch type models rather than the ex post squared errors in consensus forecasts to estimate the ex ante variability of aggregate shocks as a component of aggregate uncertainty copyright 2010 john wiley sons ltd

comparative statics of the firm abstract complementarities arise naturally in diverse models of optimal decision making in a firm theoretical properties of supermodular functions provide a powerful tool for analyzing qualitative properties in such circumstances this paper considers a general model of the firm and gives sufficient conditions for complementarities to hold and for optimal decisions to be monotone with a parameter a variety of specific models of the firm are shown to satisfy these conditions necessary conditions delimit those models of the firm that may exhibit monotone optimal decisions journal of economic literature classification numbers b41 c61 d20 l00

the determinants of trust in supplier automaker relations in the us japan and korea a retrospective this retrospective on the dyer and chu 2000 article the determinants of trust in supplier automaker relationships in the us japan and korea attempts to accomplish a number of objectives first the paper examines the key findings and impact of the original paper and provides additional insights behind the original research notably we further clarify why interpersonal trust between organizational boundary spanners does not translate into inter organizational trust and why inter organizational trust is often based upon processes second the paper briefly discusses relevant research on inter firm trust since 2000 noting that research has shown the contingent value of trust and notably that it is more important when asset specificity and uncertainty are high third we discuss what has happened in the automotive industry over the past 15 years with regard to trust in supplier buyer relationships we show a correlation between automaker trustworthiness and automaker market share performance and suggest a causal link since some automakers e g hyundai kia have been increasing trust with suppliers and then improving market performance finally the retrospective discusses opportunities for future research on the topic of trust in inter organizational relationships

how legal environments affect the use of bond covenants we examine how country level legal and institutional investor protection shapes contractual creditor protection we examine debt covenant information from foreign corporate bonds issued in the us from more than 50 countries between 1991 and 2007 we find that bonds of firms incorporated in countries with stronger creditor rights use fewer covenants this finding suggests that creditor protection substitutes for covenants in reducing the agency cost of debt in contrast bonds of firms with stronger shareholder rights or firms with stronger firm level corporate governance use more covenants these findings support the notion that firms with stronger shareholder control may face an increase in the shareholder bondholder conflict and therefore prefer to use more covenants however greater shareholder rights are not associated with the use of more covenant restrictions on equity issuance as firms with greater minority shareholder protection are unlikely to suffer such equity dilution

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

finite change comparative statics for risk coherent inventories abstract this work introduces a comprehensive approach to the sensitivity analysis sa of risk coherent inventory models we address the issues posed by i the piecewise defined nature of risk coherent objective functions and ii by the need of multiple model evaluations the solutions of these issues are found by introducing the extended finite change sensitivity indices fcsi s we obtain properties and invariance conditions for the sensitivity of risk coherent optimization problems an inventory management case study involving risk neutral and conditional value at risk cvar objective function illustrates our methodology three sa settings are formulated to obtain managerial insights numerical findings show that risk neutral decision makers are more exposed to variations in exogenous variables than cvar decision makers

the discounted r q inventory model the shrewd accountant s heuristic abstract the discounted continuous review r q inventory model with continuous and stochastic demand is investigated new optimality conditions are derived clarifying the difference to the average cost case also graphically supported by depreciation theory applied to the value of a setup the results suggest an insightful and very precise approximation the shrewd accountant s heuristic based on a new average cost model it deepens and extends the work of hadley 1964 three examples are worked out in detail and the model is generalized to poisson demand and to stochastic lead times

how many parts to make at once reprinted from factory the magazine of management volume 10 number 2 february 1913 pp 135 136 152 interest on capital tied up in wages material and overhead sets a maximum limit to the quantity of parts which can be profitably manufactured at one time set up costs on the job fix the minimum experience has shown one manager a way to determine the economical size of lots

compliance with agreements in cross cultural transactions some analytical issues assessing whether the other party is likely to fulfil all obligations can be arduous when a transaction is international the mechanisms that underpin compliance with agreements and the functional detail of these mechanisms may vary in relative importance between countries perplexing the foreign operative additionally a foreigner may suffer from informational constraints communications distortions and difficulty in achieving full acceptance in the local business culture

valuing exploration and production projects by means of option pricing theory abstract this paper provides a general introduction to the valuation of investment projects with option pricing theory opt furthermore a specific application of opt to value exploration and production projects in the petroleum industry is shown to model the various nested options of such investments the discrete approach of the binomial model is preferred to the continuous model by black and scholes furthermore two kinds of binomial trees are used one tree represents the pre drilling period and the other represents the production phase of the reservoir due to the use of a multiplicative binomial process for the oil price trend unrealistic prices may occur to exclude them from the calculation an oil price band is introduced additionally uncertainty of all input parameters not only of the oil price is considered this is achieved by combining opt with the monte carlo simulation

the importance of assumptions in investment evaluation abstract this work illustrates a new method for estimating the importance of assumptions in investment evaluation the most diffused sensitivity analysis schemes present limitations when used to assess the importance of individual parameters and cannot be employed to estimate the importance of groups of assumptions however such problems can be solved by making use of the differential importance measure dim we set forth the framework for the application of dim at the parameter level of investment valuation models we study the relationship between dim and investment marginal behavior we analyze the link between importance of a parameter and risk associated with it we discuss general results for a sample valuation model the numerical application to the valuation of an energy sector investment project follows we rank the factors based on their importance and determine the project risk profile we discuss the importance of groups of assumptions results will show that assumptions relating to revenues are the most influential ones followed by discounting and operating cost assumptions we discuss numerically the relationship between importance and risk analyzing the effect of variable costs hedging through the comparison of the project risk profile in the presence and in the absence of such a hedging

capital budgeting methods among sweden s largest groups of companies the state of the art and a comparison with earlier studies abstract this study presents a general description of the state of the art of capital budgeting methods used by swedish corporations it is based on a questionnaire sent to 528 companies selected from 500 of the largest swedish corporations and some from the o list of companies the response rate is 24 4 the study shows that the public sector companies are most frequent users of discounted cash flow dcf methods the payback method is the most used in all industries also matters size of company the use of the net present value method has increased over the years although the use of dcf methods is generally unchanged value based management models have been introduced in the listed companies another conclusion is that tradition is an important factor explaining the choice of capital budgeting method large companies within the manufacturing industry use dcf methods more often than other companies in general the companies seem unconcerned with the tax consequences of capital budgeting decisions it would appear as if the public companies have not adopted capital budgeting practices supporting shareholder value increases

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

the deterministic eoq and epq with partial backordering at a rate that is linearly dependent on the time to delivery abstract our original models for the eoq and epq with partial backordering assumed that the backordering rate is a constant in this paper we extend those models to allow to increase linearly as the time until delivery decreases we show how those previous models can be adapted to find the optimal decision variable values for this new assumption and develop for each model type a condition that the initial value of must meet for partial backordering to be optimal

note comments on the optimality in optimal and system myopic policies for multi echelon production inventory assembly systems schwarz and schrage s model assumes that for optimal policies in a multi echelon production inventory system the lot size of a stage must not be larger than that of a predecessor stage as lots move from the initial stage to the final stage examples in this note illustrate that set up costs and inventory holding costs may be such that optimal inventory policies exist when smaller lot sizes are produced intermittently at a stage with an overlap to feed the continuous production of a larger lot size at the next stage also an example shows that in contrast with another assumption in their model optimality does not always require that the lot size at each stage be an integer multiple of the lot size at the successor stage

holding costs under push or pull conditions the impact of the anchor point holding costs are traditionally determined from the investment in physical stock during a cycle an alternative approach instead derives holding costs from net present value npv functions it is known that applying both frameworks to the same system can lead to different holding cost valuations but little explanation has been offered by introducing the anchor point in a model this paper shows for four different systems that traditional holding cost models implicitly assume pull conditions while current npv approaches model push conditions this explains in part the differences between the methods it is shown that the anchor point concept allows the construction of npv models under pull conditions giving results in better correspondence with traditional models the traditional framework is restricted to pull conditions and important considerations could be easily overlooked leading to wrong valuations of holding costs npv seems superior as such considerations are automatically incorporated the application to multi echelon inventory systems provides interesting insights on the roles of echelon stocks and lead times and offers potential for future research

sensitivity analysis in investment project evaluation abstract this paper discusses the sensitivity analysis of valuation equations used in investment decisions since financial decision are commonly supported via a point value of some criterion of economic relevance net present value economic value added internal rate of return etc we focus on local sensitivity analysis in particular we present the differential importance measure dim and discuss its relation to elasticity and other local sensitivity analysis techniques in the context of discounted cash flow valuation models we present general results of the net present value and internal rate of return sensitivity on changes in the cash flows specific results are obtained for a valuation model of projects under severe survival risk used in the industry sector of power generation

technical note equivalence of different profitability criteria with the net present value abstract net present value has long been regarded in academic circles as the best criterion for project appraisal however several alternative complementary methods remain popular with practitioners this paper demonstrates that if properly applied several of these standard criteria such as net final value internal rate of return benefit cost ratio profitability index equivalent annuity discounted payback period and average payback period lead to the same investment decision as net present value moreover the paper proves that when choosing between two mutually exclusive projects the application of these criteria to the difference project provides the same ranking as net present value therefore although net present value is regarded as a superior investment criterion any of these popular criteria properly applied serve as well

on integrating theories of international economics in the strategic planning of global supply chains and facility location abstract this paper relates three theories of international economics comparative advantage competitive advantage and competitiveness and formulates the thesis that incorporating them in the form of readily available individual competitiveness indicators in or ms models offers promise to enhance decision support for the strategic planning of global supply chains in general and for locating facilities in particular the purpose of this paper is to relate these theories from the field of international economics to give a roadmap of related measures that are provided by annual competitiveness reports and to pose several research questions as challenges to the or ms community as it seeks to improve models to support the strategic planning process accordingly specific objectives of this paper are to relate each of these theories and to describe their interrelationships to describe measures provided by two well known annual competitiveness reports and to illustrate application of the theories as a means of supporting the thesis of the paper and justifying the research questions we pose for future research while this paper discusses topics relative to the broader background of global supply chain design it illustrates applications associated with facility location a component of the global supply chain design since it has a rich history within the or ms community and since it is central to strategic planning in the global economy

news and noise in g 7 gdp announcements revisions to gdp announcements are known to be quite large in all g 7 countries quarterly growth rate revisions are regularly more than a full percentage point at an annualized rate we examine the predictability of these revisions using standard statistical tests of whether the preliminary announcement is a rational forecast of the subsequently revised data previous work suggests that u s gdp revisions are largely unpredictable as would be the case if the revisions reflect news not available at the time that the preliminary number is produced we find that the degree of predictability varies throughout the g 7 although we find little predictability in u s revisions the data revisions for several foreign countries are highly predictable we also perform a simple real time forecasting exercise showing that for several countries the predictability of data revision could be used to generate improved preliminary data

the priority structure of corporate liabilities most discussions of corporate capital structure effectively assume that all debt is the same yet debt differs by maturity covenant restrictions conversion rights call provisions and priority here we examine priority structure across a sample of 4995 compustat industrial firms from 1981 to 1991 we analyze the variation in the use of capital leases secured debt ordinary debt subordinated debt and preferred stock both as a fraction of the firm s market value and as a fraction of total fixed claims our evidence provides consistent support for contracting cost hypotheses mixed support for tax hypotheses and little support for the signaling hypothesis

capital structure and inventory management the temporary sale price problem the paper discusses the use of adjusted present value techniques in a problem of inventory management the temporary sale price problem in the presence of equity or debt financing while traditional net present value approaches produce results very similar to those of the average cost approach our consideration of the capital structure of the firm opens the way to theoretically and numerically different inventory policies

robustness of a production schedule to inventory cost calculations abstract minimizing the cost of capital tied up by inventory is frequently an important management objective of production scheduling the paper determines the optimal production schedule of a single machine sequencing problem for two cases first when the cost of capital is calculated by periodic interest calculation and second when the cost of capital is determined by continuously compounded interest calculation the results are derived for common due date and for different due dates situations as well the robustness of the suggested production schedules to the method of interest calculation is proved theoretically and demonstrated with the example of a calendar manufacturer

ford whitman harris and the economic order quantity model ford whitman harris first presented the familiar economic order quantity eoq model in a paper published in 1913 even though harris s original paper was disseminated widely it apparently was unnoticed for many years before its rediscovery in 1988 during this period much confusion developed over the origin of the eoq model this paper explores the early literature on this model and traces the evolution of the confusion it also sketches the remarkable life of harris who made contributions as an engineer inventor author and patent attorney even though he received no formal education beyond high school harris s original 1913 essay is reprinted following this paper

trust across borders we make the case for fresh approaches to examine the role of trust in international collaborations based on the idea that not only do the levels of trust differ across international borders but also both the nature of trust and the institutional and cultural support for trust can vary across different national contexts collaboration partners from different countries are therefore likely to bring either symmetric or asymmetric conceptions of trust to the business relationship we develop a model and propositions linking symmetry and asymmetry in the institutional and cultural support for trust in international collaborations with the degree of partner interdependence and identify implications for governance and trust building investments we conclude with some suggestions for research that incorporates trust asymmetries between partners

what drives value creation in investment projects an application of sensitivity analysis to project finance transactions abstract evaluating the economic attractiveness of large projects often requires the development of large and complex financial models model complexity can prevent management from obtaining crucial information with the risk of a suboptimal exploitation of the modelling efforts we propose a methodology based on the so called differential importance measure d to enhance the managerial insights obtained from financial models we illustrate our methodology by applying it to a project finance case study we show that the additivity property of d grants analysts and managers full flexibility in combining parameters into any group and at the desired aggregation level we analyze investment criteria related to both the investors s and lenders perspectives results indicate that exogenous factors affect investors sponsors and lenders in different ways whether exogenous variables are considered individually or by groups

the relationships among expected inflation disagreement and uncertainty evidence from matched point and density forecasts abstract this paper examines matched point and density forecasts of inflation from the survey of professional forecasters to analyze the relationships among expected inflation disagreement and uncertainty we undertake the empirical analysis within a seemingly unrelated regression framework and derive measures of uncertainty using a decomposition proposed by wallis 2004 2005 and by drawing on the concept of entropy the results offer little evidence that disagreement is a useful proxy for uncertainty and mixed evidence that increases in expected inflation are accompanied by heightened uncertainty conversely we document a quantitatively and statistically significant positive association between disagreement and expected inflation

people s opium religion and economic attitudes since max weber there has been an active debate on the impact of religion on people s economic attitudes much of the existing evidence however is based on cross country studies in which this impact is confounded by differences in other institutional factors we use the worldvalues surveys to id entify the relationship between intensity of religious beliefs and economic attitudes controlling for country fixed effects we study several economic attitudes towardcooperation the government working women legal rules thriftiness andthe market economy we also distinguish across religious denominations differentiating on whether a religion is dominant in a country we find that on average religious beliefs are associated with good economic attitudes where good is defined as conducive to higher per capita income andgrowth yet religious people tendto be more racist andless favorable with respect to working women these effects differ across religious denominations overall we find that christian religions are more positively associatedwith attitudes conducive to economic growth r 2003 elsevier science b v all rights reserved jel classification a1 e0 n4 z1

lost in translation the effect of cultural values on mergers around the world we find strong evidence that three key dimensions of national culture trust hierarchy and individualism affect merger volume and synergy gains the volume of cross border mergers is lower when countries are more culturally distant in addition greater cultural distance in trust and individualism leads to lower combined announcement returns these findings are robust to year and country level fixed effects time varying country pair and deal level variables as well as instrumental variables for cultural differences based on genetic and somatic differences the results are the first large scale evidence that cultural differences have substantial impacts on multiple aspects of cross border mergers

why do forecasters disagree lessons from the term structure of cross sectional dispersion abstract key sources of disagreement among economic forecasters are identified by using data on cross sectional dispersion in forecasters long and short run predictions of macroeconomic variables dispersion among forecasters is highest at long horizons where private information is of limited value and lower at short forecast horizons moreover differences in views persist through time such differences in opinion cannot be explained by differences in information sets our results indicate they stem from heterogeneity in priors or models differences in opinion move countercyclically with heterogeneity being strongest during recessions where forecasters appear to place greater weight on their prior beliefs

global sensitivity analysis in inventory management abstract this paper deals with the sensitivity analysis sa of inventory management models when uncertainty in the input parameters is given full consideration we make use of sobol function and variance decomposition method for determining the most influential parameters on the model output we first illustrate the method by means of an analytical example we provide the expression of the global importance of demand holding costs order costs of the harris economic order quantity eoq formula we then present the global sa of the inventory management model developed by luciano and peccati 1999 capital structure and inventory management the temporary sale problem international journal of production economics 59 169 178 for the economic order quantity estimation in the context of the temporary sale problem we show that by performing global sa in parallel to the modeling process an analyst derives insights not only on the eoq structure when its expression is not analytically known but also on the relevance of modeling choices as the inclusion of financing policies and special orders

does social trust affect international contracting evidence from foreign bond covenants abstract building on rational choice institutionalism theory and williamson s j econ lit 38 3 595 613 2000 four level social analysis framework we investigate the influence of the informal institution of social trust on debt contract design in an international setting using a sample of non u s firms that issue bonds in the u s debt market we find that yankee bond creditors impose fewer covenants on bond issuers domiciled in countries with a high degree of social trust we further show that the inverse relationship between debt covenants and the informal institution of social trust is more pronounced for firms from countries with weak formal institutions as well as for firms with poor corporate governance and greater information opacity these findings are robust to endogeneity tests within country analysis various empirical models and measures of trust and alternative hypotheses we also show that while a lower level of informal social trust is associated with higher borrowing costs this relationship weakens when formal covenants are added to the debt contract i e a substitution effect our paper contributes to the international business literature by providing new insights into the role of informal institutions social trust in cross border debt contracting

sensitivity analysis of the newsvendor model abstract quality of decisions in inventory management models depends on the accuracy of parameter estimates used for decision making in many situations error in decision making is unavoidable in such cases sensitivity analysis is necessary for better implementation of the model though the newsvendor model is one of the most researched inventory models little is known about its robustness in this paper we perform sensitivity analysis of the classical newsvendor model conditions for symmetry skewness of cost deviation i e deviation of expected demand supply mismatch cost from its minimum have been identified these conditions are closely linked with symmetry skewness of the demand density function a lower bound of cost deviation is established for symmetric unimodal demand distributions based on demonstrations of the lower bound we found the newsvendor model to be sensitive to sub optimal ordering decisions more sensitive than the economic order quantity model order quantity deviation i e deviation of order quantity from its optimum is explored briefly we found the magnitude of order quantity deviation to be comparable with that of parameter estimation error mean demand is identified as the most influential parameter in deciding order quantity deviation

trust between international joint venture partners effects of home countries trust is an important factor in interorganizational relations interorganizational trust in cross border relationships is likely to be influenced by the home countries of both partners using data on 165 international joint ventures ijvs we show that the perceived trustworthiness of an ijv partner is influenced by the general propensity to trust in the trustor s home country moreover the trustworthiness perceived by a focal parent firm is also affected by the home country of the other ijv partner this second effect is mitigated by experience between the partners

valuing patents on cost reducing technology a case study we present an approach for valuing patents on production process improvements specifically we focus on valuing a patent on cost reducing process improvements from the viewpoint of the patent holding firm we do this by considering the relevant cash flows that result from owning the patent the patent value is determined by 1 licensing fees and royalty income 2 competitive advantage resulting from the patent 3 patent maintenance costs we discuss a case study that presents the difficulties and challenges in finding the relevant information that is needed to estimate the cash flows we show that valuation of patents on production process improvements cannot be done without good knowledge of technology markets and competitors

welfare reducing licensing abstract in this paper we characterize situations where licensing a cost reducing innovation to a rival firm using two part tariff contracts a fixed fee plus a linear per unit of output royalty reduces social welfare we show that it occurs if i the firms compete in prices ii the innovation is large enough but not drastic and iii the goods are close enough substitutes moreover we show that regardless of the type of competition first the optimal contract always includes a positive royalty and second even drastic innovations are licensed whenever the goods are not homogeneous

is trust the missing root of institutions education and development we report evidence that trust is the missing root relating education institutions and economic development we observe that more trust both increases education and improves legal and bureaucratic institutions which in turn spurs economic development we substantiate this intuition with a series of regressions that provide evidence that trust determines both education and the quality of institutions and that education and institutions in turn affect gdp per capita

culture openness and finance abstract differences in culture proxied by differences in religion and language cannot be ignored when examining why investor protection differs across countries we show that a country s principal religion predicts the cross sectional variation in creditor rights better than a country s natural openness to international trade its language its income per capita or the origin of its legal system catholic countries protect the rights of creditors less well than protestant countries a country s natural openness to international trade mitigates the influence of religion on creditor rights culture proxies are also helpful in understanding how investor rights are enforced across countries

conceptualizing and measuring distance in international business research recurring questions and best practice guidelines distance is a central concept in international business research yet there is debate about the construct as well as its operationalization in this editorial we address three of the most important recurring questions posed by authors editors and reviewers by examining the theory methods and data of distance research we discuss 1 how to theorize on distance and 2 what method and 3 what data to use when constructing a distance index we develop practical recommendations grounded in theory illustrating and supporting them by calculating cross country distance indices for all available country pairs and two of the most used distance indices cultural and institutional we show that whereas a specific method to calculate distance may matter to some extent the choice for a specific cultural or institutional framework to measure cultural or institutional distance has a major impact on country pair distances overall this editorial highlights the importance of matching data and method to the theoretical argument

the payback method of investment appraisal a review and synthesis abstract the payback pb method of investment appraisal has been the subject of considerable comment and criticism in the literature this paper draws together some of those important literature contributions and the results from published uk and usa survey reports over the past twenty five years while many of the surveys have reported an increasing use of the discounted cash flow financial appraisal methods this has not totally been at the expense of the pb which continues to be a popular method used in industry pb has been shown to be a traditional popular primary and important method in both the uk and usa the use of pb has been shown to be positively related to capital budget size however the importance of pb was seen to be inversely related to capital budget size the use of pb has been shown by some researchers to be positively related to firm size while other researchers have reported that its use is inversely related to firm size however it has also been concluded that the use of pb was not significantly influenced by firm size pb has been shown to be less used for strategically important projects than routine replacement projects in moderately sized usa firms while on the other hand it has been shown to be an important method used in the appraisal of advanced manufacturing technology amt projects in both the uk and usa this paper reviews the pb method of investment appraisal as used in industry first as a technique identifying two of its main disadvantages and then commenting on the discounted payback method evidence showing that the pb acts in a supportive role to the sophisticted dcf methods is presented and the following topics are discussed in detail pb and owner manager conflict as a constraint in its communication role as a reciprocal of the internal rate of return as a proxy for a projects duration and pb and amt projects following the conclusions recommendations for further research are proposed

an eoq model with stock dependent demand shortage inflation and time discounting abstract this paper develops a finite time horizon deterministic economic order quantity eoq inventory model with shortages where the demand rate at any instant depends on the on hand inventory stock level at that instant the effects of inflation and the time value of money are taken into account considering two separate inflation rates namely the internal company inflation rate and the external general economy inflation rate the results are discussed with a numerical example and particular case of the model is discussed in brief a sensitivity analysis of the optimal solution with respect to the parameters of the system is carried out

developing successful trust based international exchange relationships trust is a central construct in relationship marketing yet the literature provides mixed empirical evidence on the trust performance linkage also there is limited research on how to build trusting international buyer seller relations we develop a comprehensive model integrating performance enhancing mechanisms and antecedent processes of trust in import export relationships our survey results from importers trading with overseas manufacturers suggest that existing levels of trust have a positive effect on relationship performance outcomes achieved 1 year later importantly trust takes on greater importance in enhancing performance under conditions of high interdependence whereas in circumstances of low interdependence trust has no discernible effect the findings also indicate that interfirm psychic distance internal uncertainty and exporter transaction specific assets and opportunism are related to importer trust implications for academics and practitioners are addressed

investment financing and the role of roa and wacc in value creation abstract evaluating an industrial opportunity often means to engage in financial modeling which results in estimation of a large amount of economic and accounting data which are then gathered in an economically rational framework the pro forma financial statements while the standard net present value npv condenses all the available pieces of information into a single metric we make full use of the crucial information supplied in the pro forma financial statements and give a more detailed account of how economic value is created in particular we construct a general model allowing for varying interest rates which decomposes the project into investment side and financing side and quantifies the value created by either side an equity debt decomposition is also accomplished which enables to appreciate the role of debt in adding or subtracting value to equityholders further the major role of accounting rates of return as value drivers is highlighted and new relative measures of worth are introduced the project roa and the project wacc which aggregate information deriving from the period rates of return to achieve these results we make use of the average internal rate of return airr approach recently introduced which rests on capital weighted arithmetic means and sets a direct relation between holding period rates and npv

patent protection in the shadow of infringement simulation estimations of patent value empirical estimates of the private value of patent protection are derived for four technology areas computers textiles combustion engines and pharmaceuticals using new patent data for west germany 1953 1988 patentees must pay renewal fees to keep their patents in force as well as legal expenses in order to enforce them a dynamic stochastic discrete choice model of optimal renewal decisions is developed incorporating both learning and depreciation as well as the potential need to prosecute infringement the evolution of the distribution of returns over the life of a group of patents is calculated for each technology using a minimum distance simulation estimator results indicate that the aggregate value of protection generated per year is on the order of 10 of related r d expenditure

revisiting foundations in lot sizing connections between harris crowther monahan and clark abstract while many review articles exist on deterministic lot sizing models used in the context of price and quantity discounts buyer vendor coordination supply chain management and joint economic lot sizing problems they do not convey the impact of important findings which date back to at least 2002 or in hindsight to 1984 as a result many recent articles still model the financial implications of lot sizing decisions without having the assurance that these models would help the firm s involved in maximising the net present value npv this paper therefore reviews these findings while adding also its own contributions as to convey the general importance to lot sizing theory we show that the underlying principles used in the four key articles that have led to a division in modelling approaches are in fact all in line with npv and argue that therefore there should not be these discrepancies that currently persist in the literature we establish the connections between these four strands of the literature using the solution to a simple variation of harris eoq model deriving thereby results from boyaci and gallego 2002 and beullens and janssens 2011 but showing their general applicability to any type of supply chain structure the breath of implications to deterministic lot sizing theory is illustrated using practical examples we present a stochastic version of the model of crowther 1964 which is arguably the least understood and applied model but on the other hand the most important one in realising how these modelling strands can be unified

evaluation of capital costs in a multi level inventory system by means of the annuity stream principle abstract in this paper some results obtained from applying the annuity stream principle for evaluating capital tied up in inventory and work in progress and presented this principle departs from the cashflows associated with the production inventory processes considered in contrast to traditional procedures by which the inventory value is determined from physical stock evaluated at costs incurred to date in many situations it appears that the traditional procedure will underestimate the amount of capital tied up in production in this paper the two principles are applied to a multi level inventory system and the capital cost expressions and optimal order quantities are compared

improving patent valuations for management purposes validating new indicators by analyzing application rationales abstract this paper analyzes the validity of so far untested indicators of patent value to enhance the quality of patent assessments using indicators at the corporate level the article expands the theory by eliciting patent attorneys filing rationales to maximize profits from protecting intellectual property to inspire the computation of new value indicators including patent full texts then based on a newly compiled data set consisting of 813 ep patents the probability of an opposition against a patent is modeled by established and new value indicators the results show that accelerated examination requests and qualified word counts enhance the quality of existing valuation methods

interfirm diversity organizational learning and longevity in global strategic alliances organizational theorists have correctly argued that the emergence and maintenance of robust cooperation between global strategic alliance partners is related to the diversity in the partners characteristics yet previous research has failed to systematically delineate the important dimensions of interfirm diversity and integrate the dimensions into a unified framework of analysis this paper develops a multilevel typology of interfirm diversity and focuses on organizational learning and adaptation as critical processes that dynamically moderate diversity s impact on alliance longevity and effectiveness

differential importance and comparative statics an application to inventory management abstract in this work we deal with the problem of establishing which parameters impact an inventory policy the most a new sensitivity measure is introduced by relating the differential importance d and the comparative statics cs techniques we discuss the properties of the new indicator and show that it shares the additivity property we provide the expression of for optimization models numerical results are offered for the sensitivity analysis of a recently introduced inventory management model

increasing goal congruence in project evaluation by introducing a strict market depreciation schedule abstract the economic accuracy of accrual based managerial performance measures is most essential for value added investment decisions in decentralised firms contemporary eva literature often lends support to annuity based depreciation schedules for accomplishing congruence between capital budgeting criteria like npv and accounting measures like roi and ri this is incongruent with the principal agent literature aiming at designing managerial incentive contracts we introduce a strict market based depreciation schedule which is shown to be superior to ordinary straight line annuity based or irr based depreciation schedules it gives the right managerial investment incentives also in the case of growth inflation or technological development

an evaluation of the investment environment in international logistics zones a taiwanese manufacturer s perspective abstract with the rapid development of international logistics the role of international logistics zones has become increasingly important this study evaluated the importance of investment environment factors namely political infrastructure cost and market factors for firms intention to invest in international logistics zones a structural equation modeling sem approach was employed to analyze respondents foreign direct investment fdi intention results indicated that market cost and infrastructure factors have a positive effect on firms intention to invest in international logistics zones the influence of political factor on firms investment intention was not supported in this study theoretical and practical implications of the findings for firms foreign direct investment in international logistics zones are discussed

ordering and inventory policies for step changes in the unit item cost a discounted cash flow approach this paper considers the problem of determining the optimal ordering quantities of a purchased item where there are step changes in price either up or down other costs incurred include ordering costs associated with each replenishment and holding costs related to capital tied up in inventory and physical stock holding the net present value npv principle is applied explicit expressions for the development of the optimal order quantities over time are presented it is shown that three cases may be distinguished i when the price change is very small ii when an essential price increase occurs and iii when there is an essential price decrease although the optimal last order quantity before a price increase is similar in magnitude to what has been presented in other articles applying average cost approaches in certain respects this paper offers novel results contradictory to those suggested by other authors analysis shows that the average cost model solutions are first order approximations in the discount rate numerical evaluations of a range of price increases and times to the price increase suggest that with certain important caveats the average cost formulae are likely to be acceptable for most practical situations for the infinite horizon situation

consensus and uncertainty in economic prediction we define consensus as the degree of agreement among point predictions aimed at the same target by different individuals and uncertainty as the diffuseness of the corresponding probability distributions this distinction is made operational with the aid of the nber asa survey data on matched point and probabilistic forecasts of inflation and the rate of change in gross national product the means of the two sets of forecasts agree closely standard deviations of point forecasts tend to understate uncertainty as measured by standard deviations of the predictive probability distributions however these measures of consensus and uncertainty are on the whole positively correlated there is evidence that expectations of higher inflation generate greater uncertainty about inflation tests also favor the hypothesis that a rise in inflation uncertainty has adverse effects on real growth

presidential address institutions and culture how and why does distant political and economic history shape the functioning of current institutions this paper argues that individual values and convictions about the scope of application of norms of good conduct provide the missing link evidence from a variety of sources points to two main findings first individual values consistent with generalized as opposed to limited morality are widespread in societies that were ruled by non despotic political institutions in the distant past second well functioning institutions are often observed in countries or regions where individual values are consistent with generalized morality and under different identifying assumptions this suggests a causal effect from values to institutional outcomes the paper ends with a discussion of the implications for future research jel a10 d7 e00

frontiers of real time data analysis in the past ten years researchers have explored the impact of data revisions in many different contexts researchers have examined the properties of data revisions how structural modeling is affected by data revisions how data revisions affect forecasting the impact of data revisions on monetary policy analysis and the use of real time data in current analysis this paper summarizes many of the questions for which real time data analysis has provided answers in addition researchers and institutions have developed better real time data sets around the world still additional research is needed in key areas and research to date has uncovered even more fruitful areas worth exploring jel c52 c53 c80 e01

optimal lot sizing for an unreliable production system based on net present value approach abstract the paper considers the net present value npv approach to determine the economic manufacturing quantities for an unreliable production system over an infinite planning horizon the npv of the expected total cost is obtained under general failure time and general repair time distributions and its asymptotic characteristics are examined by perturbation of the instantaneous discount rate the criteria for the existence and uniqueness of the optimal production time lot size are derived under exponential failure and constant zero repair time the performance of the npv model is compared with the traditional long run average cost model in terms of the npv of the expected total cost based on the optimal decisions of the two models from numerical experiments it is observed that the decision based on the average cost can be 10 worse than the decision based on the npv depending upon the machine failure rate

investor valuation of the abandonment option abstract we investigate whether investors price the option to abandon a firm at its exit value theory prices this real option as an american put with both a stochastic strike price exit value and a stochastic value of the underlying security the value of cash flows the empirical implications are that firm value increases in exit value after controlling for expected going concern cash flows and that more generalizable assets produce more abandonment option value using discounted earnings forecasts to proxy for expected cash flows and prior literature to categorize asset generalizability we find strong support for the predictions of abandonment option theory

splitting up value a critical review of residual income theories this paper deals with the notion of residual income which may be defined as the surplus profit that residues after a capital charge opportunity cost has been covered while the origins of the notion trace back to the 19th century in depth theoretical investigations and widespread real life applications are relatively recent and concern an interdisciplinary field connecting management accounting corporate finance and financial mathematics peasnell 1981 1982 peccati 1987 1989 1991 stewart 1991 ohlson 1995 arnold and davies 2000 young and o byrne 2001 martin petty and rich 2003 this paper presents both a historical outline of its birth and development and an overview of the main recent contributions regarding capital budgeting decisions production and sales decisions implementation of optimal portfolios forecasts of asset prices and calculation of intrinsic values a most recent theory the systemic value added approach also named lost capital paradigm provides a dierent denition of residual income consistent with arbitrage theory en folded in keynes s 1936 notion of user cost and forerun by pressacco and stucchi 1997 the theory has been formally introduced in magni 2000a b c 2001a b 2003 where its properties are thoroughly investigated as well as its relations with the standard theory two different lost capital metrics have been considered for value based management purposes by drukarczyk and schueler 2000 and young and o byrne 2001 this work illustrates the main properties of the two theories and their relations and provides a minimal guide to construction of performance metrics in the two approaches

financial management in inventory problems risk averse vs risk neutral policies abstract in this work we discuss the effect of risk measure selection in the determination of inventory policies we consider an inventory system characterized by the loss function of luciano et al 2003 var as a risk measure for multi period static inventory models international journal of production economics 81 82 375 384 we derive the optimization problems faced by risk neutral quadratic utility mean absolute and cvar decision makers results show that while the global nature of the optimal policy is assured for risk coherent and risk neutral decision makers the convexity of the quadratic utility problem depends on the stochastic properties of demand we investigate the economic and stochastic determinants of the different policies this allows us to establish the conditions under which each type of decision maker is indifferent to imprecision in the distribution families finally we discuss the numerical impact of the choice of the risk measure by means of a multi item inventory the introduction of an approach based on savage scores allows us to offer a quantitative measurement of the similarity discrepancy of policies reflecting different risk attitudes

uncertainty and global sensitivity analysis in the evaluation of investment projects abstract this paper discusses the use of global sensitivity analysis sa techniques in investment decisions global sa complements and improves uncertainty analysis ua providing the analyst decision maker with information on how uncertainty is apportioned by the uncertain factors in this work we introduce global sa in the investment project evaluation realm we then need to deal with two aspects 1 the identification of the appropriate global sa method to be used and 2 the interpretation of the results from the decision maker point of view for task 1 we compare the performance of two family of techniques non parametric and variance decomposition based for task 2 we explore the determination of the cash flow global importance gi for valuation criteria utilized in investment project evaluation for the net present value npv we show that it is possible to derive an analytical expression of the cash flow gi which is the same for all the techniques this knowledge enables us to 1 offer a direct way to compute cash flow gi 2 illustrate the practical impact of global sa on the information collection process for the internal rate of return irr we show that the same conclusions cannot be driven in particular a one has to utilize a numerical approach for the computation of the cash flow influence since an analytical expression cannot be found and b different techniques can produce different ranking these observations are illustrated by means of the application to a model utilized in the energy sector for the evaluation of projects under survival risk the quantitative comparison of cash flow ranking with respect to the npv and irr concludes the paper illustrating that information obtained from the sa of the npv cannot be transferred to the irr

what determines patent value insights from the semiconductor industry abstract this paper contributes to an understanding which impacts certain patent characteristics have on the value of patent rights in an exploratory study 127 individual patents from a semiconductor company were evaluated comprehensively by technical and marketing representatives the analysis of this rare data shows that for patents used as bargaining chips novelty and inventive activity are most important difficulty of inventing around and disclosure turn out to be of limited importance due to a selection bias the influence of patent age on its value cannot be determined the results hint at a differentiated theoretical plausibility of value indicators

languages and earnings management abstract we predict that managers of firms in countries where languages do not require speakers to grammatically mark future events perceive future consequences of earnings management to be more imminent and therefore they are less likely to engage in earnings management using data from 38 countries we find that accrual based earnings management and real earnings management are less prevalent where there is weaker time disassociation in the language our study is the first to examine the relation between the grammatical structure of languages and financial reporting characteristics and it extends the literature on the effect of informal institutions on corporate actions

the theory of the firm in long run equilibrium in a recent series of articles economists have investigated the comparative statics of the neoclassical firm in a competitive environment with the specific proviso that output price adjusts in response to changes in factor prices the older theory of the firm such as is found for example in paul samuelson 1947 is deficient in this regard metaphors such as short run have been used to gloss over the inconsistency of holding output price constant in the face of changing costs through changing factor prices in this paper a simple yet thorough analysis of a firm in a competitive industry i e a firm facing zero entry and adjustment cost conditions is given new results pertaining to restrictions on the behavior of such firms are offered also the length and complexity of established results is substantially reduced

are preliminary announcements of the money stock rational forecasts abstract we develop a theoretical framework of analyzing preliminary announcements of economic data and then apply this framework to the money stock we find that preliminary announcements of the money stock are best characterized as measured with classical errors in variables that is the revision is not correlated with the true value of the series the revision is however forecastable using information available at the time of the preliminary announcement our ability to forecast the revision implies that preliminary announcements are not rational estimates of the true money stock

stochastic properties of a production inventory process with planned production using transform methodology abstract we consider a stochastic inventory process in which demand is generated by individual events separated by independent stochastic time intervals whereas production takes place in batches of possibly varying sizes at different points in time the resulting processes are analysed using laplace transform methodology expressions for inventory and stockouts are developed applying the theory of residues an example includes poisson distributed demand intervals assuming costs for set ups for carrying inventory and for stockouts conditions are developed for determining the optimal production policy on the one hand when applying the traditional average cost measure on the other when applying the annuity stream principle

aggregate return on investment for investments under uncertainty abstract this paper deals with capital budgeting decisions under uncertainty we present an aggregate return on investment aroi obtained as the ratio of total undiscounted cash flow to total invested capital and show that it is a genuine rate of return which compared with the risk adjusted cost of capital correctly signals wealth creation for choosing between two mutually exclusive projects we derive an incremental aroi and an incremental risk adjusted cost of capital by means of which two unequal risk projects can be correctly compared iterating the incremental procedure we show that the aroi approach correctly ranks any bundle of different risk competing projects relations with other criteria such as modified internal rate of return average irr cash multiple and profitability index are provided theoretically the aroi approach constitutes a link between arbitrage choice theory and corporate investment theory and shows that explicit discounting is not necessary for measuring economic profitability practically the aroi is a user friendly easy to compute rate of return derived from the same set of data required by the net present value npv also it does not incur the difficulties met by the internal rate of return irr in particular it is unique and it is based on economically significant capital values i e market driven values as such the aroi significantly expresses the efficiency of the project s invested capital

an empirical study of capital budgeting practices for strategic investments in cim technologies abstract in recent years an increasing number of companies have been struggling to justify strategic technology investments using traditional capital budgeting systems the existing accounting based decision models such as discounted cashflow are said to be no longer adequate to help evaluate investments in technological innovation mainly because of the strategic intangible nature of the benefits involved as a result traditional capital budgeting methods have been heavily criticized of discouraging the adoption of advanced manufacturing technologies and thus undermining the competitiveness of western firms some authors would argue that the only alternative is to exempt these strategic investments from the control of accounting systems others have developed sophisticated methods for performing an integrated strategic and financial investment analysis at this point however it is still unclear which approach is prevalent in practice and which factors contribute to effective investment decisions this empirical study attempts to shed some light on the problem by examining the capital budgeting practices of firms with regard to strategic investments in computer integrated manufacturing cim technologies questionnaire data are used to provide a better insight into the ways in which manufacturing firms go about controlling major investments in new process technologies in addition tentative findings are presented about hypothesized relationships between characteristics of the investment decision making process and the perceived ex post financial performance of cim investments

technology policy for a world of skew distributed outcomes abstract this paper draws implications for technology policy from evidence on the size distribution of returns from eight sets of data on inventions and innovations attributable to private sector firms and universities the distributions are all highly skew the top 10 of sample members captured from 48 to 93 percent of total sample returns it follows that programs seeking to advance technology should not be judged negatively if they lead to numerous economic failures rather emphasis should be placed on the relatively few big successes to achieve noteworthy success with appreciable confidence a sizeable array of projects must often be supported the outcome distributions are sufficiently skewed that even with large numbers of projects it is not possible to diversify away substantial residual variability through portfolio strategies

a note on the sensitivity analysis of the internal rate of return abstract in this note we discuss the sensitivity analysis of the internal rates of return irr we show that the use of partial derivatives can be misleading in the identification of key drivers of an investment project s performance to remedy this shortcoming we propose the use of an alternative sensitivity measure called the differential importance measure the analysis shows that even if the theoretical conditions for using the net present value or the irr as valuation criteria apply the sensitivity analysis results for the two indicators may differ

average rates of return working capital and npv consistency in project appraisal a sensitivity analysis approach abstract in project appraisal under uncertainty the economic reliability of a measure of financial efficiency such as a rate of return depends on its strong npv consistency meaning that the performance metric i supplies the same recommendation in accept reject decisions as the npv ii ranks competing projects in the same way as the npv iii has the same sensitivity to perturbations in the input data as the npv in real life projects financial efficiency is greatly affected by the management of the working capital using a sensitivity analysis approach and taking into explicit account the role of working capital we show that the average return on investment roi is not strongly npv consistent in accept reject decisions if the working capital is uncertain and changes under changes in revenues and costs also it is not strongly npv consistent in project ranking we also show that the internal rate of return irr is not strongly npv consistent and economic analysis may even turn out to be impossible owing to possible nonexistence and multiplicity caused by perturbations in the input data as well as to possible shifts in the financial meaning of irr under changes in the project s value drivers we introduce the straight line rate of return slrr based on the notion of average rate of change which overcomes all the problems encountered by average roi and irr it always exists is unique strongly npv consistent for both accept reject decisions and project ranking and has an unambiguous financial nature

lost that lovin feeling the erosion of trust between small high distance partners we investigate the role of high distance in trust erosion between small partners high distance is known to hinder the formation of trust between potential partners but its role in trust erosion in established partnerships is less understood by international business scholars through a qualitative longitudinal study we extend current theory of how high distance affects the trust dynamics between cross border partners specifically we unearth three interrelated mechanisms that together explain how and why trust can erode due to high distance we show that before a partnership is formed high distance can lead partners to erroneously attribute cues to a potential partner s high quality leading to over expectations of partner performance once the partnership is operational high distance hinders actors ability to understand situational factors associated with disappointing outcomes and so they are attributed to failings of the partner at the same time distance related challenges of bounded reliability render partners reluctant to discuss partnership outcomes this can result in a vicious cycle of inertia as partners strive to protect goodwill while abandoning efforts to produce partnership outcomes because of doubts of the other s quality thus our theoretical model illustrates the limitations of trust and explains how paradoxically high distance can facilitate both trust formation and trust erosion

does cross sectional forecast dispersion proxy for macroeconomic uncertainty new empirical evidence we investigate the link between forecast dispersion and macroeconomic uncertainty resulting from the data revision structure of inflation and real output we find that disagreement is significantly related to data uncertainty however results are considerably more distinctive for inflation uncertainty

the patent paradox revisited an empirical study of patenting in the u s semiconductor industry 1979 1995 we examine the patenting behavior of firms in an industry characterized by rapid technological change and cumulative innovation recent survey evidence suggests that semiconductor firms do not rely heavily on patents to appropriate returns to r d yet the propensity of semiconductor firms to patent has risen dramatically since the mid1980s we explore this apparent paradox by conducting interviews with industry representatives and analyzing the patenting behavior of 95 u s semiconductor firms during 1979 1995 the results suggest that the 1980s strengthening of u s patent rights spawned patent portfolio races among capital intensive firms but it also facilitated entry by specialized design firms

revisiting multinational firms tolerance for joint ventures a trust based approach in spite of the increasing popularity of international joint ventures managers express a high level of dissatisfaction with them this paper argues that overemphasis on the outcome has resulted in a neglect of the social processes underlying the outcome the paper elaborates upon the rationale for a cooperative approach towards interorganizational collaborative relationships based on trust and discusses it in the context of joint ventures this is then applied towards understanding multinational ownership preferences and tolerance for joint ventures it is argued that trust centered logic is largely consistent with approaches that emphasize the issue of ownership and deepens and enriches the insights provided by the latter a shift in focus from ownership to relational dynamics is encouraged

cycles optimization the equivalent annuity and the npv approaches abstract the paper discusses the use of a generalized version of the equivalent annuity principle which takes into account interest rate fluctuations over time when dealing with applications over a sequence of cycles e g plant replacement ones the equivalent annuity is usually defined with reference to each single cycle or to the whole sequence first we study the correspondence between net present values and equivalent annuities as defined above in optimization problems we show that only the second definition is appropriate for optimization whenever the length of the cycle is a choice variable however also the second is not necessarily correct when the horizon is finite then we discuss the corresponding problems of optimality both with an infinite and a finite sequence of cycles applications to a simple plant replacement problem are illustrated they show how different the optimal decisions can be from the equivalent annuity ones

patents as options some estimates of the value of holding european patent stocks in many countries holders of patents must pay an annual renewal fee in order to keep their patents in force this paper uses data on the proportion of patents renewed and the renewal fees faced by post world war ii cohorts of patents in france the united kingdom and germany in conjunction with a model of patent holders renewal decisions to estimate the returns earned from holding patents in these countries since patents are often applied for at a nearly stage in the innovation process the model allows agents to be uncertain about the sequence of returns that will be earned if the patent is kept inforce formally then the paper presents and solves a discrete choice optimal stochastic control model derives the implications of the model on aggregate behaviour and then estimates the parameters of the model from aggregate data the estimates enable a detailed description of the evolution of the distribution of returns earned from holding patents over their life spans and calculations of both the annual returns earned from holding the patents still in force or the patent stocks in the alternative countries and the distribution of the discounted value of returns earned from holding the patents in a cohort this abstract was borrowed from another version of this item

what s in a p reassessing best practices for conducting and reporting hypothesis testing research social science research has recently been subject to considerable criticism regarding the validity and power of empirical tests published in leading journals and business scholarship is no exception transparency and replicability of empirical findings are essential to build a cumulative body of scholarly knowledge yet current practices are under increased scrutiny to achieve these objectives jibs is therefore discussing and revising its editorial practices to enhance the validity of empirical research in this editorial we reflect on best practices with respect to conducting reporting and discussing the results of quantitative hypothesis testing research and we develop guidelines for authors to enhance the rigor of their empirical work this will not only help readers to assess empirical evidence comprehensively but also enable subsequent research to build a cumulative body of empirical knowledge

some basic problems in inventory theory the financial perspective the analysis of the standard eoq problem from a financial perspective is proposed the case of mixed financing equity and debt is considered and the results are compared with those stemming from the average cost approach it is shown that no prediction about the result can be made we solve completely the problem of finding the best financing policy as the financial framework suggests to consider an infinity of inventory cycles we investigate the effects on the solution of a more realistic finite truncation of the chain we show that the finite chain solution is always smaller than the infinite chain one