promotion policies for renewable energy and their effects in taiwan abstract taiwan is an interesting case in bioenergy development and its government has employed several subsidies to promote bioenergy such as released land compensation and energy crop subsidies however how farmers respond to these economic incentives is not clear the study employs the concept of big data by incorporating data on the input output of crop production demand elasticities international trade and tariffs processing technologies commodity prices and energy prices for more than 85 of taiwanese agricultural and forest commodities the study first utilizes a mathematical programming model to examine the effectiveness of these policies in terms of bioenergy production and ghg greenhouse gas emissions reduction and then applies the dynamic structural equation model to analyze the interactions among important input and output factors such as social welfare energy prices bioenergy production ghg emissions and co 2 trade prices the results show that 1 the ghg price is more effective than the coal price in the sense of reducing the ethanol production 2 the gasoline price has a negative impact on contemporary electricity production while the coal and ghg prices have positive impacts 3 current ethanol production has a negative influence on current ghg emissions reductions and 4 the gasoline price coal price ghg price and ghg emissions reductions have a significant positive impact on contemporary welfare

collateral and credit rationing a review of recent empirical studies as a guide for future research abstract the relationship between firms and banks often suffers from informational opacity that may result in credit rationing in theory providing collateral to the bank can have a mitigating effect on these informational asymmetries and thus solve the credit rationing problem even though collateral is already a widespread debt contract feature recent trends predict that in the future collateral will become even more important for informationally opaque firms the aim of this paper is twofold first we provide a review of the recently growing empirical research on collateral as a remedy for credit rationing second we would like to pinpoint gaps and limitations in current empirical research most studies contend with a flawed research design by not distinguishing between business and personal collateral and excluding other information opaqueness reducing tools such as the strength of the relationship between borrower and lender loan maturity and covenants we also discuss the limitations of using a single equation estimation method and the usefulness of incorporating interaction effects into the estimation models finally we provide suggestions for fruitful research avenues that would fill these gaps and enrich the empirical knowledge in this research domain

co development ventures optimal time of entry and profit sharing we find the optimal time for entering a joint venture by two firms and the optimal linear contract for sharing the profits we consider risk sharing timing incentive and asymmetric decisions contract designs if the firms are risk neutral and the cash payments are allowed all three designs are equivalent with risk aversion the optimal contract parameters may vary significantly across the three designs and across varying levels of risk aversion we also analyze a dataset of joint biomedical ventures in which in agreement with our theoretical predictions both royalty and cash payments are mostly increasing in the smaller firm s experience and the time of entry happens sooner for more experienced small firms

market share market value and innovation in a panel of british manufacturing firms this paper examines the empirical relationship between technological innovations market share and stock market value new developments in the estimation of dynamic count data models are used to control for unobserved firm specific heterogeneity we find a robust and positive effect of market share on observable headcounts of innovations and patents although increased product market competition in the industry tends to stimulate innovative activity furthermore the impact of innovation on market value is larger for firms with higher market shares we argue that our results are consistent with models where high market share firms have incentives to pre emptively innovate

has technology increased agricultural yield risk evidence from the crop insurance biotech endorsement the conventional wisdom that technological advances in seed breeding and genetic modification of corn traits have lowered yield risk has recently been challenged by research that argues that the converse is true the implications of this research have been applied to models of climate change and have led to the conclusion that these advances have actually increased agronomic risk such that climate change is asserted to raise important concerns regarding the stability and viability of agricultural output in the future in a large body of empirical work the argument is based upon assertions that corn yields have become more sensitive to weather stresses this increased sensitivity has coincided with the introduction of a variety of genetically engineered ge crops in the 1990s and 2000s we use corn yields and data from the us federal crop insurance program to evaluate these claims an initial examination of yield responses to droughts in 1988 and 2012 suggests more robust yields in the latter period in spite of very comparable weather stresses we next consider side by side data collected under the biotech endorsement be to the federal crop insurance program between 2008 and 2011 this endorsement provided substantial discounts for growers using certain ge hybrids reflecting policymakers beliefs that these hybrids had lower yield risk we find that risk as measured by the rate of indemnities paid per units insured was significantly lower for crops insured under the be we also find that the difference in risk tends to be greater when growing conditions are less favorable

business cycles and research investment this paper examines the impact of uncertainty and the business cycle on us high tech manufacturing firms research investment although the reliance on internal financing suggests firms will consider uncertainty and the business cycle when determining their research budget little is known about how the business cycle and uncertainty influence research investment using firm level data on sales cash flow and industry level indicators of the business cycle this paper finds that the firm s response to the business depends on the firm s industry and the industry s current location in the business cycle the data also shows that the business cycle also depresses the firm s reaction to changes in sales and cash flow uncertainty clearly reduces research efforts although non linearly

are crop yields normally distributed the evidence for nonnormality of crop yields is reassessed three methodological problems are identified in typical yield distribution analyses i misspecification of the nonrandom components of yield distributions ii missreporting of statistical significance and iii use of aggregate timeseries ats data to represent farm level yield distributions one or more of these problems infect virtually all evidence against normality to date the positive contribution of the article is a set of principles that must be followed in any valid investigation of yield normality

r d and internal finance a panel study of small firms in high tech industries since joseph schumpeter economists have argued that internal finance should be an important determinant of r d expenditures yet almost without exception previous empirical studies have not found evidence of such a relation using newly available data the authors investigate this puzzle with a panel of 179 small firms in high tech industries under each estimation strategy they employ the authors find an economically large and statistically significant relationship between r d investment and internal finance their results are consistent with the view that because of capital market imperfections the flow of internal finance is the principal determinant of the rate at which small high tech firms acquire technology through r d copyright 1994 by mit press

do financial constraints hold back innovation and growth evidence on the role of public policy abstract this paper provides evidence that capital market imperfections hold back innovation and growth and that public policy can complement capital markets we deliver the evidence by studying the effects of government funding on the behavior of smes in finland by adapting the methodology recently proposed by rajan and zingales rajan r g zingales l 1998 financial dependence and growth american economic review 88 pp 559 587 to firm level data we show that government funding disproportionately helps firms from industries that are dependent on external finance we demonstrate that the result is economically significant and robust to a variety of tests

real options delay vs pre emption do industrial characteristics matter this paper presents an empirical study of the channels of influence from uncertainty to fixed investment suggested by real options theory using panel data from the confederation of british industry cbi industrial trends survey we report ols estimates of the impact of uncertainty on investment where the regressors are augmented by cross sectional averages of the dependent variable and of the individual specific regressors as recently suggested by pesaran pesaran m h 2006 estimation and inference in large heterogeneous panels with a multifactor error structure econometrica 74 967 1012 the cross industry pattern of results is checked for consistency with the pattern predicted by real options theory using a specially constructed data set of industrial characteristics we find that irreversibility is able to predict the pattern detected but only when combined with a measure of the information advantage of delay there is also evidence for expansion options effects industries with high r d and advertising intensities tend to have positive uncertainty effects

the impact of weather on crop yield distribution in taiwan some new evidence from panel data models and implications for crop insurance this study examines the impact of weather on the yields of seven major crops in taiwan based on pooled panel data for 15 prefectures over the 1977 1996 period the unit root tests and maximum likelihood methods involving a panel data model are explored to obtain reliable estimates the uncertain yield outcome is incorporated into a discrete stochastic programming model to address a comparison between sector analysis with and without considerations of a crop insurance policy under different climate change scenarios simulation results suggest that crop insurance may stabilize revenues and protect farmers from exposures to increasing weather related risk

the effect of uncertainty on investment timing in a real options model abstract this paper examines the effect of uncertainty on investment timing in a canonical real options model we show that the critical value of a project that triggers the exercise of the investment option exhibits a u shaped pattern against the volatility of the project this is due to the two countervailing risk and return factors in effect we further show that such a u shaped pattern is inherited by the expected time to exercise the investment option thus for relatively safe projects greater uncertainty shortens the expected exercise time and thus enhances investment this is in sharp contrast to the negative investment uncertainty relationship commonly found in the extant literature finally we show that the positive investment uncertainty relationship is more likely for high growth projects than for low growth projects

on the investment uncertainty relationship in a real options model abstract it appears to be widely accepted in the real options literature that an increase in uncertainty should have an inhibiting effect on investment our article demonstrates that the notion of a negative uncertainty investment relationship is not always correct we show that in certain situations an increase in uncertainty can actually increase the probability of investing and thereby have a positive impact on investment

investment under alternative return assumptions comparing random walks and mean reversion abstract many recent theoretical papers have come under attack for modeling prices as geometric brownian motion this process can diverge over time implying that firms facing this price process can earn infinite profits we explore the significance of this attack and contrast investment under geometric brownian motion with investment assuming mean reversion while analytically more complex mean reversion in many cases is a more plausible assumption allowing for supply responses to increasing prices we show that cumulative investment is generally unaffected by the use of a mean reversion process rather than geometric brownian motion and provide an explanation for this result

endogenous financial constraints and innovation we investigate which indicators of a firm s innovation activities are associated with financial constraints and analyze the nature and direction of causal links between innovation and financial constraints by estimating simultaneous bivariate probit models on data from the uk innovation surveys we show that among innovation inputs research and development r d activity increases the likelihood that firms face financial constraints among innovation outputs only new to market products generate financial constraints reverse effects on innovation appear limited to external r d

uncertainty and the trade off between scale and flexibility in investment abstract this paper analyzes the behavior of a firm that chooses both the scale and timing of its investment sensitivity analysis shows that greater demand volatility is associated with the firm investing in larger increments less frequently this is in contrast to the conventional wisdom which is that greater volatility leads to investment in smaller increments more frequently overall the reduced frequency dominates the greater scale so that the long run average rate of investment is a decreasing function of demand volatility the timing and scale of investment are most sensitive to volatility when there are substantial investment economies of scale

finite project life and uncertainty effects on investment abstract this paper revisits the important result of the real options approach to investment under uncertainty which states that increased uncertainty raises the value of waiting and thus decelerates investment typically in this literature projects are assumed to be perpetual however in today s economy firms face a fast changing technology environment implying that investment projects are usually considered to have a finite life the present paper studies investment projects with finite project life and we find that in contrast with the existing theory investments may be accelerated by increased uncertainty it is shown that this particularly happens at low levels of uncertainty and when project life is short

a more complete conceptual framework for sme finance abstract we propose a more complete conceptual framework for analysis of sme credit availability issues in this framework lending technologies are the key conduit through which government policies and national financial structures affect credit availability we emphasize a causal chain from policy to financial structures which affect the feasibility and profitability of different lending technologies these technologies in turn have important effects on sme credit availability financial structures include the presence of different financial institution types and the conditions under which they operate lending technologies include several transactions technologies plus relationship lending we argue that the framework implicit in most of the literature is oversimplified neglects key elements of the chain and often yields misleading conclusions a common oversimplification is the treatment of transactions technologies as a homogeneous group unsuitable for serving informationally opaque smes and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque smes

no money no honey financial versus knowledge and demand constraints on innovation the paper adds to the literature on the barriers to innovation in two ways first we assess comparatively what mostly constrains firms ability to translate investment in innovation activity into new products and processes whether it is mainly finance as most of the literature would suggest or whether it is mostly knowledge and market related aspects second we suggest a method to correct for the sample selection bias that often affects empirical contributions to this scholarship by filtering out firms that are not interested in innovation from those that struggle to engage in it we obtain a relevant sample of potential innovators which allows us to analyse the comparative effect of financial and non financial barriers on innovation success we find that demand side factors particularly concentrated market structure and lack of demand are as important as financial constraints in determining firms innovation failures this evidence redirects attention from financial to non financial barriers by considering traditional demand market structure and regulation factors involved in reduced firm innovation performance the empirical analysis is based on an unbalanced panel of firm level data from four waves of the uk community innovation survey cis between 2002 and 2010 merged with data from the uk business structure database

warming temperatures will likely induce higher premium rates and government outlays for the u s crop insurance program likely climate change impacts include damages to agricultural production resulting from increased exposure to extreme heat considerable uncertainty remains regarding impacts on crop insurance programs we utilize a panel of u s corn yield data to predict the effect of warming temperatures on the mean and variance of yields as well as crop insurance premium rates and producer subsidies while we focus on corn we demonstrate that the subsidy impacts are likely to carry over to other major program crops we find that warming decreases mean yields and increases yield risk on average which results in higher premium rates under a 1 c warming scenario we find that premium rates at the 90 coverage level will increase by 39 on average however there is considerable statistical uncertainty around this average as the 95 confidence interval spans from 22 to 61 we also find evidence of extensive cross sectional differences as the county level rate impacts range from a 10 reduction to a 63 increase results indicate that exposure to extreme heat and changes in the coefficient of variation are large drivers of the impacts under the 1 c warming scenario we find that annual subsidy payments for the crop insurance program could increase by as much as 1 5 billion representing a 22 increase relative to current levels this estimate increases to 3 7 billion 57 under a 2 c warming scenario our results correspond to a very specific counterfactual the marginal effect of warming temperatures under current technology production and crop insurance enrollments these impacts are shown to be smaller than the forecasted impacts under a commonly used end of century general circulation model for even the most optimistic co emissions projection

you can lead a firm to r d but can you make it innovate uk evidence from smes the uk government introduced tax credits for smes to promote and support r d in 2000 since then the policy has become more generous in this respect particularly since 2008 in this paper we use the national systems of entrepreneurship as a conceptual framework in which to question whether smes take up of tax credits has actually led to an increase in product service or process innovations our evidence suggests that a sme engagement with the policy is fairly randomly distributed across the sector and b there is little additional product service innovation to justify the expenditure in foregone taxes given the current distribution of credits but c there is evidence of enhanced radical process innovations particularly when combined with strong capability and planning at the firm level

financing patterns around the world are small firms different using a firm level survey database covering 48 countries we investigate how financial and institutional development affects financing of large and small firms our database is not limited to large firms but includes small and medium size firms and data on a broad spectrum of financing sources including leasing supplier development and informal finance small firms and firms in countries with poor institutions use less external finance especially bank finance protection of property rights increases external financing of small firms significantly more than of large firms mainly due to its effect on bank finance small firms do not use disproportionately more leasing or trade finance compared with larger firms so these financing sources do not compensate for lower access to bank financing of small firms we also find that larger firms more easily expand external financing when they are constrained than small firms finally we find suggestive evidence that the pecking order holds across countries

on the sign of the investment uncertainty relationship understanding the effects of uncertainty over any decision variable has fascinated economists for a long time risk aversion and incomplete markets are likely to make the investment uncertainty relationship negative e g roger craine 1989 joseph zeira 1989 what happens in the absence of risk aversion and incomplete markets is however ambiguous richard hartman 1972 and andrew b abel 1983 1984 1985 found that in the presence of symmetric convex costs of adjustment mean preserving increases in price uncertainty raise investment of a competitive firm as long as the profit function is convex in prices on the other hand the recent literature on irreversible investment e g robert s pindyck 1988 giuseppe bertola 1988 has shown that increases in uncertainty lower investment all these results have been derived under either risk neutrality or complete markets intuition suggests that the explanation for such a difference lies with the asymmetric nature of adjustment costs in the irreversible investment case as compared with the symmetry of the adjustment cost mechanisms proposed by abel and hartman although this intuition is confirmed in this paper asymmetric adjustment costs are shown not to be sufficient to explain why the results differ in fact a more hidden but at least as important difference between these two literatures is that the former assumes perfect competition and constant returns to scale whereas the latter assumes either imperfect competition or decreasing returns to scale or both 2 the purpose of this paper is to highlight the role of the decreasing marginal return to capital assumption due to either imperfect competition or decreasing returns to scale or both in determining the effects of adjustment cost asymmetries on the sign of the response of investment to changes in uncertainty under risk neutrality for this the paper develops a simple model with a cost of adjustment mechanism general enough to consider both symmetric convexity and irreversibility as special cases one of the most important findings is the lack of robustness of the negative relationship between investment and uncertainty under asymmetric adjustment costs3 to changes in the degree of competition in fact when firms are nearly competitive the conclusion of hartman and of abel holds no matter how asymmetric adjustment costs are studying adjustment cost mechanisms has a central role in understanding the dynamics of investment and its business cycle implications but conclusive results about the sign of the instantaneous relationship between uncertainty and investment should not be department of economics columbia university new york ny 10027 i am grateful to giuseppe bertola prajit dutta glen hubbard anil kashyap richard lyons and the referees for their useful comments 1the financial literature on investment has considered risk aversion through a premium in the discount rate determined by the capm capital asset pricing model intertemporal capm or consumption capm however often this discount rate is left unchanged when studying the response of investment to uncertainty changes e g pindyck 1988 pp 974 5 thereby omitting the effect of changes in uncertainty on investment due to risk aversion and incomplete markets 2in the typical version of the irreversible investment problem there is no cost of upward adjustments thus imperfect competition and or decreasing returns to scale are required to bound the size of the firm 3in this paper asymmetric adjustment cost refers to the case in which it is more expensive to adjust downward than upward certainly the opposite case is a trivial extension of the case studied in this paper

optimal oil production and the world supply of oil abstract we study the optimal oil extraction strategy and the value of an oil field using a multiple real option approach the numerical method is flexible enough to solve a model with several state variables to discuss the effect of risk aversion and to take into account uncertainty in the size of reserves optimal extraction in the baseline model is found to be volatile if the oil producer is risk averse production is more stable but spare capacity is much higher than what is typically observed we show that decisions are very sensitive to expectations on the equilibrium oil price using a mean reverting model of the oil price where the equilibrium price is also a random variable oil production was cut during the 2008 2009 crisis and we find that the cut in production was larger for opec members for countries facing a lower discount rate and for countries whose governments finances are less dependent on oil revenues however the net present value of a country s oil reserves would be increased significantly by 100 in the most extreme case if production was cut completely when prices fall below the country s threshold price if several producers were to adopt such strategies world oil prices would be higher but more stable

devaluating projects and the investment uncertainty relationship abstract sarkar 2000 on the investment uncertainty relationship in a real options model journal of economic dynamics and control 24 219 225 analyzes the investment uncertainty relationship in a real options model demonstrating that the widely accepted conclusion that uncertainty harms investment can be reversed wong 2006 the effect of uncertainty on investment timing in a real options model journal of economic dynamics and control forthcoming confirms this point showing that more uncertainty can reduce the expected time to exercise the investment option this paper deals with such an issue and attempts to integrate both sarkar s and wong s analysis for risk neutral investors we show that uncertainty can favor investment only if projects devaluate over time this conclusion does not hold in a capm framework where we demonstrate that the relationship uncertainty investment can be positive a even when the investment threshold increases with uncertainty and b in the case of projects negatively correlated with the market portfolio

a theory of financing constraints and firm dynamics there is widespread evidence supporting the conjecture that borrowing constraints have important implications for firm growth and survival in this paper we model a multiperiod borrowing lending relationship with asymmetric information we show that borrowing constraints emerge as a feature of the optimal long term lending contract and that such constraints relax as the value of the borrower s claim to future cash flows increases we also show that the optimal contract has interesting implications for firm dynamics in agreement with the empirical evidence as age and size increase mean and variance of growth decrease and firm survival increases

optimal r d investment for a risk averse entrepreneur abstract entrepreneurs investing in r d projects face technical uncertainty associated with the cost to completion of the project which is idiosyncratic and inherently unhedgeable we extend existing real options models of r d investment to incorporate the cost of bearing this unhedgeable risk and find it decreases risk averse entrepreneurs valuations of r d projects and increases the minimum npvs required for continued investment in r d threshold npvs relative to unpriced risk values and threshold npvs as in the unpriced risk case for less risk averse entrepreneurs with small r d projects threshold npvs remain negative and decrease with technical uncertainty however for sufficiently risk averse entrepreneurs with sufficiently large r d projects threshold npvs can become positive and increase with technical uncertainty

real exchange rate uncertainty private investment in ldcs this paper examines empirically the link between real exchange rate uncertainty and private investment in developing countries using a large cross country time series data set the paper builds a garch based measure of real exchange rate volatility and finds that it has a strong negative effect on investment after controlling for other standard investment determinants and taking into account their potential endogeneity the effect of uncertainty is not uniform however there is some evidence of threshold effects so that uncertainty only matters when it exceeds some critical level in addition the negative effect of real exchange rate uncertainty on investment is significantly larger in economies that are highly open and in those with less developed financial systems

r d and credit rationing in smes we study the effects of credit rationing on research and development r d investment using survey and accounting data on a large representative sample of manufacturing small and medium sized enterprises smes our econometric model accounts for the endogeneity of our credit rationing indicator and employs an innovative theory based identification strategy we find that credit rationing has a significantly negative effect on both the probability to set up r d activities and on the level of r d spending conditioned on the r d decision but the overall estimated reduction in r d spending is largely to be associated with the first effect jel g21 d82 032 c35 i introduction long run economic growth and welfare resides on the production of new knowledge and its implementation into new or improved products or processes for this reason identification evaluation and correction of the detrimental effects of potential underinvestment in research and development r d activities have a prominent place in the policy agendas of all industrialized countries this is particularly the case in europe where since the start of the recent economic crisis the policy debate has been focused on the role of capital market imperfections as they increase the cost of r d when firms do not have sufficient internal funds to finance it the credit crunch that is the lack of availability or reduction in supply of credit to businesses from traditional financial institutions is said to reduce firms investment in innovative activities and growth prospects however despite its theoretical appeal and in contrast with the proven sensitivity of fixed capital investment to financing constraints evidence on the susceptibility of r d investment to financial frictions and in particular to credit rationing is still mixed and inconclusive three explanations have been put forward for the lack of robust evidence first it is claimed that the variety in the results reflects the contrast between theoretical explanations based on asymmetric information arguments suggesting a sensitivity of r d to financing constraints potentially higher than that of ordinary investment and the characteristics of r d as a long term investment with high adjustment costs suggesting rather the opposite 1 second existing evidence is based almost exclusively on the sensitivity of firm level r d spending to the availability of internal finance typically measured through cash flow which is however known to be problematic in its ability to proxy for financing constraints kaplan and zingales 1997 2000 third recent contributions have stressed the difficulty in identifying the role of financing constraint using standard investment models when firms have access to multiple channels for raising external financial resources and managing buffer stocks of liquidity brown martinsson and petersen 2011 in this study we use firm level data on r d investment and credit constraints to measure the detrimental effect of credit rationing on r d investment dealing with all the above specified issues first we claim that the ambiguity originated by information problems versus the nature of r d as a long term investment might be resolved if we distinguish between the probability of r d investment the r d participation decision and the size of r d investment once the decision to invest has been taken the amount of r d spending decision we therefore study the effect of credit rationing on the decision to do r d and on the amount of r d investment our hypothesis is that credit rationing displays a stronger effect on the first decision compared with the latter while this expectation might seem obvious to our knowledge econometric analyses on the topic have not yet addressed or proven the differential impact of credit rationing on the participation and amount decisions respectively

a real options based model and its application to china s overseas oil investment decisions abstract this paper applies real options theory to overseas oil investment by adding an investment environment factor to oil resource valuation a real options model is developed to illustrate how an investor country or oil company can evaluate and compare the critical value of oil resource investment in different countries under oil price exchange rate and investment environment uncertainties the aim is to establish a broad model that can be used by every oil investor country to value overseas oil resources the model developed here can match three key elements 1 deal with overseas investment the effects of investment environment and exchange rates 2 deal with oil investment oil price production decline rate and development cost etc 3 the comparability of the results from different countries different countries oil investment situation can be compared by using the option value index ovi china s overseas oil investment is taken as an example to explain the model by calculating each oil investee country s critical value per unit of oil reserves and examining the effect of different factors on the critical value the results show that the model developed here can provide useful advice for china s overseas oil investment program the research would probably also be helpful to other investor countries looking to invest in overseas oil resources

risky business political instability and greenfield foreign direct investment in the arab world which foreign direct investments are most affected by political instability analysis of quarterly greenfield investment flows into countries in the middle east and north africa during the period from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non resource tradable sectors by contrast investments in natural resource sectors and non tradable activities appear insensitive to such shocks political instability is thus associated with increased reliance on non tradables and aggravated resource dependence

toward a theory of agricultural insurance in this paper we develop a theory of crop insurance we start by reaffirming the risk spreading role of competitive crop insurance markets it is argued however that once the problems of imperfect information are recognized a competitive crop insurance market may not exist at all two candidates present themselves first is market insurance with the public sector as a source of costly information gathering and dissemination and second is the direct provision of crop insurance by the public sector we focus on the latter and develop a model of public insurance as a decentralized plan where the farmer determines factor utilization taking the insurance contract as given in turn the insurance agency taking factor utilization as determined by the farmer chooses the optimal contract so as to maximize the value of aggregate output in the economy

investment under uncertainty the case of replacement investment decisions we analyze the determinants of replacement investment decisions in a contingent claims model with maintenance and operation cost uncertainty we find that the optimal time between replacements is increasing in the volatility of cost the purchase price of a new asset and the corporate tax rate and is decreasing in the systematic risk of cost the salvage value of the asset and the investment tax credit the optimal time between replacements can either increase or decrease with an increase in the depreciation rate extensions of the model to examine the effects of technological and tax policy uncertainty on replacement investment decisions give intuitive but striking results uncertainty about the arrival of a technological innovation that would decrease maintenance and operation cost results in a significant decrease in replacement investment uncertainty in a tax law change that would encourage investment decreases current investment and uncertainty in a tax law change that would discourage investment increases current investment

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

understanding the relation between accruals and volatility a real options based investment approach abstract accruals are fundamental to financial reporting and are the underlying innovation of accounting despite this accounting research has provided little understanding of how economic forces affect a firm s level of accruals and limited guidance for forming expectations of accruals based on ex ante firm characteristics we consider accruals as a form of investment and examine whether theoretical predictions from a real options based investment framework provide insight into the relation between accruals and the ex ante expected volatility faced by the firm specifically the theory predicts that higher volatility dampens investment because firms prefer to wait and see instead of investing immediately consistent with this theory we document a robust negative relation between year ahead net working capital accruals and expected volatility we also predict and find that the negative association between year ahead net working capital accruals and expected volatility is less pronounced for distressed firms and more pronounced for firms with a longer operating cycle and that current asset accruals are more sensitive to volatility than current liability accruals finally we find that the residuals from an investment based expected accrual model outperform those from the widely used performance adjusted modified jones model in identifying companies that just meet or beat analysts earnings forecasts collectively our findings suggest that the investment perspective of accruals and in particular the real options based investment framework provide useful insights for forming expectations of accruals

small and medium size enterprises access to finance as a growth constraint abstract this paper presents recent research on access to finance by small and medium size enterprises smes smes form a large part of private sector in many developed and developing countries while cross country research sheds doubt on a causal link between smes and economic development there is substantial evidence that small firms face larger growth constraints and have less access to formal sources of external finance potentially explaining the lack of smes contribution to growth financial and institutional development helps alleviate smes growth constraints and increase their access to external finance and thus levels the playing field between firms of different sizes specific financing tools such as leasing and factoring can be useful in facilitating greater access to finance even in the absence of well developed institutions as can systems of credit information sharing and a more competitive banking structure

off farm work technical efficiency and rice production risk in taiwan this article investigates the differences in yield production production efficiency and yield risk for farmers both with and without off farm work using a nationwide survey of rice farmers in taiwan we estimate two stochastic production frontier models that accommodate technical inefficiency and production risk simultaneously for farmers both with and without off farm work the stochastic dominance criterion is then applied to compare the differences in the distributions of the estimated technical efficiency and yield risk between groups the empirical results indicate that these two groups of farmers use resources in different ways and off farm work is not necessarily associated with lower technical efficiency for farmers in the lower percentiles of the efficiency distribution those with off farm work are more efficient than their counterparts without off farm work in addition farmers with off farm work face higher production risk and this result is robust for the entire distribution

investment cash flow sensitivities credit rationing and financing constraints in small and medium sized firms the controversy on whether investment cash flow sensitivity is a good indicator of financing constraints is still unsolved we apply a comprehensive approach by cross validating our analysis with both balance sheet and qualitative data on self declared credit rationing and financing constraints on a sample of mainly small and medium sized firms our qualitative information shows that self declared credit rationing is weakly related to both traditional a priori factors such as firm size age and location and lenders rational decisions taken on the basis of their credit risk models we use the qualitative information on firms which were denied additional credit to provide evidence relevant to the investment cash flow sensitivity debate the evidence shows that self declared credit rationing significantly discriminates between firms which possess or not such sensitivity while a priori criteria do not the same result does not apply when we consider the wider group of financially constrained firms which do not seem to have a higher investment cash flow sensitivity supporting the more recent empirical evidence in this direction