Identifying risk issues and research advancements in supply chain risk management

The purpose of this paper is to investigate the research development in supply chain risk management (SCRM), which has shown an increasing global attention in recent years. Literature survey and citation/co-citation analysis are used to fulfil the research task. Literature survey has undertaken a thorough search of articles on selected journals relevant to supply chain operations management. Meanwhile, citation/co-citation analysis uses Web of Sciences database to disclose SCRM development between 1995 and 2009. Both the approaches show similar trends of rising publications over the past 15 years. This review has piloted us to identify and classify the potential risk associated with different flows, namely material, cash and information flows. Consequently, we identify some research gaps. Even though there is a pressing need and awareness of SCRM from industrial aspect, quantitative models in the field are relatively lacking and information flow risk has received less attention. It is also interesting to observe the evolutions and advancements of SCRM discipline. One finding is that the intellectual structure of the field made statistically significant increase during 2000-2005 and evolved from passively reacting to vague general issues of disruptions towards more proactively managing supply chain risk from system perspectives.     

Return Risk and Cash Flow Risk with Long-term Riskless Leases in Commercial Real Estate

This paper presents a conceptual analysis of some of the key fundamentals that underlie the risk characteristics of commercial real estate returns. In particular, the relationship between the property's return risk and its cash flow risk is explored. This relationship is important because it is the return risk that should matter most to investors, yet it is the cash flow risk or market risk about which we may have the most objective information and the most intuition. This is because real estate assets are generally unsecuritized and trade too infrequently to observe time series of returns (including appreciation) that could be used to directly study the risk characteristics of the returns. By explicitly incorporating the possibility of cash flows governed by riskless long-term leases, this paper also explores the relationship between lease term and both cash flow risk and return risk.     

自由现金流 金字塔股权结构与公司价值关系实证研究

本文以2007-2010年的A股上市公司为样本,从终极控制人角度研究了上市公司终极控股股东两权分离下自由现金流、控制层级和控制链条与公司价值的关系。自由现金流约束可以抑制控股股东的掏空行为,提高企业价值。控制层级与企业价值呈负相关关系,而控制链条数与企业价值呈正相关关系。     

Integrating Real Options with Managerial Cash Flow Estimates

This article presents a real options model that fits managerial cash flow estimates (optimistic, likely, and pessimistic projections) to a continuous geometric Brownian motion (GBM) cash flow process with changing growth and volatility parameters. The cash flows and the value of a project are correlated to a traded asset, so the real option is priced under the risk-neutral measure with a closed-form solution. The analysis is extended to a sequential compound call option for investments over multiple periods. If the project is correlated to the market, then some of the risk may be mitigated by a delta-hedging strategy. A numerical example shows that the effect of the correlated asset on the real option value is significant, and the relationship between the volatility of the project and the real option value is not analogous to the typical relationship found in financial option pricing. Integrating the expertise and industry knowledge of management, this approach makes possible a more rigorous estimation of model inputs for real option pricing.     

Short-term financing in a cash-constrained supply chain

In this paper we consider a two-level supply chain with a single retailer and a manufacturer, where both the firms are facing financial constraints and can not produce/order their optimal quantity. Our work shows that a lender who finances the manufacturer has a motivation to finance the retailer as well. Motivated by this, we investigate lender's problem of financing both the firms by making a joint decision on the loan amount and comparing it with the case when lender makes independent decision on loan amount for both the firms. Our numerical study indicates that if one of the firms in the supply chain has sufficiently low cash, joint decision (we refer to it as supply chain financing) may be better not only for the lender but for the retailer and manufacturer as well.     

Probability Distribution of the Project Payback Period Using the Equivalent Cash Flow Decomposition

For stochastic cash flows, probabilistic approaches to determine a complete distribution of payback period are very limited. The payback analysis based on the net present value (NPV) has several advantages. For annual cash flows, however, the NPV-based method does not provide a complete payback distribution. This article proposes a new technique, the equivalent cash flow decomposition (ECFD), which converts an annual cash flow into an equivalent subannual cash flow at a desired level of precision. The ECFD technique can be used in conjunction with any probabilistic cash flow technique. This article demonstrates that the ECFD technique overcomes the discontinuity limitation of the conventional NPV-based payback period method and generates a complete distribution of the payback period of annual cash flows. Examples indicate that the proposed method is robust with the accuracy comparable to Monte Carlo simulation.     

THE EFFECT OF PROJECT RISK ON CAPITAL RATIONING UNDER UNCERTAINTY

The purpose of this paper is to investigate the effect of project risk on capital rationing with uncertain budgetary constraints. We reflect project risk by the standard deviation of cash flows. The problem is formulated in a stochastic linear programming with simple recourse (SLPSR) framework. In a sample problem, we vary the level of project risk and allow the probability distribution for the right-hand side constraints to be either symmetric or left skewed. We demonstrate that SLPSR yields superior solutions to an equivalent deterministic formulation and that risk aside, the borrowing rate is an important factor in determining the optimal solution vector. Moreover, we show that low project risk can compensate for higher borrowing costs and that the presence or absence of probability distribution asymmetry may not be an important issue.     

On the Effects of Uncertainty on Investment Timing and Option Value

This article demonstrates that when the relationship between systematic risk and project value is taken into account, the sensitivity of investments with respect to volatility changes dramatically. By taking cash flows as a fundamental variable, the article shows that the value of an option to invest can be decreasing in volatility, contradicting the conventional wisdom. Second, the recent proposition, according to which the expected time to invest is U-shaped, does not generally hold; the expected time and the cash flow trigger are likely to be always increasing in volatility.     

融资约束视角下终极控股股东对企业风险承担的影响

本文利用我国2006～2014年沪深A股非金融类上市企业数据,研究终极控股股东对企业风险承 担的影响以及融资约束在该影响中的作用。结果表明,控股股东现金流权对企业风险承担的 影响呈U型结构,随现金流权的增大,现金流权对企业风险承担的影响由正转负。就我国市 场而言,控制权与现金流权的分离度对企业风险承担具有负向影响,这种负向影响程度随融 资约束的提高而减弱。     

On The Park-Thuesen Index and the Value of Earlier Uncertainty Resolution

In practice, engineering economic analysis involves uncertainty about future cash flows. To deal quantitatively with imprecision or uncertainty, fuzzy set theory is primarily concerned with vagueness in human thoughts and perceptions. As an alternative to conventional cash flow models where cash flows are defined as either crisp numbers or risky probability distributions, we propose an engineering economic decision model in which the uncertain cash flows and discount rates are specified as triangular fuzzy numbers. The present worth formulation of this fuzzy cash flow model is derived. The result of the present worth is also a fuzzy number with nonlinear membership function. The present worth can be approximated by a triangular fuzzy number. Deviation between exact present worth and its approximate form is examined. Finally, the fuzzy project selection is performed by applying different dominance rules. To demonstrate the application of the fuzzy present worth function, a comprehensive numerical example is presented.     

融资约束抑或过度投资——中国上市企业投资—现金流敏感度的经验证据

本文以中国上市企业为分析样本,通过检验现金持有量对投资—现金流敏感度的影响,考察企业中的融资约束和代理冲突。结果显示,融资约束与过度投资导致企业投资支出与内部现金流密切相关。民营企业、大规模地方国有企业中存在过度投资,所持有的现金具有明显的壕沟效应、进一步提高投资—现金流敏感度。而中、小规模国有企业面临的融资约束比较突出,为了抵御外部融资约束,持有现金充当对冲工具、降低投资—现金流敏感度。     

Corporate Transparency and Firm Growth: Evidence from Real Estate Investment Trusts

Using a panel data set of Real Estate Investment Trusts (REITs), we find corporate transparency to be positively associated with REIT growth. These results suggest that greater transparency facilitates firm growth by relaxing information‐based constraints on external financing. The magnitude of this effect is larger in the equity market than in the debt market. Moreover, the sensitivity of investment to cash flows is decreasing in transparency, evidence that transparency relaxes liquidity constraints. Finally, we find more transparent REITs are less likely to crash.     

企业债务期限结构与自由现金流的门限关系研究

文章创新性地运用了微观企业数据,通过构建面板门限模型考察了企业债务期限结构与企业自由现金流的非线性关系,并进一步揭示了宏观经济波动对企业债务期限结构与自由现金流关系的影响。研究发现：第一,企业债务期限结构与企业现金流的关系因为债务利息的不同呈现出双重门限效应。主要表现为当企业债务利息处于较低水平时,企业自由现金流与债务期限结构呈反向相关关系;当企业债务利息处于较高水平时,企业债务期限结构与债务期限结构呈正向相关关系;第二,宏观经济波动影响企业债务期限结构与自由现金流关系的敏感性。最后,从提高自由现金流的利用率、完善多层次资本市场建设以及降低融资杠杆等方面提出对策建议。     

A Review of: “STATISTICS OF EXTREMES” By Emil J. Gumbel Columbia University Press New York, 1958 375 pp. $15.00

Standard procedures for evaluating future cash flows are to find an appropriate discount rate consistent with the cash flow's risk and then to derive a present value. While discounted cash flows seem appropriate for many instances, finding appropriate discount rates is often difficult, or discount rates may not exist when the risk is actually a function of a decision that requires the cash-flow valuation. We consider two approaches that have been suggested to alleviate this problem: the capital asset pricing model (CAPM) and the risk-neutral pricing arguments from option theory. We discuss the assumptions inherent in these models and show the results on the well-known news vendor model. Our option pricing results correspond to Singhal's [17] results using CAPM and a different valuation procedure for the option pricing model. We, however, derive a simpler expression that clearly illustrates differences from the standard form ignoring risk.     

The benefits of geographic sales diversification: How exporting facilitates capital investment

Many strategic investments require firms to make upfront outlays to generate profits at a later date. When firms have limited access to external capital, they have to rely on internally generated funds for these investments. In this case, their strategic investments are constrained by cash flow. I predict that by geographically diversifying sales (i.e., exporting), firms can relax this constraint because exporting signals more stable expected cash flows and firm quality, which can increase external capital providers' willingness to fund investments. Examining a representative sample of Spanish manufacturers from 1990 to 1998, I find support that exporting mitigates investment liquidity constraints allowing firms to make strategic investments they would not otherwise be able to make. This highlights how diversification can be a strategy to create and maintain competitive advantage. Copyright © 2011 John Wiley & Sons, Ltd.     

Valuation of projects with minimum revenue guarantees: A Gaussian copula–based simulation approach

This technical note presents a numerical simulation technique to perform valuations of infrastructure projects with minimum revenue guarantees (MRG). It is assumed that the project cash flows—in the absence of the MRG—can be described in a probabilistic fashion by means of a very general multivariate distribution function. Then, the Gaussian copula (a numerical algorithm to generate vectors according to a prespecified probabilistic characterization) is used in combination with the MRG condition to generate a set of plausible cash flow vectors. These vectors form the basis of a Monte Carlo simulation that offers two important advantages: it is easy to implement and it makes no restrictive assumptions regarding the evolution of the cash flows over time. Thus, one can estimate the distribution of a broad set of metrics (net present value, internal rate of return, payback periods, etc.). Additionally, the method does not have any of the typical limitations of real options–based approaches, namely, cash flows that follow a Brownian motion or some specific diffusion process or whose volatility needs to be constant. The usefulness of the proposed approach is demonstrated with a simple example.     

A review of: “PROJECT MANAGEMENT IN MANUFACTURING AND HIGH TECHNOLOGY OPERATIONS” by Adedeji B. Badiru,John Wiley and Sons,Inc., New York, 1988, xxii + 319 pp., ISBN 0471-62892-1, List $44.95.

The conventional approach to considering working capital cash flows in capital budgeting is to omit them or include some ad hoc figures at the initiation and termination of the project. The authors argue for an endogenous system of estimating relevant working capital cash flows on a periodic basis. Otherwise, the present value of working capital cash flows is biased against the project's acceptance. Examples of calculating working capital cash flows as related to changes in annual sales are presented for three time patterns of sales and contrasted to the conventional method. An empirical study of the linear relationship of net working capital and sales revenue of 770 companies is reported, and an alternative cash flow model is offered thai includes working capilal cash flows.     

Remarks on Engineering Economy Studies from the Viewpoint of Statistical Decision Theory

Lack of credit during periods of financial stress can reduce sales in an entire supply chain. To reduce the reliance on external credit, we introduce a new financing framework in which key supply chain stakeholders accept delayed payment for a pre-agreed portion of their product or service. By doing so throughout the supply chain, each stakeholder must self-finance only their in-house activities—but not the cost of purchased components and services because those are in turn financed by their suppliers. Intended to account for only a small fraction of sales, this framework is limited to supplying customers who do not qualify for external financing. The payments from these customers are distributed among the value chain stakeholders according to an agreed-upon policy. These additional sales would otherwise be lost for lack of consumer credit. This approach increases sales and profitability for the entire supply chain and is especially advantageous during credit crunches. In addition to describing this new financing framework, this article places it in the context of other financing arrangements, provides an example with cash flow and net present value calculations, and identifies implementation challenges and characteristics of supply chains that are good candidates.     

EQUIVALENCE OF CASH FLOWS WHEN COMPOUNDING OCCURS LESS FREQUENTLY THAN THE CASH FLOWS

A method for determining the equivalent cash flow when compounding occurs less frequently than the cash flow is presented. Existing methods for determining the equivalence of cash flows ignore the time value of money and, hence, are not satisfactory. A prorated simple interest is used for calculating the interest within the compounding period. An example utilizing the proposed method is presented.     

Fuzzy Decision Analysis for Alternative Selection Using a Fuzzy Annual Worth Criterion

Very often, in industry, discounted cash flow techniques are applied for analyzing and selecting investment alternatives under consideration. These techniques are usually based on the data under certainty or risk. In reality, however, the decision makers are often facing the situation of vague cash flows and discount rates, or even uncertain durations, when evaluating and selecting potential investments. Fuzzy set theory has the capability of capturing vague data and allows mathematical operations. This article proposes a fuzzy equivalent uniform annual worth (fuzzy EUAW) method to assist practitioners in evaluating investment alternatives utilizing the theory of fuzzy sets. Triangular fuzzy numbers (TFNs) are used throughout the analysis to represent the uncertain cash flows and discount rates. Further, fuzzy capital recovery factors and fuzzy sinking fund factor are derived. Using these two factors, the fuzzy equivalent annual worth of each investment alternative can be found. By ranking these fuzzy numbers with the integral value, the optimal investment alternative is selected. A numerical example is provided to illustrate the results of the alternative selection.