Managing Capital Market Frictions via Cost-Reduction Investments
نویسندگان
چکیده
Problem definition: We examine how the presence of capital market frictions influences decision to invest in production cost reduction and resultant volume. This investment can increase firm’s cash flow by increasing profit margin, but it also decrease risk-free reserves thus affect its exposure frictions. Academic/practical relevance: Process improvement aimed at has generated myriad theoretical questions about efficient options capacity choices. From a managerial perspective, process is fundamental concern operations strategy. Nevertheless, analysis typically excludes financial constraints assuming perfect market. Methodology: formulate two-stage maximization model which capital-constrained firm commits cost-reduction first stage anticipation second this process. The considers when making decisions each stage, while considering uncertainty demand for offering reducing unit cost. Results: When faces small initial low preinvestment costs, benefit from investing more so than their absence. Moreover, mitigates impact on net (i.e., additional profit), whereas decreases feasible parameter space, where optimal. Managerial implications: A affects operational capabilities. Managers should consider as an hedge not only against matching supply risk.
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ژورنال
عنوان ژورنال: Manufacturing & Service Operations Management
سال: 2021
ISSN: ['1523-4614', '1526-5498']
DOI: https://doi.org/10.1287/msom.2019.0814