This paper analyzes the choice among alternative fixed and variable cost structures under demand uncertainty. We show that the standard decision rules for the choice among cost structures under certainty continue to hold if the decision maker is risk neutral. If the decision maker is risk averse, the optimal cost structure depends on the decision model. With cost-based decision making, the break even quantities are lower than under certainty. If the decision is based on contribution margins, the opposite holds. That is, a cost structure with higher fixed and lower variable cost becomes attractive for a lower (higher) quantity than under certainty if the decision maker is risk averse and makes his decision on the basis of cost (contribution margin). We also show that cost structures that are dominated under certainty can become attractive for a risk averse decision maker. Finally, we provide a simple agency model and show that the choice among different cost structures can not be separated from the optimal solution of the agency problem even if the principal is risk neutral. More generally, our results suggest that a simple comparison of cost functions is usually not sufficient for an optimal choice between cost structures under uncertainty.
We study the optimal accounting policy of a financially constrained firm that pledges assets to raise debt capital for financing a risky project. The accounting system provides information about the value of the collateral. Absent accounting regulation, the optimal accounting system is conditionally conservative: it recognizes an impairment loss if the asset value is below a certain threshold, but never reports unrealized gains. We describe the optimal impairment rule and the optimal precision of the accounting information, and we provide comparative static results that lead to testable predictions on the determinants of impairment rules.
This paper analyzes the impact of capacity costs on bidding strategies of firms participating in procurement auctions. More efficient firms will invest in advance due to their high probability of winning the auction while less efficient bidders prefer to wait with their investments until the outcome of the auction is known. However, in equilibrium both types of firms include a coverage for their investment costs in their bids and therefore adopt a full cost pricing policy.
Examines how external corporate venturing can enhance organizational renewal, and a practical guide to help management apply it within their own organizations. Keil's succinct, readable study shows how major players in the information and communication technology industries have used corporate venture capital, alliances, acquisitions or spin-offs to achieve remarkable strategic self-renewal. Based on indepth empirical research, Keil clarifies and emphasizes the role that external corporate venturing plays as a mechanism to acquire new knowledge and to advance corporate strategic capabilities. It supports the creation of new business opportunities in other ways too. It creates new entry options, it opens access to other complementary means of renewal, it helps to control critical resources, and it accelerates the growth of organizations generally. For corporate executives, scholars, researchers, and graduate students, Keil's book is a major contribution to our understanding of external corporate venturing, and a highly practical guide to help management use it in the strategic renewal of their own organizations. Keil argues that an ability to do external venturing is an important factor in the successful development and growth of any organization. He conceptualizes the process into two main elements. One is the creation of what he sees as a shared context that bridges the gap between the corporation and the community in which it resides. Bridging supports knowledge transfer and the formation of new cognitive intra-corporate frameworks. The second element is the process of executing relationships efficiently, to make possible the rapid development of venturing opportunities. With case studies and lucid explanations, Keil shows how other corporations create and use a variety of connected learning processes to build their own venturing capabilities as well.
