This dissertation empirically examines refunding decisions employed by issuers of tax-exempt bonds. Callable bonds contain embedded call options by virtue of provisions in bond indentures that permit the issuing firm to buy back the bond at a predetermined strike price. Such an embedded American call option has two components to its value, the intrinsic value and the time value. The issuer can realize at least as much as the intrinsic value by exercising immediately, when the option is in-the-money. Usually it is optimal for the holder of an in-the money American option to wait rather than exercise immediately, because the option has time value. It is rational for the holder to exercise the option when the total value of the option is no more than the intrinsic value. Option pricing theory can be used to identify two sub-optimal refunding strategies: those that refund too early, and those that refund too late. In such cases the holder incurs losses. I analyze the refunding decisions for two different samples of tax-exempt bonds issued between 1986 and 1993: the first consists of 2,620 bonds that are called, and the second contains 23,976 bonds that are never called. The generalized Vasicek (1977) model in the Heath, Jarrow, and Morton (1992) framework is used to construct binomial trees for interest rates, bond prices, and call option prices. The option pricing lattice is then used to compute the loss in value from sub-optimal refunding strategies, refunding efficiency, and months from optimal time for bonds in these two samples. Results suggest that sub-optimal refunding decisions cause losses to the issuers, which are present across bond and issuer characteristics. For the pooled sample of 26,596 bonds, the loss in value from sub-optimal refunding decisions totaled $7.2 billion, amounting to a loss of about 1.75% of total principal amount. Results indicate that issuers either wait too long to refund or never refund and cannot realize the present value saving of switching a high coupon bond with a low coupon bond, over a longer period of time. These results critically depend on the assumptions of underlying term structure model and are sensitive to model calibrated parameter values. / Ph. D.

Real options theory has become an influential explanatory and normative framework for making resource allocation decisions. Despite a growing body of strategy research regarding real options, however, there is as of yet little empirical confirmation (1) that firm resource allocation behavior conforms with real options theory, or (2) that employing real options principles has a positive impact on firm performance. This research examines these questions. Using a survey instrument designed to measure a range of real options-theoretic decision patterns, data has been collected from a sample of 173 U.S. manufacturing firms. This data set has been used to test two central premises. The first is that, in contrast to much of the real options literature, there is no inherently superior real options decision pattern. Instead, real options-optimal investment decisions depend on the magnitude and source of the uncertainties that firms encounter in their task environments. This premise is tested by measuring two important sources of uncertainty in the external environment: uncertainty regarding the level and composition of demand (market uncertainty) and uncertainty regarding the intentions and actions of competitors (competitive uncertainty). I develop the theoretical foundation for expecting that patterns of real options behavior vary with these two sources of uncertainty, and that different sources of uncertainty frequently promote competing real options-theoretic decision behavior. The research tests these hypothesized relationships empirically. The principal contribution of this analysis has been to develop a more fine-grained appreciation of the relationship between real options theory and a multidimensional conceptualization of uncertainty. The second premise of the research is that making investment decisions based on real options principles has a positive effect on firm performance. There is ample theoretical foundation for the superiority of real options theory as a framework for making resource commitment decisions. The research examines this expectation empirically by testing whether the fit or congruence between real options decision patterns and environmental uncertainty is positively related to firm profitability, market value and growth.

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The purpose of this thesis was to test the hypothesis that multiple-listing of equity options leads to lower bid-ask spreads because of increased competition. This competition can come in two forms, actual or potential, both of which are theorized to have the same effect on spreads. A model of the determinants of the bid-ask spread was formulated. Separate tests were conducted on 1985 and on 1992 CBOE data. The first test arose from the fact that in 1985, only a certain number of options were multiple-listed, or eligible to be multiple-listed. Spreads for multiple-listed options were conjectured to be below spreads for single-listed options across low levels of volume, and equal to single-listed option spreads at higher levels of volume. The evidence for this was mixed based on several regressions with different functional forms. The second test arose from the fact that in 1992, because of an SEC rule change, all options were eligible to be multiple-listed but still only a few were. Spreads for multiple-listed options were conjectured to be equal to spreads for single-listed options because the single-listed options had the potential to become multiple-listed. Again, the evidence for this was mixed. It appears that the actual and potential competitive effects from multiple-listing had yet to come to fruition as of 1992. Further testing revealed that, on an option-by-option basis, spreads generally rose from 1985 to 1992. / Master of Arts

No / This research aims to conduct an exploratory analysis into current industrial reverse logistics practice in business-to-business (B2B) and business-to-customer relationships (B2C), and determine the financial and operational impact of customer non-compliance in returning distribution equipment back to their source. The analysis was conducted over multiple industry sectors using qualitative research techniques. The research sample included seven industry sectors, providing a response rate of 72 per cent (53 sources approached). The focus was on both B2B and B2C relationships to determine similarities and differences in financial and operational repercussions. The research findings indicate that the efficacy of the reverse logistics system can be undermined by lack of customer compliance, with losses of up to £140 million (B2B). In both B2B and B2C relationships, there is evidence of suppliers suffering financial loss due to customer non-compliance. Due to the small scale of the analysis and the breadth of the industry sectors investigated, these results are not generalisable, but do indicate that this is an area, which could undermine supply chain effectiveness. Practical implications – Non-compliance of this nature carries a direct and highly applicable cost for manufacturers and distributors in the practitioner arena. Suppliers within industry need to acknowledge this issue and manage their reverse logistics more effectively. This paper adopts an innovative focus on an understated feature of the reverse logistics cycle, i.e. the recycling of distribution equipment used to transport outbound and returned products. The paper identifies a range of options, which practitioners can use as guidance when managing the returns system.

Yes / We derive the optimal investment timing and real option value for a facility with price and quantity uncertainty, where there might be a government subsidy proportional to production quantity. Where the subsidy is proportional to the multiplication of the price and quantity, dimensionality can be reduced. Alternatively, we provide quasi-analytical solutions for different quantity subsidy arrangements: permanent (policy is certain); retractable; suddenly permanent; and suddenly retractable. Whether policy uncertainty acts as a disincentive for early investment depends on the type of subsidy arrangement. The greatest incentive for early investment is an actual retractable subsidy, a ‘flighty bird in hand’.

Thesis (MBA)--Stellenbosch University, 2002. / Some digitised pages may appear illegible due to the condition of the original hard copy / ENGLISH ABSTRACT: With the trends of business moving away from large, corporate companies to small, flexible and innovative alternatives, the need to value new companies are becoming important. A new company generally does not have substantial historical data available and it is therefore difficult to determine potential revenue streams and hence accurate valuations. The focus of this study is to find an appropriate method to attempt the valuation of a new company and this is explained by means of a case study. Three basic approaches exist to value companies. The Discounted Cash Flow (DCF) method analyses risk and return to estimate a discount rate and presents the value of the company as a Net Present Value (NPV). Relative Valuation methods compare the fundamentals of a company to that of other companies. Contingent Claim Valuation methods base the value of a company on the fact that decisions may be deferred into the future until more information is evident. The basis of this valuation technique is that of Option Pricing Theory in which the Black-Scholes technique and binomial models are used .: This method is normally used on assets that have optionlike features e.g. equity in a company, natural resource rights, product patents or any decision that may be deferred into the future. Decisions (options) deferred may be identified as growth-, staged-, flexibility-, exit-, learning- and expanding options. This is also known as the Real Option Pricing Theory. According to this model the investment proposal may be mapped as a series of call options (Luehrman, 1998a). The amount of money expended in the project corresponds to the option's exercise price (X), the present value of the asset built or acquired corresponds to the stock price (S), the length of time the company can defer the investment decision corresponds to the option's time to expiration (t) and the uncertainty about the future value of the project's cashflow corresponds to the standard deviation of return on the stock (c). Seven steps are used to obtain the value of the call option and the value is reflected by two option-value metries namely the value-to-cost (NPVq) and cumulative volatility (cr--Jt).The two metries are plotteá on a graph (defined as Options Space) in order to visualize and interpret the results. Mushroom Biomedical Systems developed three highly novel and patented products. The company was valued using the conventional OeF method and valued as a staged investment using the Real Option Pricing Theory according to Luehrman's model (1998a). The values of two products are similar using the OeF and Real Options methods. Most of the investment capital was required during the first phases of these products resulting in the investment of the second phases not holding high risks or value. The value of the third product is significantly higher using the Real Options method compared to the OeF. This is ascribed to the forced delay of phase one. The value of this future decision is worth more than the current decision due to expected new information that might arise. By "creating an option" value is added by forcing management to actively make two decisions about the continuation of the project at a future date. Applying Real Option Pricing Theory suggests inherent value in uncertainty when there is freedom to choose different courses of action in the face of different market conditions. With the OeF analysis the impact of risk is seen as depressing the value of the investment. By contrast, real options show that risk can be influenced through managerial flexibility, which becomes a central instrument to create value. / AFRIKAANSE OPSOMMING: Die beweging van die besigheidswêreld vanaf groot korporatiewe maatskappye na kleiner, buigsame en innoverende alternatiewe het 'n behoefte geskep om die waarde van sulke nuwe maatskappye te kan bepaal. 'n Nuwe maatskappy het tipies nie historiese data beskikbaar nie wat die vooruitskatting van potensiële inkomste strome en dus akkurate waardasies moeilik maak. Die fokus van hierdie studie is die bepaling van 'n toepaslike metode om die waarde van 'n nuwe maatskappy te bepaal en dit word deur middel van 'n gevalle studie verduidelik. Drie basiese metodes bestaan om maatskappye te waardeer. Die Verdiskonteerde Kontantvloei Stroom (VKS) metode gebruik risiko en opbrengs om 'n verdiskonteringskoers te bepaal en reflekteer die waarde van die maatskappy as die Netto Teenswoordige Waarde (NTW). Relatiewe Waardasie metodes vergelyk die fundamentele eienskappe van 'n maatskappy met die van ander maatskappye. Die Gebeurlikheids Waardasie metode koppel waarde aan die feit dat besluite uitgestel kan word totdat meer informasie beskikbaar is. Die basis van hierdie tegniek is Opsie Teorie waarin die Black-Scholes tegniek en binomiaal model gebruik word. Hierdie metode word gewoonlik gebruik waar bates "opsie-tipe" eienskappe besit soos aandeelhouding in 'n maatskappy, natuurlike mynregte; produk patente of enige besluit wat uitgestel kan word na 'n datum in die toekoms. Besluite (opsies) wat uitgestel word kan geïdentifiseer word as groei-, stap-vir-stap-, buigbaarheids-, uittree-, lerings- en uitbreidingsopsies. Hierdie metode staan ook bekend as die Ware Opsie Prysings Teorie. Volgens hierdie metode kan 'n beleggingsgeleentheid voorgestel word as 'n reeks koopopsies (Luehrman, 1998a). Die totale uitgawe word voorgestel deur die uitoefeningsprys (X), die teenswoordige waarde van die bate word voorgestel deur die aandeel waarde (S), die tydperk wat die besluit uitgestel kan word, word voorgestel deur die opsie vervaltyd (t), en die onsekerheid van die bate se kontantvloeistroom word voorgestel deur die standaardafwyking van die opbrengs van die bate (c). Sewe stappe word geneem om die waarde van die koopopsie te bepaal wat uitgedruk word deur twee opsiewaarde komponente naamlik waarde-tot-koste (NPVq) en kummulatiewe volatiliteit ((1'Jt). Die twee komponente word grafies voorgestel (genoem Opsie Spasie) om resultate te visualiseer en te interpreteer. Mushroom Biomedical Systems het drie unieke en gepatenteerde produkte ontwikkel. Die maatskappy is met die konvensionele VKS metode gewaardeer en volgens Luehrman (1998a) se Ware Opsie Prysings model as 'n stap-vir-stap opsie gewaardeer. Die waardes van twee van die produkte is dieselfde met die VKS metode en die Opsie Teorie metode. Die meeste van die kapitaal is tydens die eerste fases van die twee produkte benodig met die gevolg dat die tweede fases nie veel risiko of waarde inhou nie. Die waarde van die derde produk is aansienlik meer met die Opsie Teorie metode in vergelyking met die VKS metode. Dit word toegeskryf aan die gedwonge vertraging van fase een. Die waarde gekoppel daaraan om die besluit in die toekoms te neem is meer werd as om die besluit nou te neem a.g.v. verwagte nuwe informasie. Deur hierdie opsie "te skep" word waarde toegevoeg omdat bestuur gedwing word om aktief twee besluite in die toekoms te neem rakende die voortsetting van die projek. Die gebruik van Ware Opsie Prysings Teorie skep 'n inherente waarde wanneer daar verskillende besluite geneem kan word soos mark kondisies verander. Met die VKS metode word risiko gesien as 'n faktor wat waarde laat afneem. In teenstelling hiermee dui die Ware Opsie Teorie dat risiko beïnvloed kan word deur bestuur se vermoëns, wat 'n belangrike instrument is vir waardeskepping.

published_or_final_version / abstract / Real Estate and Construction / Doctoral / Doctor of Philosophy