This thesis consists of three essays and studies CEO compensation, asset sales and takeovers and investment under uncertainty in empirical corporate finance. The first essay is a joint work with Qianqian Huang, Feng Jiang and Erik lie, titled `The effect of labor unions on CEO compensation'. The second essay `. Union Concessions following Asset Sales and Takeovers' is a joint work with Erik Lie. The third essay is titled `The Effect of Systematic and Idiosyncratic Risk on Investment and R&D' and is sole-authored. In the first essay, we document evidence that labor unions compel firms to curtail CEO compensation. First, we find that firms with strong unions pay their CEOs less. Further, firms curb CEO compensation, especially the part that is discretionary, prior to union contract negotiations. Finally, we report that curbing CEO compensation mitigates the chance of a labor strike, thus providing a rationale for firms to pay CEOs less when facing strong unions. In the second essay, we document that the likelihood of asset sales increases with union wages. Furthermore, the acquiring firms gain significant concessions from the incumbent union following asset sales. Finally, the anticipation of union concessions helps explain the excess stock returns around asset sale announcements. We find no comparable effects for takeovers. We conclude that asset sales, but not takeovers, are partially motivated by the potential to extract concessions from unions. Finally, in the third essay, in an attempt to shed some light on the puzzling positive sensitivity of investment to systematic volatility documented in Panousi and Papanikolaou (2012), we decompose systematic volatility into a firm's systematic risk exposure (beta) as well as the market and industry portfolio volatility. Surprisingly, we find a positive response of investment to a firm's systematic risk exposure. R&D expenditure is employed as an alternative form of investment. Our results show that idiosyncratic risk actually encourages firms to engage in R&D spending, in contrast with its depressing effect on capital expenditure; whereas systematic volatility depresses R&D in contrast with the positive sensitivity of capital expenditure to systematic volatility.

<p>After decades of power generating units increasing in size, there is currently a growing focus on distributed generation, power generation close to energy loads. Investments in large-scale units have been driven by economy of scale, but recent technological improvements on small generating plants have made it possible to exploit the benefits of local power generation to a larger extent than previously. Distributed generation can improve power system efficiency because heat can be recovered from thermal units to supply heat and thermally activated cooling, and because small-scale renewables have a promising end-user market. Further benefits of distributed generation include improved reliability, deferral of often controversial and costly grid investments and reduction of grid losses. The new appeal of small-scale power generation means that there is a need for new tools to analyze distributed generation, both from a system perspective and from the perspective of potential developers. In this thesis, the focus is on the value of power generation for end-users. The thesis identifies how an end-user can find optimal distributed generation systems and investment strategies under a variety of economic and regulatory scenarios. The final part of the thesis extends the analysis with a bottom-up model of how the economics of distributed generation for a representative set of building types can transfer to technology diffusion in a market.</p><p>Four separate research papers make up the thesis. In the first paper, Optimal Investment Strategies in Decentralized Renewable Power Generation under Uncertainty, a method for evaluation of investments in renewable power units under price uncertainty is presented. It is assumed the developer has a building with an electricity load and a renewable power resource. The case study compares a set of wind power systems with different capacity and finds that capacity depends on the electricity price and that there under uncertain prices can be a significant value in postponing investment until larger projects are profitable. In the second paper, Combined Heat and Power in Commercial Buildings: Investment and Risk Analysis, a Monte Carlo simulation program to find the value and risk characteristics of combined heat and power units is presented. Using historical price data to estimate price process parameters, it is shown that uncertain prices should not be a barrier for investment, since on-site generators can adapt to uncertain prices and reduce the total energy cost risks. In, Optimizing Distributed Generation Systems for Commercial Buildings, which uses a mixed integer linear program, distributed generation portfolios that maximize profitability are tailored to a building's energy load. Distributed generation with heat recovery and thermally activated cooling are found profitable in an office and a health care building, using current generator data and energy tariffs from California. With the fourth paper, Distributed Energy Resources Market Diffusion Model, the analysis is taken a step further to predict distributed generation market diffusion. Market penetration is assumed to depend on economic attractiveness and knowledge and trust in the technologies. A case study based on the U.S. commercial sector depicts a large market for reciprocating engines and microturbines, with the West and Northeast regions driving market diffusion. Technology research and outreach programs can speed up and change the path of capacity expansion.</p><p>The thesis presents three different models for analyzing investments in distributed generation, all of which have benefits and disadvantages. Choice of model depends on the specific application, but the different approaches can be used on the same problem to analyze it from different viewpoints. The cases in the thesis indicate that distributed generation can reduce expected energy costs while at the same time improve cost predictability. Further, the thesis identifies several important factors and potential barriers to distributed generation adoption. Analyzing distributed generation from the end-user perspective is important also for policy makers, because of the importance of estimating how the market will react to potential policy measures. The thesis shows that small-scale generating capacity has the potential to increase in the near future. Further research should increase the understanding of economic and environmental issues related to distributed generation, while policy makers should aim to construct and implement measures that make it attractive for end-users to invest in efficient local generating capacity.</p>

After decades of power generating units increasing in size, there is currently a growing focus on distributed generation, power generation close to energy loads. Investments in large-scale units have been driven by economy of scale, but recent technological improvements on small generating plants have made it possible to exploit the benefits of local power generation to a larger extent than previously. Distributed generation can improve power system efficiency because heat can be recovered from thermal units to supply heat and thermally activated cooling, and because small-scale renewables have a promising end-user market. Further benefits of distributed generation include improved reliability, deferral of often controversial and costly grid investments and reduction of grid losses. The new appeal of small-scale power generation means that there is a need for new tools to analyze distributed generation, both from a system perspective and from the perspective of potential developers. In this thesis, the focus is on the value of power generation for end-users. The thesis identifies how an end-user can find optimal distributed generation systems and investment strategies under a variety of economic and regulatory scenarios. The final part of the thesis extends the analysis with a bottom-up model of how the economics of distributed generation for a representative set of building types can transfer to technology diffusion in a market. Four separate research papers make up the thesis. In the first paper, Optimal Investment Strategies in Decentralized Renewable Power Generation under Uncertainty, a method for evaluation of investments in renewable power units under price uncertainty is presented. It is assumed the developer has a building with an electricity load and a renewable power resource. The case study compares a set of wind power systems with different capacity and finds that capacity depends on the electricity price and that there under uncertain prices can be a significant value in postponing investment until larger projects are profitable. In the second paper, Combined Heat and Power in Commercial Buildings: Investment and Risk Analysis, a Monte Carlo simulation program to find the value and risk characteristics of combined heat and power units is presented. Using historical price data to estimate price process parameters, it is shown that uncertain prices should not be a barrier for investment, since on-site generators can adapt to uncertain prices and reduce the total energy cost risks. In, Optimizing Distributed Generation Systems for Commercial Buildings, which uses a mixed integer linear program, distributed generation portfolios that maximize profitability are tailored to a building's energy load. Distributed generation with heat recovery and thermally activated cooling are found profitable in an office and a health care building, using current generator data and energy tariffs from California. With the fourth paper, Distributed Energy Resources Market Diffusion Model, the analysis is taken a step further to predict distributed generation market diffusion. Market penetration is assumed to depend on economic attractiveness and knowledge and trust in the technologies. A case study based on the U.S. commercial sector depicts a large market for reciprocating engines and microturbines, with the West and Northeast regions driving market diffusion. Technology research and outreach programs can speed up and change the path of capacity expansion. The thesis presents three different models for analyzing investments in distributed generation, all of which have benefits and disadvantages. Choice of model depends on the specific application, but the different approaches can be used on the same problem to analyze it from different viewpoints. The cases in the thesis indicate that distributed generation can reduce expected energy costs while at the same time improve cost predictability. Further, the thesis identifies several important factors and potential barriers to distributed generation adoption. Analyzing distributed generation from the end-user perspective is important also for policy makers, because of the importance of estimating how the market will react to potential policy measures. The thesis shows that small-scale generating capacity has the potential to increase in the near future. Further research should increase the understanding of economic and environmental issues related to distributed generation, while policy makers should aim to construct and implement measures that make it attractive for end-users to invest in efficient local generating capacity.

Yes / A mature oil field rescaled contraction describes a switch to a technological alternative more appropriate for the depleted state of an underlying resource. Off-shore oil rigs are an illustration, since the original technological scale designed for very large output flows becomes inappropriate as the operational efficiency declines later in life and facing a dwindling output flow, so a more appropriate extraction technology becomes economic. A real option representation is formulated on a stochastic oil price and deteriorating output volume. We consider investment/divestment decisions both separately, and jointly, which have different implications for government policies and also option values. The resulting model yields analytical (or semi-analytical) results indicating that immediate switching to the lower cost technology could sometimes be hastened as the price volatility increases, depending on the current revenue, if divestment and switching are considered jointly. However, greater volatility could also promote hysteresis.

Submitted by Mateus Coimbra (mateuscoimbra@globo.com) on 2015-03-26T21:07:42Z No. of bitstreams: 1 Dissertação Mateus_VersãoFinal.pdf: 2669269 bytes, checksum: 48cd2040e644c14fa2026b9c1af6ab83 (MD5) / Approved for entry into archive by GILSON ROCHA MIRANDA (gilson.miranda@fgv.br) on 2015-04-15T14:54:23Z (GMT) No. of bitstreams: 1 Dissertação Mateus_VersãoFinal.pdf: 2669269 bytes, checksum: 48cd2040e644c14fa2026b9c1af6ab83 (MD5) / Approved for entry into archive by Marcia Bacha (marcia.bacha@fgv.br) on 2015-04-17T13:29:20Z (GMT) No. of bitstreams: 1 Dissertação Mateus_VersãoFinal.pdf: 2669269 bytes, checksum: 48cd2040e644c14fa2026b9c1af6ab83 (MD5) / Made available in DSpace on 2015-04-17T13:29:40Z (GMT). No. of bitstreams: 1 Dissertação Mateus_VersãoFinal.pdf: 2669269 bytes, checksum: 48cd2040e644c14fa2026b9c1af6ab83 (MD5) Previous issue date: 2015-03-02 / These work proposes a methodology to evaluate in discrete time the 'reequilibrium discount', a mechanism of balance between govern and business interests, in highways contracts, by using Classical Theory Concepts and Real Options Theory. The model developed permits to incorporate flexibilities related to uncertainties, like managerial decisions, biased behaviors, and risks associated to political decisions, commonly presents in highway concessions contracts in Brazil. / Este trabalho propõe um novo modelo para avaliação, em tempo discreto, do desconto de reequilíbrio em contratos de concessão rodoviária, a partir de conceitos da Teoria Clássica de Finanças e da Teoria de Opções Reais. O modelo desenvolvido permitiu incorporar flexibilidades decorrentes de incertezas nas situações reais, como decisões gerenciais, vieses de comportamento e componentes políticos, comumente presentes em contratos de concessões rodoviária. Os resultados obtidos, utilizando-se como estudo de caso a BR-262, sinalizaram que há espaço para uma melhor intervenção regulatória com relação ao mecanismo do desconto de reequilíbrio, no sentido de prover melhores incentivos aos concessionários.

Cette thèse examine les décisions financières à travers la théorie des options Américaines et Exotiques. Dans un premier temps, nous avons présenté une revue de la littérature sur les options de type Américain. La tarification de l’option Américaine standard d’achat est revisitée en vue de fournir les pré-requis. Dans l’étape suivante, un nouveau type de contrat d’option, appelé Strangle Euro-American ou Strangle Hybride, a été introduit. Des formules analytiques ont été fournies pour leurs prix ainsi que leurs paramètres de gestion. Une nouvelle méthode est proposée pour calculer les intégrales qui définissent les bornes d’exercice anticipé. Il a été démontré que cette méthode est efficiente, précise et rapide pour la tarification de tous les types de Strangle voir au delà. Puis, nous avons examiné les options Step de type Américain. Nous avons démontré que les propriétés des options d’achat "vanille" ne s’appliquent pas aux Step dans certaines situations. Les formules d’évaluation et des paramètres de gestion ont été déterminés. Et enfin, nous avons considéré l’évaluation d’une firme détenant simultanément une option d’abandon et une option d’expansion de ses activités selon des conditions du marché (favorables ou défavorables). Les seuils critiques de décision ont été obtenus. Des formules analytiques pour la valeur de la firme ont été obtenues. Des simulations illustrent le comportement de ces seuils critiques de décisions anticipées. / This thesis investigates the financial decisions through the theory of American and Exotic options. First, the literature on American-style derivatives is surveyed. The pricing of standard American call option in the early exercise premium representation is addressed in order to provide prerequisites for what follows. Second, a new variant of Strangle contracts, called Euro-American or Hybrid Strangles, is introduced and priced. Analytical formulas are provided for the prices of all these option contracts as well as their hedging parameters. A new quadrature is proposed to account for the systems of coupled integral equations that locate the early exercise boundaries. It is shown to be efficient, accurate, and fast for pricing all types of early exercisable strangles and more. Third, we examines the valuation of American Step options contract. The structures of the immediate exercise regions of the various contracts are identified. Typical properties of American vanilla calls are shown to fail in some cases. Formulas for prices and hedging parameters, for the American Step options, are derived. Finally, we consider the valuation of a firm holding simultaneously an option to expand and to abandon productions depending on the state of the market (good or bad) in a real option framework. Optimal decision levels are obtained. Analytical formulas for the firm’s value are provided. Numerical results document the behavior of the firm’s value and optimal exercise boundaries levels.