Narrow Results

This paper examines the impact of financing on the performance of a two-level supply chain consisting of a supplier and a budget-constrained retailer. To carry out our study, we set up a three-stage Stackelberg game under a wholesale price contract with a financial market. We show that financing from a competitive financial market can create value for both the supplier and the retailer. We also demonstrate that in a competitive financial market with symmetric information on the retailer's initial budget, the retailer's operational and financial decisions could be decoupled. We provide numerical results to shed light on additional managerial insights as well.

We present a simple new explanation for the diversification discount in the valuation of firms. We demonstrate that, ceteris paribus, limited liability of equity holders is sufficient to explain a diversification discount. To derive this result, we use a credit risk model based on the value of the firm's assets. We show that a conglomerate can be regarded as an option on a portfolio of assets. By splitting up the conglomerate, the investor receives a portfolio of options on assets. The conglomerate discount arises because the value of a portfolio of options is always equal to or higher than the value of an option on a portfolio. The magnitude of the conglomerate discount depends on the number of business units and their correlation, as well as their volatility, among other factors.

Half the world is unbanked. The unbanked do not use any type of formal financial service at all. Why? What has kept the poor from opening formal bank accounts to save for retirement, from getting health insurance or loans to build new businesses? The assumption used to be that the poor lacked the resources and needs. In Chapter 2, though, we saw that the poor can and do use a wide array of financial services, but largely rely on informal means. If hundreds of millions of people want these services, why do not banks and insurance companies offer them? Why does nearly everyone in Finland, Singapore and Australia have bank accounts, but more than 95% of people in Turkmenistan, Niger and Cambodia do not?