کد مقاله | کد نشریه | سال انتشار | مقاله انگلیسی | نسخه تمام متن |
---|---|---|---|---|
5069767 | 1373202 | 2013 | 11 صفحه PDF | دانلود رایگان |
The existing real options literature explains the value premium as a consequence of either operating leverage raising risk in low-demand states or industry-wide investment lowering risk in high-demand states. This paper presents a simple model in which a value premium arises solely from capacity constraints. Profit is more sensitive to demand shocks when there is excess capacity, and the book-to-market ratio is high, than when capacity constraints bind, and the book-to-market ratio is low. The option to adjust capacity weakens the value premium arising from assets in place, but does not eliminate it for a wide range of parameters.
⺠This paper explains the value premium in average stock returns in terms of constraints on production capacity. ⺠Operating cash flow is least sensitive to demand when capacity constraints bind and the book-to-market ratio is low. ⺠Operating cash flow is most sensitive to demand when there is excess capacity and the book-to-market ratio is high. ⺠Capacity-adjustment options weaken, but do not eliminate, the value premium.
Journal: Finance Research Letters - Volume 10, Issue 1, March 2013, Pages 1-11