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Efficiency, Leverage and Exit: The Role of Information Asymmetry in Concentrated Industries Human Capital Investment and the Completion of Risky R&D Projects Migration Options for Skilled Labor and Optimal Investment in Human Capital

Siyahhan, Baran (2010) Efficiency, Leverage and Exit: The Role of Information Asymmetry in Concentrated Industries Human Capital Investment and the Completion of Risky R&D Projects Migration Options for Skilled Labor and Optimal Investment in Human Capital. Doctoral thesis, WU Vienna University of Economics and Business.

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Abstract

Efficiency, Leverage and Exit: The Role of Information Asymmetry in Concentrated Industries This paper develops a real options model of imperfect competition with asymmetric information that analyzes firms' exit decisions. Optimal exit decision is linked to firm characteristics such as financial leverage and efficiency. The model shows that informational asymmetries can lead more efficient and less leveraged firms to leave the product market prematurely. It also demonstrates how firm efficiency can increase debt capacity relative to rival firms. The model also has implications for firm risk and asset returns. Specifically, the paper shows that, when there is information asymmetry among rivals, rival actions can have a "news effect" that change a firm's dynamic risk structure. Human Capital Investment and the Completion of Risky R&D Projects We consider a firm that employs human capital to make a technological breakthrough. Since the probability of success of the breakthrough depends on the current stock of human capital the firm has an incentive to expand its human capital stock. The present value of the patent is stochastic but can be observed during the R\&D phase of the project. The exogenous value of the patent determines the firm's decisions to invest in human capital, to abandon the project if necessary, and to invest in marketing the new product. We study the corresponding optimal stopping times, determine their value and risk consequences, and derive optimal investment in the stock of human capital. While optimal investment in human capital is very sensitive to its productivity do increase the probability of a breakthrough it is insensitive to changes in the volatility of the present value of the patent. The value of the firm is driven by fixed labor costs that occur until the breakthrough is made, the call option to invest in human capital and market the product, and the put option to abandon the project. These options together with labor costs' based operating leverage determine the risk dynamics. Risk varies non-monotonically with the stochastic value of the patent and is U-shaped. Migration Options for Skilled Labor and Optimal Investment in Human Capital This paper develops a model of optimal education choice of an agent who has an option to emigrate. Using a real options framework, we analyze the time evolution of human capital in the country of origin and investigate the role of migration possibilities in the accumulation of different types of human capital. The analysis shows that the accumulation of human capital depends crucially on the level of uncertainty and the transferability of human capital across countries. Government subsidies are an important determinant of the composition of different types of human capital and can be crucial in alleviating the brain drain problem. (author's abstract)

Item Type: Thesis (Doctoral)
Keywords: efficiency and firm exit / real options / firm leverage and information revelation / oligopoly / capital structure
Classification Codes: RVK QB 910 ; JEL C73, D82, G32, L13
Divisions: Departments > Finance, Accounting and Statistics > Financial Research
Depositing User: Repository Administrator
Date Deposited: 08 Jul 2010 15:57
Last Modified: 20 Nov 2014 00:09
URI: http://epub.wu.ac.at/id/eprint/2016

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