Topic
Expansion path
About: Expansion path is a research topic. Over the lifetime, 74 publications have been published within this topic receiving 2016 citations.
Papers published on a yearly basis
Papers
TL;DR: In this paper, the authors explored how to incorporate banks' capital structure and risk-taking into models of production and found that when the bank's objective is defined as value maximization, it can be seen as incorporating both market-priced risk and expected cash flow into managers' ranking and choice of production plans.
Abstract: This paper explores how to incorporate banks' capital structure and risk-taking into models of production. In doing so, the paper bridges the gulf between (1) the banking literature that studies moral hazard effects of bank regulation without considering the underlying microeconomics of production and (2) the literature that uses dual profit and cost functions to study the microeconomics of bank production without explicitly considering how banks' production decisions influence their riskiness. Various production models that differ in how they account for capital structure and in the objectives they impute to bank managers – cost minimization versus value maximization – are estimated using U.S. data on highest-level bank holding companies. Modeling the bank's objective as value maximization conveniently incorporates both market-priced risk and expected cash flow into managers' ranking and choice of production plans. Estimated scale economies are found to depend critically on how banks' capital structure and risk-taking are modeled. In particular, when equity capital, in addition to debt, is included in the production model and cost is computed from the value-maximizing expansion path rather than the cost-minimizing path, banks are found to have large scale economies that increase with size. Moreover, better diversification is associated with larger scale economies while increased risk-taking and inefficient risk-taking are associated with smaller scale economies.
311 citations
Abstract: This paper explores how to incorporate banks' capital structure and risk-taking into models of production. In doing so, the paper bridges the gulf between (1) the banking literature that studies moral hazard effects of bank regulation without considering the underlying microeconomics of production and (2) the literature that uses dual profit and cost functions to study the microeconomics of bank production without explicitly considering how banks' production decisions influence their riskiness. Various production models that differ in how they account for capital structure and in the objectives they impute to bank managers - cost minimization versus value maximization - are estimated using U.S. data on highest-level bank holding companies. Modeling the banks' objective as value maximization conveniently incorporates both market-priced risk and expected cash flow into managers' ranking and choice of production plans. Estimated scale economies are found to depend critically on how banks' capital structure and risk-taking is modeled. In particular, when equity capital, in addition to debt, is included in the production model and cost is computed from the value-maximizing expansion path rather than the cost-minimizing path, banks are found to have large scale economies that increase with size. Moreover, better diversification is associated with larger scale economies while increased risk-taking and inefficient risk-taking are associated with smaller scale economies.
292 citations
TL;DR: In this paper, the authors investigated the impact of added cultural distance on the performance of multinational enterprise's (MNE) expansion path and found that firms that make expansion moves involving a high level of cultural distance per unit of time, and those that expand in culturally distant countries in an irregular fashion, will be less profitable.
Abstract: This paper contributes to the debate on the performance impact of “added cultural distance” in the multinational enterprise's (MNE's) expansion path. Our research focuses on the ability of MNEs to handle complexity associated with added cultural distance in international expansion, and on the effect this may have on profitability. We hypothesise that firms that make expansion moves involving a high level of added cultural distance per unit of time, and those that expand in culturally distant countries in an irregular fashion, that is, with a higher variability, will be less profitable. We test these hypothesised relationships using detailed data on 2404 expansion moves undertaken by our panel of 91 German MNEs, whose expansion paths we tracked during periods ranging between 5 and 20 years.
213 citations
Posted Content•
TL;DR: In this article, it is shown that the change in the Elasticity of Scale with output along the expansion path is not the same as the change along a ray through the origin of the input space.
Abstract: different concepts of returns to scale. The first, which is most widely used for defining returns to scale,' is the relative increase in output as all input quantities are increased proportionally along a ray through the origin. The second, which is the more relevant concept for micro-economic analysis, is the increase in output relative to costs for variations along the expansion path where input prices are constant and costs are minimized at every output.2 As it turns out, these two concepts yield equal measures for the Elasticity of Scale3 e at every minimum-cost point in the input space. However, the change in E with output is generally different for the two concepts,4 since expansion paths do not coincide with rays, unless the production function is homothetic.5 But it is the change of E along the expansion path-and not along the raywhich determines the shape of the average cost curve (AC), and which is therefore relevant for the analysis of firms and industry behavior under competition.6 These relations are stated and analyzed below. It is shown that assumptions made in the literature7 which are related to the behavior of E along rays, or to the slope of the technically optimal surface (where returns to scale are locally constant), are irrelevantbeing neither necessary nor sufficient for implying classical U-shaped average cost curves. The following definitions and results are used here:
209 citations
Posted Content•
TL;DR: In this article, the authors explored how to incorporate banks' capital structure and risk-taking into models of production, and found that when the bank's objective is defined as value maximization, the expected risk and expected cash flow are incorporated into managers' ranking and choice of production plans.
Abstract: This paper explores how to incorporate banks' capital structure and risk-taking into models of production. In doing so, the paper bridges the gulf between (1) the banking literature that studies moral hazard effects of bank regulation without considering the underlying microeconomics of production and (2) the literature that uses dual profit and cost functions to study the microeconomics of bank production without explicitly considering how banks' production decisions influence their riskiness. Various production models that differ in how they account for capital structure and in the objectives they impute to bank managers—cost minimization versus value maximization—are estimated using U.S. data on highest-level bank holding companies. Modeling the bank's objective as value maximization conveniently incorporates both market-priced risk and expected cash flow into managers' ranking and choice of production plans. Estimated scale economies are found to depend critically on how banks' capital structure and risk-taking is modeled. In particular, when equity capital, in addition to debt, is included in the production model and cost is computed from the value-maximizing expansion path rather than the cost-minimizing path, banks are found to have large scale economies that increase with size. Moreover, better diversification is associated with larger scale economies while increased risk-taking and inefficient risk-taking are associated with smaller scale economies.
180 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2021 | 1 |
| 2020 | 1 |
| 2018 | 1 |
| 2017 | 2 |
| 2016 | 2 |
| 2015 | 1 |