Bill is a doctoral candidate in the Technology and Operations Management Unit. He has over 12 years of experience working on applied supply chain issues as a consultant, manager and senior director of product management at Electronic Data Systems and Ariba, two leading supply chain solution providers.
Bill’s research includes understanding risk factors associated with supply chain decisions, quantifying the impact of supply chain disruptions, and evaluating the effect of supply chain structures on firm valuation. He received both a BS in aerospace engineering and an MBA from the University of Florida.
Signaling to Partially Informed Investors in the Newsvendor Model
We investigate a puzzling phenomenon in which firms make investment decisions that purposefully do not maximize expected profits. Using an extension to the newsvendor model, we focus on a relatively common scenario in which the firm's investor has imperfect information concerning the quality of the firm's investment opportunities. We apply Perfect Bayesian equilibrium solution concepts and confirm that over a range of reasonable model parameters the firm's investment decision does not maximize expected profits. Surprisingly, this includes instances in which a firm with a higher quality investment opportunity finds it attractive to underinvest, thereby behaving as if she faces a lower quality investment opportunity. This is particularly interesting as prior research in the finance literature has shown that firms will overinvest in high quality projects when investors have imperfect information about the quality of the firm's opportunities. While we conduct our analysis in the context of an inventory stocking decision, our model is generalizable to other types of capacity investment decisions.
Keywords: Decision Choices and Conditions;
When Supply-Chain Disruptions Matter
Supply-chain disruptions have a material effect on company value, but this impact can vary considerably. Thus, it is important for managers and investors to recognize the types of disruptions and the organizational factors that lead to the worst outcomes. Prior research remains unsettled as to whether improvements to firm operational efficiency aggravate or alleviate the impact of disruptions. Improved operational efficiency may leave firms more exposed when a disruption occurs, or it may improve firms' agility and allow them to respond more effectively to a disruption. We hypothesize that the impact of improved operational efficiency depends on whether the disruption is due to factors that are internal versus external to the firm and its supply chain. We use a sample of over 500 disruptions collected from company press releases and find empirical evidence that a higher rate of improvement in operating performance aggravates the impact of internal disruptions but not external disruptions. By taking advantage of an exogenous policy shock regarding corporate disclosure rules, we also find that managers show systematic bias in the disruptions they choose to announce, and we control for this effect in our model specifications.
Keywords: Supply Chain;