Lecture: A News Vendor Model for Dynamic Investment and Financing Decisions
The common operations management model of the news vendor includes an important distinction between the timing of investment expenditures and the realization of revenue returns. This lag and the risk of revenue shortfalls has implications for financing decisions as well.
This talk will describe a model that integrates these decisions and considers the varying roles of fixed and variable costs in observable profits and capital structure of firms. The results are non-monotonic relationships between profit margins and leverage ratios that are not predicted by standard capital structure theories but that are supported by data on the cross-section of firms.
More details about Professor John R. Birge
This series is organized by the UMass Amherst INFORMS Student Chapter. Support for this series is provided by the Isenberg School of Management, the Department of Finance and Operations Management, and the John F. Smith Memorial Fund.
