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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jaccpubpol.2006.05.006 Byline: Alnoor Bhimani (a), Mthuli Ncube (b) Keywords: Hybrid organizations; Virtual integration; Financial information system costs; Cyber security; Supply chain alliances Abstract: Some enterprises adopt highly vertically integrated structures to carry out essential value chain activities whilst others derive economic benefits from adopting extended structures using Internet-based technologies and through the effective integration of supplier relationships. Extended supply chain alliances can enable low operating/production costs as each partner firm specialises in defined core functions. Such benefits however have to be weighed against the necessary investments in financial and management information systems to enable activities undertaken by supply chain partners to be properly controlled and coordinated. As inter-enterprise activities grow in size and complexity, information system and electronic linkage costs also increase due to possible system incompatibilities with prospective suppliers, the need to meet regulatory compliance requisites, the increased probability of system breakdowns as connection points with suppliers increase and security assurance measures over cross-enterprise information networks. These virtual integration (VI) costs will be low when few suppliers are linked to the extending enterprise. Once a certain level of VI complexity is achieved, the further scalability of supply chain integration will no longer prove cost effective. When this 'threshold' point is reached, it will be preferable for a firm to cease further VI. In fact VI costs can increase even without further supply chain extension due to changing technical risks, application difficulties or environmental turbulence and it may then be worthwhile for the firm to scale back to a higher degree of vertical integration. This paper develops a real options based model to demonstrate the VI linked cost/benefit dynamics of enterprise extension and provides a numerical illustration of the relationships captured by the model. The model extends our knowledge of factors which render extended structures stable rather than transient enterprise forms. Author Affiliation: (a) Department of Accounting and Finance, London School of Economics and Political Science, Houghton Street, London WC2A 2AE, United Kingdom (b) Graduate School of Business Administration, University of Witwatersrand, 2 St. David's Place, Parktown, Johannesburg, South Africa

This article describes how a government failing to protect against insurgents may or may not be rescued by the international community. We find that when intervention is less probable, the insurgent and government fight harder and the insurgent more likely succeeds. Conversely, when intervention is more probable, the insurgent fights less expecting subsequent intervention, and the government protects less expecting international community rescue. Higher contest intensities cause comparably matched players to fight harder. The international community intervenes if its unit intervention cost is low weighted against the benefits of intervention.

A regression-based implied volatility model is developed that is based on implied volatility to predict future volatility. The implied volatility on time to maturity, the strike price and a dummy is regressed to empirically estimate the time-varying volatility with the use of Ordinary Least Squares regression, Error Components and Dummy Variable models. The implied volatility estimator developed is based on the FTSE 100 index European options.

To determine the optimal allocation of responsibilities in disease interventions, and in designing commitment mechanisms, the paper develops a five-period game comprising policy makers, the international community providing financial aid, and nature as expressed by the population. When the international community provides funds, the policy maker free rides by not funding additionally. We determine which factors impact how the policy maker allocates funding between disease prevention and treatment. If the policy maker provides funds substantially, the international community free rides by funding less. We quantify how more allocation of funds by the policy maker to disease prevention causes lower disease contraction probability and higher probability that a person remains sick or dies, and how the international community's funding impacts these two probabilities. We derive seven assertions from the properties of the model and test against empirical African data. The results show consistency between the theoretical model and empirical estimates.

The author discusses the myths and realities with respect to China's ambitions in Africa which include that China is monolithic and unwilling to provide global public goods. He divides China's involvement in Africa into three periods with the first period leading up to 1949, the second which started in 1960 and lasted until 1989 and the third which started in 1990 that persists to the present and characterized by the modernization of the People's Liberation Army among others.

The provision of outsourcing services creates relationships between knowledge vested with the supplier and the viability of outsourcing arrangements. Knowledge accumulation by the outsourcee can reach a level where it poses a market entry or takeover risk to the outsourcer. Knowledge translates into cash flows interpreted as asset values modelled as geometric Brownian motion accounting for uncertainty, drift, and volatility. We present this argument within a principal-agent theoretical perspective which embeds a real options analysis to represent risk growth. As an alternative to a complicated analysis of the benefits and costs to the agent and principal of a takeover, we propose that takeover of the principal by the agent can be expected if the agent's discounted cash flows is larger than the principal's discounted cash flows. The probability of the takeover of the principal's market by the agent is expressed as an 'optimal stopping time' probability problem.

Many companies confronted with 'make or buy' decisions adopt the mid-way option of engaging in collaborative relationships (CRs) with suppliers rather than in internal production or the purchasing of parts through a process of competitive bidding. Engaging in CRs requires evaluations of when to enter such relationships and when to abandon them. Traditional incremental cost analysis does not readily allow such analysis for the establishment of supplier networks and relationships. This paper develops a real options-based model that focuses on the cost implications of learning curves and timing concerns. It provides an optimal timing valuation approach to establishing/abandoning a CR that incorporates differential learning rate payoffs and that assesses the contingencies embedded in a CR. A standard illustration of the application of the model is provided.

This investigation assesses the associations between strategy and experiences with activity based costing (ABC). Experience with ABC has two elements – processes and outcomes. The study considers strategy based process contingencies in relation to the decision to implement ABC, as well as the extent and speed of implementation. Outcome contingency is considered in terms of the perceived success of ABC implementation. A questionnaire was developed to collect information on corporate costing experiences and strategic orientation across organisations in seven countries. The results of the study suggest the prevalence of outcome based rather than process based dependencies between ABC and corporate strategy orientation.

Liability exposure is now such a major concern for auditors that any discussion of equilibrium audit fee structures needs to take account of the expected costs of liability exposure. We develop a model of audit litigation risk and then proceed to apply insights gained from the application of finance theory to show how liability exposure is related to guarantee provision. Given auditors wish to incorporate the expected cost of guarantees when planning and pricing services, we apply contingent claims analysis to derive valuation equations for expected (litigation) costs. We then proceed to consider wider regulatory issues. Whereas the above analysis assumes stable legal liability rules, we subsequently consider the auditor incentive effects of parametric variation in the rules. Since the quality of audits is unobservable, we consider how the rules could be set so as to ensure auditors are not tempted to provide a low degree of care and collude with management. To illustrate the applicability of this approach we also consider whether recent proposals to reform auditor liability to a proportional basis will always provide appropriate incentives.