Financing ?exibility: the case of outsourcing

Luca Di Corato (), Michele Moretto and Gianpaolo Rossini ()
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Gianpaolo Rossini: University of Bologna

No 206, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: We investigate the relationship between the extent and timing of vertical fl?exibility and the fi?nancial choices of a fi?rm. By vertical fl?exibility we mean partial/total and reversible outsourcing of a necessary input. A fi?rm simultaneously selects its vertical setting and how to fi?nance it. We examine debt and venture capital. Debt is provided by a lender that requires the payment of a fi?xed coupon over time and, as a collateral, an option to buy out the fi?rm in certain circumstances. Debt leads to the same level of fl?exibility which would be acquired by an unlevered ?firm. Yet investment occurs earlier. With venture capital less outsourcing may be is adopted with respect to the unlevered case and the ?firm invests mostly later. Hence, as the injection of venture capital may reduce the need of vertical fl?exibility, a novel relationship can be established for the substitutability between a real and a fi?nancial variable.

Keywords: vertical integration; fl?exible outsourcing; debt; equity and venture capital; real options. (search for similar items in EconPapers)
JEL-codes: C61 G31 G32 L24 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2016-05
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Financing flexibility: The case of outsourcing (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0206

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