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Financing ?exibility: the case of outsourcing

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  • Luca Di Corato

    (University of Uppsala)

  • Michele Moretto

    (University of Padova)

  • Gianpaolo Rossini

    (University of Bologna)

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.

Suggested Citation

  • Luca Di Corato & Michele Moretto & Gianpaolo Rossini, 2016. "Financing ?exibility: the case of outsourcing," "Marco Fanno" Working Papers 0206, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0206
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    2. Dimitrios Zormpas, 2017. "How vertical relationships and external funding affect investment efficiency and timing?," 2017 Papers pzo81, Job Market Papers.

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    More about this item

    Keywords

    vertical integration; fl?exible outsourcing; debt; equity and venture capital; real options.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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