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Research Seminars & Workshops @ IRES

Professor Wang Neng
Columbia Business School

Investment under Uncertainty and the Value of Real and Financial Flexibility (Interdisciplinary Lecture)


05 October 2015 (Monday)


3.00pm - 4.30pm


RMI Executive Seminar Room, 21 Heng Mui Keng Terrace, I3 Building, Level 4


We develop a model of investment timing under uncertainty for a financially con-strained firm. Facing external financing costs, the firm prefers to fund its investment through internal funds, so that the firm's optimal investment policy and value depend on both its earnings fundamentals and liquidity holdings. We show that financial con- straints significantly alter the standard real options results, with the financial flexibility conferred by internal funds acting as a complement, and at times as a substitute, to the real flexibility given by the optimal timing of investment. We show that: 1) the in- vestment hurdle is highly nonlinear and non-monotonic in the firm's internal funds; 2) in contrast to predictions implied by standard corporate savings models, a financially constrained firm may behave in a risk seeking sense (and thus firm value may be convex in liquidity) due to the interaction between financial and real (growth/abandonment) flexibility; 3) with multiple rounds of growth options, a value-maximizing financially constrained firm may choose to over-invest via accelerated investment timing in earlier stages in order to mitigate under-investment problems in later stages.

About the Speaker

Neng Wang is Chong Khoon Lin Professor of Real Estate and Finance at Columbia Business School and a Research Associate at the National Bureau of Economic Research (NBER). He is also the Honorary Dean at the School of Finance at Shanghai University of Finance and Economics (SUFE). He became a tenured Full Professor with an endowed professorship at Columbia University at the age of 33. He is a recipient of the "Thousand Talents" Program, one of the most prestigious awards granted by the Chinese government. He is an Editor in the Finance area at the Management Science and an Associate Editor at the Journal of Finance. He has widely published in leading economics, finance, and business journals. Among other awards and honors, he won a Smith--Breeden Distinguished Paper Prize awarded by the Journal of Finance, and the Bettis Distinguished Scholar Award from Carey School of Business, Arizona State University.

His research interests include private equity, hedge funds, asset allocation, corporate finance, asset pricing, risk management, entrepreneurial finance, investor protection, household finance, wealth distribution, macroeconomics, real estate finance, and the Chinese economy. He taught at the Simon School of Business, University of Rochester before joining Columbia University. He held visiting professorships at various academic institutions including Kellogg School of Management at Northwestern University, Cheung Kong Graduate School of Business (CKGSB), Guanghua School of Management at Peking University, Shanghai Advanced Institute of Finance (SAIF) at Shanghai Jiaotong University (SJTU), and the School of Economics at Zhejiang University. He has taught courses at both MBA and PhD levels including entrepreneurial finance and private equity, fixed income securities and markets, financial institutions, risk management, real estate finance, corporate finance theory, and continuous -- time finance.

He received B.S. in Physical Chemistry from Nanjing University, China in 1992, M.S. in Chemistry from California Institute of Technology (Caltech) in 1995, M.I.A. in International Relations and Pacific Studies from the University of California, San Diego (UCSD) in 1997, and Ph.D. in Finance from the Graduate School of Business at Stanford University in 2002. He was born in 1973 in Anhui, China.

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