01551253

Component

Capital investment projects are traditionally evaluated using net present value and the internal rate of return. Research shows that risk aversion, risk seeking, and loss aversion are behaviors exhibited in corporate investment, which conforms to the premise of prospect theory. Prospect theory models can be applied to analyze the corporate investment behaviors that appear in the face of risk. Based on prospect theory, this paper tries to improve the decision-making method and evaluation indicators, so that the real project-selecting process can be described objectively. From the perspective of sensitivity to losses and gains, three kinds of situation are put forward: after stable profits, from zero, and after loss. The risk behaviors in those three situations are analyzed. Also, the minimum attractive rate of return according to risk attitude is used to represent the benchmark discount rate in the models. Furthermore, an experimental parameter calibration exercise is conducted among some managers from Chinese logistics enterprises in order to reflect the real risk attitude and make the conclusions more convincing. Finally, a case study of Chinese logistics enterprises is carried out and the comparisons show that the developed model can evaluate investment projects with risk reasonably well. This research provides a new way to understand corporate investment decision-making behaviors.

This paper was sponsored by TRB committee ABE10 Revenue and Finance.

01550057

15-1506

English

15p

2015

Transportation Research Board 94th Annual Meeting

Digital/other

Figures; References; Tables

Capital investments; Case studies; Decision making; Logistics; Rate of return; Risk analysis

China

Finance; Transportation (General); I10: Economics and Administration

Transportation Research Board Annual Meeting 2015 Paper #15-1506

TRIS, TRB, ATRI

Dec 30 2014 12:34PM