Operational Hedging Strategies to Overcome Financial Constraints During Clean Technology Start-Up and Growth

27 Pages Posted: 17 Jun 2010 Last revised: 12 Jun 2014

Sinan Erzurumlu

Babson College

Fehmi Tanrisever

Bilkent University, Faculty of Business Administration

Nitin Joglekar

Boston University - Department of Operations and Technology Management

Date Written: June 16, 2010

Abstract

Clean technology startups face multiple sources of uncertainty, and require specialized know-how and longer periods for revenue growth than their counterparts in other industries. These start-ups require large investments and have been hit hard during the current credit squeeze. On the other hand, clean technologies create important positive externalities for the economy. Hence, loan guarantees and other incentive schemes are being developed that are conditioned upon operational benchmarks. We offer a framework to establish the extent wherein operational hedging can reduce risk and increase the probability of obtaining financing. We examine a variety of evidence, ranging from production outsourcing to creation of joint ventures, to posit that operational hedging may affect both the marginal cost of capital and the marginal return on investment through mitigating the informational problems in the market. However, operational hedging may not be an effective strategy in all settings: the decision for creation of such hedges ought to weigh the benefits of reduced marginal cost of capital and the opportunity cost of reduced future growth potential against a status quo.

Keywords: Clean Technology, Financial Constraints, Growth, Operational Hedging, Startup, Technology Policy

Suggested Citation

Erzurumlu, Sinan and Tanrisever, Fehmi and Joglekar, Nitin, Operational Hedging Strategies to Overcome Financial Constraints During Clean Technology Start-Up and Growth (June 16, 2010). Boston U. School of Management Research Paper No. 2010-28. Available at SSRN: https://ssrn.com/abstract=1625787

Sinan Erzurumlu

Babson College ( email )

231 Forest St.
Babson Park, MA 02457-0310
United States

Fehmi Tanrisever

Bilkent University, Faculty of Business Administration ( email )

Bilkent
Ankara, 06800
Turkey

Nitin Joglekar (Contact Author)

Boston University - Department of Operations and Technology Management ( email )

United States

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