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https://ssrn.com/abstract=1625787
 
 

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


Sinan Erzurumlu


Babson College

Fehmi Tanrisever


Bilkent University, Faculty of Business Administration

Nitin Joglekar


Boston University - Department of Operations and Technology Management

June 16, 2010

Boston U. School of Management Research Paper No. 2010-28

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.

Number of Pages in PDF File: 27

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


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Date posted: June 17, 2010 ; Last revised: June 12, 2014

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

Contact Information

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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