Port capacity expansion under real options approach: a case study in Brazil

Detalhes bibliográficos
Autor(a) principal: Assis, Ana Carolina Velloso
Data de Publicação: 2022
Outros Autores: Silva, Rafael Igrejas, Gomes, Luiz Flavio Autran Monteiro, Gonçalves, Edson Daniel Lopes
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Independent Journal of Management & Production
Texto Completo: http://www.ijmp.jor.br/index.php/ijmp/article/view/1476
Resumo: Investments in port container terminals are sensitive to uncertainties. Public investments in infrastructure have been significantly reduced in the last decade in developing countries. The Brazilian government infrastructure investment was only 1.85 % of GDP in 2019, representing the lowest level in the last fifty years. Nonetheless, the regulatory framework of the port sector in Brazil has undergone significant changes over time, increasing the number of private port container terminal leases. The expansion capacity of the private port facilities is strongly linked to the demand uncertainty, which impacts the financial return to the long run. In this scenario, the uncertainty of global cargo transportation can discourage infrastructure investments in this class of project in Brazil. To overcome these issues, the financial modelling applying real options approach is better suited than the traditional valuation methods based on Discounted Cash Flow (DCF) analysis. The present study aims to value flexibilities of anticipating, or postponing, or interrupting investments of an existing operational port terminal in Brazil with expansion capacity under the demand uncertainty. The financial decision to invest in a port expansion is modeled by an American option. The results demonstrate that the investor adds significant value to the project by having the possibility to postpone investments. The proposed model presents the contribution of optimizing the decision of sequential expansions of capacity in port terminals, at any time and according to scenarios' revelation. In addition, the model allows the government authorities to review lease contracts, considering the relevance of timing to invest in project expansion decisions. The proposed model can also be extended to other infrastructure projects in emerging economies.
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spelling Port capacity expansion under real options approach: a case study in Brazilinfrastructuremanagerial flexibilityport expansionreal optionsuncertaintyInvestments in port container terminals are sensitive to uncertainties. Public investments in infrastructure have been significantly reduced in the last decade in developing countries. The Brazilian government infrastructure investment was only 1.85 % of GDP in 2019, representing the lowest level in the last fifty years. Nonetheless, the regulatory framework of the port sector in Brazil has undergone significant changes over time, increasing the number of private port container terminal leases. The expansion capacity of the private port facilities is strongly linked to the demand uncertainty, which impacts the financial return to the long run. In this scenario, the uncertainty of global cargo transportation can discourage infrastructure investments in this class of project in Brazil. To overcome these issues, the financial modelling applying real options approach is better suited than the traditional valuation methods based on Discounted Cash Flow (DCF) analysis. The present study aims to value flexibilities of anticipating, or postponing, or interrupting investments of an existing operational port terminal in Brazil with expansion capacity under the demand uncertainty. The financial decision to invest in a port expansion is modeled by an American option. The results demonstrate that the investor adds significant value to the project by having the possibility to postpone investments. The proposed model presents the contribution of optimizing the decision of sequential expansions of capacity in port terminals, at any time and according to scenarios' revelation. In addition, the model allows the government authorities to review lease contracts, considering the relevance of timing to invest in project expansion decisions. The proposed model can also be extended to other infrastructure projects in emerging economies.Independent2022-03-01info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersionapplication/pdftext/htmlhttp://www.ijmp.jor.br/index.php/ijmp/article/view/147610.14807/ijmp.v13i1.1476Independent Journal of Management & Production; Vol. 13 No. 1 (2022): Independent Journal of Management & Production; 234-2572236-269X2236-269Xreponame:Independent Journal of Management & Productioninstname:Instituto Federal de Educação, Ciência e Tecnologia de São Paulo (IFSP)instacron:IJM&Penghttp://www.ijmp.jor.br/index.php/ijmp/article/view/1476/2104http://www.ijmp.jor.br/index.php/ijmp/article/view/1476/2105Copyright (c) 2021 Ana Carolina Velloso Assis, Rafael Igrejas Silva, Luiz Flavio Autran Monteiro Gomes, Edson Daniel Lopes Gonçalveshttp://creativecommons.org/licenses/by-nc-sa/4.0info:eu-repo/semantics/openAccessAssis, Ana Carolina VellosoSilva, Rafael IgrejasGomes, Luiz Flavio Autran MonteiroGonçalves, Edson Daniel Lopes2022-03-01T10:34:36Zoai:www.ijmp.jor.br:article/1476Revistahttp://www.ijmp.jor.br/PUBhttp://www.ijmp.jor.br/index.php/ijmp/oaiijmp@ijmp.jor.br||paulo@paulorodrigues.pro.br||2236-269X2236-269Xopendoar:2022-03-01T10:34:36Independent Journal of Management & Production - Instituto Federal de Educação, Ciência e Tecnologia de São Paulo (IFSP)false
dc.title.none.fl_str_mv Port capacity expansion under real options approach: a case study in Brazil
title Port capacity expansion under real options approach: a case study in Brazil
spellingShingle Port capacity expansion under real options approach: a case study in Brazil
Assis, Ana Carolina Velloso
infrastructure
managerial flexibility
port expansion
real options
uncertainty
title_short Port capacity expansion under real options approach: a case study in Brazil
title_full Port capacity expansion under real options approach: a case study in Brazil
title_fullStr Port capacity expansion under real options approach: a case study in Brazil
title_full_unstemmed Port capacity expansion under real options approach: a case study in Brazil
title_sort Port capacity expansion under real options approach: a case study in Brazil
author Assis, Ana Carolina Velloso
author_facet Assis, Ana Carolina Velloso
Silva, Rafael Igrejas
Gomes, Luiz Flavio Autran Monteiro
Gonçalves, Edson Daniel Lopes
author_role author
author2 Silva, Rafael Igrejas
Gomes, Luiz Flavio Autran Monteiro
Gonçalves, Edson Daniel Lopes
author2_role author
author
author
dc.contributor.author.fl_str_mv Assis, Ana Carolina Velloso
Silva, Rafael Igrejas
Gomes, Luiz Flavio Autran Monteiro
Gonçalves, Edson Daniel Lopes
dc.subject.por.fl_str_mv infrastructure
managerial flexibility
port expansion
real options
uncertainty
topic infrastructure
managerial flexibility
port expansion
real options
uncertainty
description Investments in port container terminals are sensitive to uncertainties. Public investments in infrastructure have been significantly reduced in the last decade in developing countries. The Brazilian government infrastructure investment was only 1.85 % of GDP in 2019, representing the lowest level in the last fifty years. Nonetheless, the regulatory framework of the port sector in Brazil has undergone significant changes over time, increasing the number of private port container terminal leases. The expansion capacity of the private port facilities is strongly linked to the demand uncertainty, which impacts the financial return to the long run. In this scenario, the uncertainty of global cargo transportation can discourage infrastructure investments in this class of project in Brazil. To overcome these issues, the financial modelling applying real options approach is better suited than the traditional valuation methods based on Discounted Cash Flow (DCF) analysis. The present study aims to value flexibilities of anticipating, or postponing, or interrupting investments of an existing operational port terminal in Brazil with expansion capacity under the demand uncertainty. The financial decision to invest in a port expansion is modeled by an American option. The results demonstrate that the investor adds significant value to the project by having the possibility to postpone investments. The proposed model presents the contribution of optimizing the decision of sequential expansions of capacity in port terminals, at any time and according to scenarios' revelation. In addition, the model allows the government authorities to review lease contracts, considering the relevance of timing to invest in project expansion decisions. The proposed model can also be extended to other infrastructure projects in emerging economies.
publishDate 2022
dc.date.none.fl_str_mv 2022-03-01
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dc.identifier.uri.fl_str_mv http://www.ijmp.jor.br/index.php/ijmp/article/view/1476
10.14807/ijmp.v13i1.1476
url http://www.ijmp.jor.br/index.php/ijmp/article/view/1476
identifier_str_mv 10.14807/ijmp.v13i1.1476
dc.language.iso.fl_str_mv eng
language eng
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info:eu-repo/semantics/openAccess
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dc.publisher.none.fl_str_mv Independent
publisher.none.fl_str_mv Independent
dc.source.none.fl_str_mv Independent Journal of Management & Production; Vol. 13 No. 1 (2022): Independent Journal of Management & Production; 234-257
2236-269X
2236-269X
reponame:Independent Journal of Management & Production
instname:Instituto Federal de Educação, Ciência e Tecnologia de São Paulo (IFSP)
instacron:IJM&P
instname_str Instituto Federal de Educação, Ciência e Tecnologia de São Paulo (IFSP)
instacron_str IJM&P
institution IJM&P
reponame_str Independent Journal of Management & Production
collection Independent Journal of Management & Production
repository.name.fl_str_mv Independent Journal of Management & Production - Instituto Federal de Educação, Ciência e Tecnologia de São Paulo (IFSP)
repository.mail.fl_str_mv ijmp@ijmp.jor.br||paulo@paulorodrigues.pro.br||
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