Abstract
The goal of this paper was to examine the effect of debt financing on competitive manufactures’ product flexible capacity decisions. For this purpose, two competing firms were considered to invest in product flexible capacity and product dedicated capacity, respectively, each of them produced two products. Before investing in the capacity, each firm issues the optimal amount of debt. The product flexible capacity decision models of both levered firms and unlevered firms were built based on the competitive newsvendor model. Then the relationship between debt financing and product flexibility decision was discussed. The results indicated that under the competitive setting, the level of product flexibility decreased with debt as well as the difference of demand between the two products. Furthermore, the optimal capacity investment and debt of levered firms decreased with product flexibility. Finally, the firm could benefit from higher debt and total capacity investment when the product profit margin is large.
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There are two authors in this manuscript: Guozhao Cao and Zhan Wang. The contributions of each author are as follows: (1) Guozhao Cao put forward the idea, established and solved the models mentioned in this paper, analyzed the results of numerical examples, and wrote the original version of this manuscript. (2) Zhan Wang revised the English version of the manuscript. No conflict of interest exists in the submission of this manuscript, and the manuscript is approved by all authors for publication. I would like to declare on behalf of my co-authors that the work described was original research that has not been published previously, and not under consideration for publication elsewhere in any form or language (partially or in full). The results are presented clearly, honestly, and without fabrication, falsification, or inappropriate data manipulation (including image-based manipulation).
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Cao, G., Wang, Z. Product flexibility of competitive manufactures: the effect of debt financing. Ann Oper Res 307, 53–74 (2021). https://doi.org/10.1007/s10479-021-04132-x
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DOI: https://doi.org/10.1007/s10479-021-04132-x