An Application of the Decomposition Principle to Financial Decision Models

Linear programming models of specialized financial decision problems such as working capital management [21], short-term financing [22], or capital bug-geting [24] are deficient in that they may lead to decisions which are suboptimal with respect to the firm as a whole. Each model attacks a single decision problem and neglects its interaction with the other activities of the firm. On the other hand, a model which reflects these interdependences and interactions by including the various financing, investment, and operating decisions in a single model tends to become excessively large and inefficient to use. What is needed is a model that incorporates the efficiencies inherent in smaller, more specialized models which can be utilized on a decentralized basis and which can simultaneously lead to decisions that are optimal for the firm as a whole.

[1]  J. Hirshleifer.  On the Economics of Transfer Pricing , 1956 .

[2]  J. Lorie,et al.  Two Important Problems in Sales Forecasting , 1957 .

[3]  Jack Hirshleifer,et al.  Economics of the Divisionalized Firm , 1957 .

[4]  Merton H. Miller.  The Cost of Capital, Corporation Finance and the Theory of Investment , 1958 .

[5]  George B. Dantzig,et al.  Decomposition Principle for Linear Programs , 1960 .

[6]  F. Modigliani,et al.  DIVIDEND POLICY, GROWTH, AND THE VALUATION OF SHARES , 1961 .

[7]  George B. Dantzig,et al.  Linear programming and extensions , 1965 .

[8]  T. Fabian,et al.  Decomposition, Pricing for Decentralization and External Economies , 1964 .

[9]  D. Teichroew,et al.  Optimal Short Term Financing Decision , 1965 .

[10]  Richard E. Quandt,et al.  Investment and Discount Rates Under Capital Rationing—A Programming Approach , 1965 .

[11]  A. A. Robichek,et al.  Mathematical Programming and the Analysis of Capital Budgeting Problems. , 1965 .

[12]  William W. Cooper,et al.  New Perspectives in Organization Research , 1965 .

[13]  H. Stevenson,et al.  The Great Boom and Panic. , 1966 .

[14]  R. Lawrence,et al.  Operational Research and the Social Sciences. , 1966 .

[15]  Kalman J. Cohen,et al.  LINEAR PROGRAMMING AND OPTIMAL BANK ASSET MANAGEMENT DECISIONS , 1967 .

[16]  Jerome E. Hass,et al.  Transfer Pricing in a Decentralized Firm , 1968 .

[17]  Willard T. Carleton.  LINEAR PROGRAMMING AND CAPITAL BUDGETING MODELS: A NEW INTERPRETATION , 1969 .

[18]  D. Vickers.  THE COST OF CAPITAL AND THE STRUCTURE OF THE FIRM1 , 1970 .

[19]  Willard T. Carleton.  An Analytical Model for Long-Range Financial Planning , 1970 .

[20]  Peter Jennergren,et al.  Decentralization on the Basis of Price Schedules in Linear Decomposable Resource-Allocation Problems , 1972, Journal of Financial and Quantitative Analysis.

[21]  Stewart C. Myers,et al.  A NOTE ON LINEAR PROGRAMMING AND CAPITAL BUDGETING , 1972 .

[22]  R. Radner,et al.  Decision and Organization. A Volume in Honor of Jacob Marschak. Edited by C.B. Mc Guire and Roy Radner. Studies in Mathematical and Managerial Economics, volume 12. Amsterdam, London, North-Holland Publishing Company, 1972 X p. 361 p., fl. 63.00. , 1973, Recherches économiques de Louvain.

[23]  APPLICATION OF THE DECOMPOSITION PRINCIPLE TO THE CAPITAL BUDGETING PROBLEM IN A DECENTRALIZED FIRM , 1974 .