ABSTRACT
This chapter focuses on work that explicitly recognizes financial market conditions and the distinction between market and unique risks. It presents the basic theory surrounding the integrated nature of finance and operations in imperfect markets. The chapter describes how the valuation of future cash flows depends on operational considerations and the inconsistency in approaches based on exogenously determined discount rates. It also describes how supply chain decisions and interactions between firms are also affected by financial considerations and how these issues impact supply chain efficiency and how operational "hedging" activities differ from financial market hedging activity. The chapter considers the role that operations management plays in the financial risk of a firm. It explains some of the empirical results that have appeared on the topic. The chapter summarizes the results and provides directions for further work for modelers, theorists, and empirical researchers. It explains the issues involved in the interactions between the operational and financial decisions of firms.
