the economic role of jumps and recovery rates in the market for corporate default risk using an extensive cross section of u s corporate credit default swaps cdss this paper offers an economic understanding of implied loss given default lgd and jumps in default risk we formulate and underpin empirical stylized facts about cds spreads which are then reproduced in our affine intensity based jump diffusion model implied lgd is well identified with obligors possessing substantial tangible assets expected to recover more sudden increases in the default risk of investment grade obligors are higher relative to speculative grade the probability of structural migration to default is low for investment grade and heavily regulated obligors because investors fear distress rather through rare but devastating events

pricing multiasset equity options how relevant is the dependence function abstract in this paper we test how different choices for the dependence function can affect the prices of a set of multiasset equity options we conduct the analysis for various 5 dimensional baskets of uk shares and a wide range of payoffs for the multiasset options consistent with the instruments traded on the market we also test the relevance of the dependence specification over both volatile and quiet market scenarios interestingly we find that in most circumstances the choice of a dependence structure richer than the standard linear correlation does not seem to affect option prices substantially however the dependence function becomes more relevant in particularly volatile market conditions

a new look at the returns and risks to pharmaceutical r d this study investigates the returns to r d for 100 new drugs introduced into the united states during the decade of the 1970s in contrast to prior studies it incorporates several significant structural changes that have occurred in the pharmaceutical industry during the 1980s these include higher real drug prices and a greater degree of generic competition a major finding is that the return on r d for the average new drug is approximately equal to the 9 percent industry cost of capital however the performance of new drugs introduced during the latter half of the 1970s was markedly better than that of early 1970s introductions this latter finding is consistent with the more rapid rate of industry growth in real r d expenditures the study also finds that the variation in returns is highly skewed with only the top 30 drugs covering mean r d costs on a fully allocated basis finally it is shown that real drug price increases in the 1980s were necessary for the average new drug introduction to recover its r d costs

modeling and monitoring risk acceptability in markets the case of the credit default swap market abstract minimal discounted distorted expectations across a range of stress levels are employed to model risk acceptability in markets interactions between discounting and stress levels used in measure changes are accommodated by lowering discount rates for the higher stress levels acceptability parameters represent a maximal and minimal discount rate a maximal stress level and the speed of rate reduction in response to stress an explicit model relating credit default swap cds prices to default probabilities is formulated with a view to making the default risk market acceptable data on cds prices and default probabilities for the six major us banks obtained from the risk management institute of the national university of singapore is employed to estimate parameters defining acceptability and the movements in market implied recovery rates we observe that the financial crisis saw an increase in the maximal discount rate and its spread over the minimal rate along with an increase in the maximal stress level being demanded for acceptability and a stable pattern for the speed of rate adjustment through the period the maximal rate rate spread and stress levels have come down but with periods in the interim where they have peaked as they did in the crisis recovery rates have oscillated and they did fall substantially but have recovered towards 40 percent near the end of the period

what makes basic research economically useful abstract economic analysis has helped us understand the strong economic dimension in the explosive growth of science and more recently the reasons for continuing public subsidies however the growing domination of the market failure approach has led to the analytical neglect of two major questions for policy makers how does science contribute to technology are the technological benefits from science increasingly becoming international on the former too much attention has been devoted to the relatively narrow range of scientific fields producing knowledge with direct technological applications and too little to the much broader range of fields the skills of which contribute to most technologies on the latter national systems of science and of technology remain closely coupled in most major countries in spite of the technological activities of large multinational firms empirical research is needed on concentration scale and efficiency in the performance of basic research where techniques and insights from the applied economics of industrial r d are of considerable relevance there is no convincing evidence so far of unexploited economies of scale in basic research this evidence shows that many policies for greater selectivity and concentration in basic research have been misconceived economists and other social scientists could help by formulating more persuasive justifications for public subsidy for basic research and by making more realistic assumptions about the nature of science and technology

internal capital markets and the competition for corporate resources this article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market unlike a bank headquarters has control rights that enable it to engage in winner picking the practice of actively shifting funds from one project to another by doing a good job in the winner picking dimension headquarters can create value even when it cannot help at all to relax overall firm wide credit constraints the model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects this article analyzes the process by which internal capital markets channel limited resources to different uses inside a company in so doing it seeks to address two related sets of questions first what is the fundamental economic rationale for creating an internal capital market that is under what circumstances can it make sense to combine several technologically distinct projects under one roof and have them seek funding from corporate headquarters as opposed to setting them up as stand alone companies that each raise external financing on their own second given this rationale what is the optimal size and scope of an internal capital market should headquarters be involved in funding a large number of projects or just a few and should these projects be unrelated to one another or in similar lines of business the answers to both sets of questions flow from the insight that in a credit constrained setting where not all positive npv projects can be financed headquarters can create value by actively reallocating scarce funds across projects for example the cash flow generated by one division s activities may be taken and spent on investment in another division where the returns are higher or alternatively one division s assets may be used as collateral to raise financing that is then diverted to the other division simply put individual projects must compete for the scarce funds and headquarters job is to pick the winners and losers in this competition

diversifying entry some ex ante explanations for postentry survival and growth links between theoretically determined preentry conditions and the postentry performance of diversifying entries made by large industrial firms are examined industry firm and relatedness variabl

ownership concentration and firm performance in emerging markets a meta analysis the literature concerned with relations between ownership concentration and corporate performance in emerging markets presents conflicting theoretical predications and inconclusive empirical results we use meta analytical techniques to integrate the diverse empirical findings and investigate factors contribute to the inconsistencies in the empirical evidence using 419 correlations collected from 42 primary studies of listed corporations in 18 emerging markets heterogeneity tests show that only a small proportion of the variation in reported ownership concentration performance relations can be attributed to sampling error our meta regressions reveal how population differences researchers modeling choices and inadequate treatment of endogeneity explain a large portion of the true heterogeneity after adjusting for these effects we find ownership concentration has negative relation with firm performance across countries our results emphasize the importance of model specification and methods of addressing endogeneity and support further comparative study of the ownership concentration corporate performance relation between countries with seemingly similar corporate governance environments

how much does country matter an analysis of firms growth options recent international strategy research emphasizes the importance of understanding the effects of geographic location on firms strategies and performance outcomes we contribute to this research by providing empirical evidence that the interplay of country and industry effects matters substantially in explaining the variation in the value of growth options of firms based in different countries our results show that country industry effects are the second largest source of variation following firm effects while industry and country effects are relatively small when considered in their own right that valuable growth options are tied to country and industry interactions has important implications for international strategy research and practice

sources of superior performance market share versus industry effects in the u s brewing industry using financial measures of performance we investigate the sources of value creation in the u s brewing industry between 1969 and 1979 we find that market share gains in this industry at this time are not correlated with changes in value and that the performance of individual leading firms is highly correlated our interpretation is that the success of market share building strategies depends critically on specific industry conditions specifically in the absence of fundamental shifts in the relative resource positions of individual firms share gains may come at too high a price in addition the research shows that intra industry correlations in returns may result from excessive competition rather than collusion

industry and firm specific factors of innovation novelty this article investigates the underlying factors that might shape the firm s choices with respect to degrees of innovation novelty using a sample of 2983 firms observed under the portuguese community innovation survey we assess the relative relevance of a set of firm and industry specific factors in explaining firms choices about incremental or radical innovation the results indicate that both the firm s idiosyncratic historical factors giving rise to heterogeneous r d capabilities and the industry context have power to shape the firm s innovation choices even though firm specific factors appear to be more powerful the estimated impacts on firm s innovation novelty are nonetheless significantly moderated by the type of firm and industry

to reveal or not to reveal strategic disclosure of private information in negotiation abstract within the bargaining literature it is widely held that negotiators should never reveal information that will lead to disclosure of their reservation prices we analyze a simple bargaining and search model in which the informed buyer can choose to reveal his cost of searching for an outside price which determines his reservation price to the uninformed seller we demonstrate that buyers can be made better off by revealing their search cost more interestingly we also find that depending on the assumed distribution of search costs sometimes buyers with relatively low search costs should reveal their private information whereas in other cases buyers with relatively high search costs should do so we then test our model experimentally and find that subjects behavior is not entirely consistent with theoretical predictions in general bargainers behavior is better explained by a bounded rationality model similar to fictitious play

the dynamics of technological innovation the sector of antibacterial medicines abstract this is an empirical and historical study of the dynamics of technological innovation in antibacterial medicines a key sector of the pharmaceutical industry it is based on an analysis of all the innovations that were introduced over the period 1935 1987 from prontosil the first sulphonamide through penicillin and the semisynthetic antibiotics to the monobactams and the quinolones of the mid 1980s in the historical section we describe the influence that antibacterial medicines have had on the structure and research intensity of the innovating companies and through them on the pharmaceutical industry and its geography we also describe the catalytic role played by government agencies and universities in the empirical section the innovations are evaluated in terms of originality and market performance and are classified into four technological trajectories their distribution over time and among technological trajectories companies and countries the relation between originality and market performance of individual innovations the interplay between social needs market demand and technological innovation the role of market successful radical innovations in the launching of technological trajectories the orientation of subsequent academic and industrial research and the establishment of corporate technology traditions provide insights in both innovation theory and the dynamics of technological innovation

information technology effects on firm performance as measured by tobin s q despite increasing anecdotal evidence that information technology it assets contribute to firm performance and future growth potential of firms the empirical results relating it investments to firm performance measures have been equivocal however the bulk of the studies have relied exclusively on accounting based measures of firm performance which largely tend to ignore it s contribution to performance dimensions such as strategic flexibility and intangible value in this paper we use tobin s q a financial market based measure of firm performance and examine the association between it investments and firm q values after controlling for a variety of industry factors and firm specific variables the results based on data from 1988 1993 indicate that in all of the five years the inclusion of the it expenditure variable in the model increased the variance explained in q significantly the results also showed that for all five years it investments had a significantly positive association with tobin s q value our results are consistent with the notion that it contributes to a firm s future performance potential which a forward looking measure such as the q is better able to capture

impact of information technology capital on firm scope and performance the role of asset characteristics this research draws on transaction cost and resource based theory to examine how information technology it capital moderates the relationship between different types of assets and firm scope both vertical integration and diversification the analysis suggests that it capital enables firms with narrowly valuable assets to be less vertically integrated and less diversified and enables firms with broadly valuable assets to be more vertically integrated and more diversified the moderating influence of it capital on the relationship between different types of assets and firms vertical and product market scope is consistent with transaction cost as well as resource based traditions abstract from author

does corporate strategy matter a revisionist view that corporate strategy does not matter has gained considerable influence in recent years this view largely stems from empirical results of early variance decomposition studies that found negligible corporate effects associated with profitability differences between businesses our analysis of the variance decomposition literature shows this view to be incorrect not only do the studies as a group show that factors at the corporate level of organizations contribute to profitability differences but also evidence suggests that factors specifically associated with corporate strategy contribute to corporate effects corporate strategy in fact does matter copyright 2001 john wiley sons ltd

sources procedures and microeconomic effects of innovation fabio arcangeli paul david frank engelman christopher freeman massimo moggi richard nelson luigi orsenigo nathan rosenberg michele salvati g n von tunzelman two anonymous referees and the participants at the meeting of the committee on distribution growth and technical progress of the italian national research council cnr rome november 16 1985 have helped with various redraftings a particularly grateful acknowledgment is for the insightful and patient help of moses abramovitz this work has been undertaken at the science policy research unit spru university of sussex as part of the research program of the designated research centre sponsored by the economic and social research council esrc earlier support to the research that led to this paper by the italian national research council cnr is also gratefully acknowledged the statistical research has been undertaken with the assistance of stephano brioschi ilaria fornari and giovannu prennushi

the political economy of israeli protectionism an empirical analysis the aim of this study was to examine the tariff structure in israel in terms of the four main theoretical models of endogenous commercial policy the empirical results for levels of protection in israel support several of the models in particular the pressure group model performs well and especially the variable that represents the lobbying power of the histadrut public sector in israel this is consistent with the longstanding political power of the histadrut in israel the histadrut s role in the israeli economy rises above the western concept of a labor union and takes on a quasi governmental function the clearest example of this elevated status is seen when the government included the histadrut as part of the commission charged with the responsibility of carrying out the nominal liberalization process of the 1960s evidently it is this kind of political economic power that allowed the histadrut to affect the level of protection histadrut dominated industries received

competitive dynamics and economic learning an extended resource based view in this paper a conceptual framework for the analysis of economic learning is developed economic learning by analogy with organizational learning results in the development of economic competences or capabilities shared between firms which rest on a foundation of economic resources from which value is generated and economic routines through which resources are utilized it is the mobility of resources and their exchange and production dynamics along evolutionary pathways which underpins the plausibility of a notion of economic learning the paper elaborates this framework as a resource based view rbv of the economy as a whole as an extension of the rbv of the firm such a framework captures the dynamics of exchange and circulation of technologies know how and intangible assets as well as of tangible assets and capital goods it is concerned with investment behavior by entrepreneurs rather than with the behavior of producers and consumers in goods and services markets within this resource economy framework it is possible to generate an account of the resource dynamics that underpin production of goods and services including resource propagation diffusion imitation replication and recombination these processes encompass evolutionary pressures experienced through resource variation selection and retention entrepreneurial initiatives take the form of resource recombinations while resource innovation captures the creation of new economic resources such as technological standards such a perspective brings into focus the resource specialization and configurations that drive real economies within firms and between firms that translates into enhanced or diminished performance of the economy as a whole copyright 2003 oxford university press

are group affiliated firms really more profitable than nonaffiliated the role of corporate center in influencing the economic performance of business units has been a central research topic in the industrial organization and strategic management literature a common finding is the limited corporate and business group effects recently an emerging line of studies argues that the market inefficiencies and institutional voids in emerging markets can be overcome more efficiently by large diversified business groups than by non group small firms some empirical evidence also shows that non group small firms are significantly less profitable than group affiliated firms this paper raises this issue by empirically investigating the influence of group affiliation on the return on assets and tobin s q of 340 group affiliated firms versus 423 non group firms in taiwan during the period of 1997 1999 the statistical results show that group affiliation can not always create value for member firms the size of the business group matters when affiliated with the largest business groups member firms indeed show improved stock market performance but when firms are affiliated with small and medium sized groups their accounting performance suffers findings of this paper suggest a threshold effect and a u shape relationship between group affiliation and profitability in emerging economies

innovation regimes r d and radical innovations in telecommunications abstract by introducing the concept of innovation regimes the aim of this article is to show how the rapid pace of technological development in the telecom sector may be explained by the close links between the sector s own r d and the creation of numerous innovations many of which are radical in contemporary innovation theory a theoretical antinomy exists whereas the creation of incremental innovations is variously explained in terms of rational responses to markets dynamics of technological regimes dominant design etc radical innovations in contrast are explained in terms of serendipity chance or haphazard scientific discoveries evidence from analysis of innovations in the telecom sector suggests that innovation regimes have provided a capability of coordination direction and leadership in the creation of many of the radical technological innovations that have emerged in the sector thus one may claim that the strong innovation regimes and high r d intensity of the telecom sector at least until recently have provided a capability of creating innovations on purpose for a purpose the policy implications of this contradict some of the assumptions on which the prevailing market oriented r d governance models and policies are based and which are supported by contemporary innovation theories

distinction between intermediate and finished products in intra firm trade abstract although intra firm trade has been viewed as associated with vertical integration which exploits opportunities for exchange between inherently dissimilar economies it is more common between developed countries where horizontal integration is expected to dominate using unique data from 1974 to 1990 on swedish firms application of a tobit model explains variations in majority owned manufacturing affiliates internal imports of intermediate and finished goods on the basis of firms international organization of production effects which are unobservable in aggregate figures show up only when finished and intermediate goods are separated

present at the biotechnological revolution transformation of technological identity for a large incumbent pharmaceutical firm abstract management of successful incumbent firms experience difficulty in recognizing the need for and effecting change in the firm s technological identity after an externally generated shift in the industry s technological trajectory nonetheless some large pharmaceutical firms have transformed their technological identity in drug discovery from a chemical random screening to biological drug design model we report how one of the world s most successful incumbents transformed technically sophisticated senior management championed the transformation it was achieved primarily through hiring many new scientists embodying biotechnology existing personnel acquired the expertise or left continual self transformation is part of the corporate ethos some differences in incumbent and entrant technology remain incumbents use a wider range of techniques consistent with their complementary assets publication and incentive compensation policies are driven by the need to attract and retain the best scientists professor firm collaborations are ubiquitous often non public and best identified in quantitative analyses by co publishing collaborations with new biotechnology firms are used primarily to substitute for developing internal expertise judged of marginal value no drug discovery collaborations exist with other major incumbents we identify another seven or eight incumbents similarly transforming as indicated by top scientific talent and patenting success

diversification diseconomies of scope and vertical contracting evidence from the taxicab industry this paper studies how firms reorganize following diversification proposing that firms use outsourcing or vertical disintegration to manage diseconomies of scope we also consider the origins of scope diseconomies showing how different underlying mechanisms generate contrasting predictions about the link between within firm task heterogeneity and the incentive to outsource following diversification we test these propositions using microdata on taxicab and limousine fleets from the economic census the results show that taxicab firms outsource by shifting the composition of their fleets toward owner operator drivers when they diversify into the limousine business the magnitude of the shift toward driver ownership is larger in less urban markets where the tasks performed by taxicab and limousine drivers are more similar these findings suggest that 1 firms use outsourcing to manage diseconomies of scope at a particular point in the value chain and 2 interagent conflicts can be an important source of scope diseconomies

is tourism firm competitiveness driven by different internal or external specific factors new empirical evidence from spain abstract the quest to understand the multilevel antecedents of competitiveness has led to a separation of approaches on one side of the question are the environment theories that analyze the structural characteristics of the general and competitive environment on the other side are the resource based view and its extensions that highlight firm specific resources and capabilities as the main basis of firms competitiveness however in recent years the nature of competition and shifting economic conditions have given rise to new theoretical approaches that complement the assumptions underlying both environmental and firm theories specifically this study contributes by examining the regional environment effect the district effect and the strategic group effect through a study of 364 spanish tourism firms this research explores the relative importance of distinct external forces such as the general environment or country effect the regional effect the competitive environment or industry effect the district effect and internal factors such as the firm s tangible resources capabilities and strategy selection the results demonstrate that firms capabilities are more important than environment effects and tangible resources

international organization of production and variation in exports from affiliates there is no simple relationship between internationalization of firms operations and expanding trade the variation in exports from swedish affiliates is here shown to be influenced by properties related to their degree of vertical and horizontal integration affiliates propensity to export is positively affected by production in few countries intermediate imports from the parent plant size income level of the host country and a location in the european community and is negatively affected by r d intensity and the size of the host country market

academic research and industrial innovation the purpose of this study is to estimate the extent to which technological innovations in various industries have been based on recent academic research and the time lags between the investment in recent academic research projects and the industrial utilization of their findings because no attempt to my knowledge has been made to estimate the social rate of return from academic research we also make some rough and tentative estimates of this sort while the results are subject to many limitations discussed below they should be of interest to public policy makers concerned with science and technology as well as to

the effects of firm size and industry on corporate giving recent downward trends in corporate giving have renewed interest in the factors that shape corporate philanthropy this paper examines the relationships between charitable contributions firm size and industry improvements over previous studies include an irs data base that covers a much broader range of firm sizes and industries as compared to previous studies and estimation using an instrumental variable technique that explicitly addresses potential simultaneity between charitable contributions and profitability important findings provide evidence of a cubic relationship between charitable giving and firm size and evidence of strong industry effects the plus minus plus regression coefficient sign pattern for the cubic firm size model suggests that small and large firms give more relative to total receipts with lower giving ratios among medium size firms one interpretation for this finding is that small firms are close to the communities they serve while high visibility creates a need for large firm philanthropy strong industry effects provide evidence of inter industry differences in giving culture and or different public relations requirements across industries

knowledge sources patent protection and commercialization of pharmaceutical innovations abstract this paper investigates different types of innovations from radical to incremental in the pharmaceutical industry by studying bibliometric data of drugs approved by the united states food and drug administration fda looking at time to market aspects knowledge sources of these innovations and protection strategies scientific knowledge stemming from the public sector is found to be important for all innovations nevertheless radical innovations build on a higher degree on basic research and they build on a significantly higher share of own prior scientific research than do incremental innovations furthermore each drug is shown to be accompanied by on average about 19 journal publications and 23 additional patents additional patent filings peak when the commercialization of the drug is in reach firms do not differ among the various types of innovations regarding the amount of additional patent filings but rather with the speed of filing these patents finally this work contributes to the improvement of future econometric analyses that aim to link bibliometric indicators such as patent or publication counts to firm success

sectoral patterns of technical change towards a taxonomy and a theory abstract the purpose of the paper is to describe and explain sectoral patterns of technical change as revealed by data on about 2000 significant innovations in britain since 1945 most technological knowledge turns out not to be information that is generally applicable and easily reproducible but specific to firms and applications cumulative in development and varied amongst sectors in source and direction innovating firms principally in electronics and chemicals are relatively big and they develop innovations over a wide range of specific product groups within their principal sector but relatively few outside firms principally in mechanical and instrument engineering are relatively small and specialised and they exist in symbiosis with large firms in scale intensive sectors like metal manufacture and vehicles who make a significant contribution to their own process technology in textile firms on the other hand most process innovations come from suppliers these characteristics and variations can be classified in a three part taxonomy based on firms 1 supplier dominated 2 production intensive 3 science based they can be explained by sources of technology requirements of users and possibilities for appropriation this explanation has implications for our understanding of the sources and directions of technical change firms diversification behaviour the dynamic relationship between technology and industrial structure and the formation of technological skills and advantages at the level of the firm the region and the country

the role of external search in bilateral bargaining we consider the problem of bargaining between two individuals who can also search for possible alternatives to each other s offers we explicitly incorporate the search activity into the process of bargaining a disagreement in bargaining will lead each individual to search for an outside offer in the hope of improving his future bargaining position and attaining a more favorable outcome we model the interlaced phases of bargaining and search over time as an extensive noncooperative game we characterize the associated subgame perfect equilibrium outcome and strategies finally we show that superior search ability yields an individual a more favorable outcome and hence represents a greater bargaining strength

the diversification and financial performance of us credit unions abstract for us credit unions revenue from non interest sources has increased significantly in recent years we investigate the impact of revenue diversification on financial performance for the period 1993 2004 the impact of a change in strategy that alters the share of non interest income is decomposed into a direct exposure effect reflecting the difference between interest and non interest bearing activities and an indirect exposure effect which reflects the effect of the institution s own degree of diversification on both risk adjusted and unadjusted returns measures a positive direct exposure effect is outweighed by a negative indirect exposure effect for all but the largest credit unions this may imply that similar diversification strategies are not appropriate for large and small credit unions small credit unions should eschew diversification and continue to operate as simple savings and loan institutions while large credit unions should be encouraged to exploit new product opportunities around their core expertise

fire sale fdi or business as usual motivated by a set of stylized facts we develop a model of cross border mergers and acquisitions ma 2 the proportion of foreign acquisitions in the same industry is lower 3 the average size of ownership stakes is lower and 4 the duration of acquisitions is lower i e acquisition stakes are more likely to be flipped we find support for 1 but not for the other three predictions the results thus suggest that foreign acquisitions in emerging markets do not differ in these important ways between crisis and normal periods

bargaining and search with recall a two period model with complete information two standard results of previous bargaining models state that delay is generally not expected to occur under complete information and bargaining outcome depends crucially on the bargainers intrinsic characteristics that determine their reservation prices and in general bargainers with better reservation prices tend to get better outcomes this paper considers a bilateral bargaining problem with complete information in which one of the bargainers the buyer is allowed to search while bargaining more importantly we assume that the buyer is allowed to recall past outside offers we find that quite contrary to the standard results of previous complete information bargaining models complete information renders no guarantee for immediate resolution of bargaining and the effect of changing the buyer s search cost on each player s bargaining outcome is unpredictable the major driving force of these two results is the assumption that the buyer can recall past outside offers

retail philanthropy firm size industry and business cycle this article investigates the effects of firm size profitability industry affiliation and the business cycle on retailer philanthropy the importance of industry and firm effects on giving was analyzed with regression models using industry fixed effects as well as firm strategy variables the analysis included instrumental variables methodology to account for simultaneity in the charitable giving profits relationship data were gathered from the irs corporate statistics of income sourcebook data that provide firm size class measures covering the entire firm size distribution ranging from small retailers up to large multi national retail firms retailer philanthropy was measured as the ratio of charitable contributions to total receipts important findings include a cubic relationship between retailer philanthropy and firm size industry effects stronger than those observed for retail profit and the absence of business cycle effects the empirical research relating retail charitable giving to firm attributes including firm size and advertising industry and business cycle factors are unique in the business ethics literature prior studies regarding the importance of industry on charitable giving utilized data across broad sectors of the economy firms from different sectors could be expected to differ in philanthropic approach due to differences in public contact as well as differences in public relations exposure the strong industry effects reported for this sample of exclusively retail firms with similar public contact provide strong evidence for the importance of industry in determining firms charitable strategies

an explicit multi factor credit default swap pricing model with correlated factors with the recent significant growth in the single name credit default swap cds market has come the need for accurate and computationally efficient models to value these in struments while the model developed by duffie pan and singleton 2000 can be used the solution is numerical solving a series of ordinary differential equations rather than explicit in this paper we provide an explicit solution to the valuation of a credit default swap when the interest rate and the hazard rate are correlated by using the change of measure approach and solving a bivariate riccati equation cds transaction data for the period 2 15 2000 through 4 8 2003 for 60 firms are used to test both the goodness of fit of the model and provide estimates of the influence of economic variables in the market for credit risky bonds

tobin s q and the importance of focus in firm performance using tobin s q as a measure of performance we seek to estimate the relative importance of industry focus and share effects in determining firm performance our methods are analogous to those of richard schmalensee and like him we find that industry effects account for the majority of the explained variance however we also find that firm effects exist in the form of focus effects that is narrowly diversified firms do better than widely diversified firms we interpret this finding as consistent with profit maximization by firms with different factor endowments

what percentage of innovations are patented empirical estimates for european firms abstract a 1993 survey on the innovative activities of europe s largest industrial firms obtained useable results on patenting activities for 604 respondents the data are used to calculate the sales weighted propensity rates for 19 industries the propensity rates equal the percentage of innovations for which a patent application is made the propensity rates for product innovations average 35 9 varying between 8 1 in textiles and 79 2 in pharmaceuticals the average for process innovations is 24 8 varying from 8 1 in textiles to 46 8 for precision instruments only four sectors have patent propensity rates for both product and process innovations combined that exceed 50 pharmaceuticals chemicals machinery and precision instruments regression results that control for the effect of industry sector show that patent propensity rates increase with firm size and are higher among firms that find patents to be an important method for preventing competitors from copying both product and process innovations the effect of secrecy is not so straightforward firms that find secrecy to be an important protection method for product innovations are less likely to patent as expected but secrecy has little effect on the propensity to patent process innovations the r d intensity of the firm has no effect on patent propensity rates for both product and process innovations the sector of activity has a strong influence on product patent propensities but very little effect on process patent propensities after controlling for the effect of other factors

an approximate solution to rent seeking contests with private information abstract we propose an approximate solution to rent seeking contests in which participants have heterogeneous and private valuations the procedure only requires common knowledge about the mean of the distribution of valuations we obtain a closed form expression for an agent s level of investment and subject it to comparative statics analysis we then assess the performance of the model and find that the proposed solution provides a remarkably effective approximation of the optimal solution for a wide range of parameter specifications

why do firms do basic research with their own money abstractthe question to be addressed is why do private firms perform basic research with their own money interest in this question derives from both analytical and utilitarian considerations there is empirical evidence in the united states which provides the main context for this paper supporting the view that basic research makes a significant contribution to the productivity growth of the economy 4 7 it is widely held that social returns from basic research are significant and higher than private returns and it is for this reason that most such activities continue to be financed by the taxpayer this also implies that measures aimed at increasing basic research by the private sector will be welfare improving in the united states the federal government in the years since the second world war has provided the vast majority of all funds devoted to basic research although the federal share has been declining in recent years and although that share is at its lowest level in about 20 years it still constitutes about two thirds of the total 10 this abstract was borrowed from another version of this item

do firm sizes and profit rates converge evidence on gibrat s law and the persistence of profits in the long run three panel unit root tests are applied to a 31 year firm size growth and profit rate data set for 96 large quoted uk firms all tests reject the unit root null for log size if the augmented dickey fuller autoregressions exclude a linear time trend if a linear trend is included the results are more ambiguous and appear to differ systematically between tests the view that firm growth is either random or near random does not receive unequivocal support in all tests there is however strong and consistent evidence of mean reversion in profit rates

estimating the performance effects of business groups in emerging markets business groups confederations of legally independent firms are ubiquitous in emerging economies yet very little is known about their effects on the performance of affiliated firms we conceive of business groups as responses to market failures and high transaction costs in doing so we develop hypotheses about the effects of group affiliation on firm profitability affiliation could either boost or depress firm profitability and members of a group are likely to earn rates of return similar to other members of the same group using a unique data set compiled largely from local sources we test for these effects in 14 emerging markets argentina brazil chile india indonesia israel mexico peru the philippines south africa south korea taiwan thailand and turkey we find evidence that business groups indeed affect the broad patterns of economic performance in 12 of the markets we examine group affiliation appears to have as profound an effect on profitability as does industry membership yet strategy scholars have a much clearer grasp of industries than of groups moreover membership in a group raises the profitability of the average group member in several of the markets we examine this runs contrary to the wisdom conventional in advanced economies that unrelated diversification depresses profitability overall our findings suggest that the roots of sustained differences in profitability may vary across institutional contexts conclusions drawn in one context may well not apply to another copyright 2001 john wiley sons ltd

does board gender diversity influence financial performance evidence from spain in recent years several countries have enacted guidelines and or mandatory laws to increase the presence of women on the boards of companies through these regulatory interventions the aim is to eradicate the social and labor grievances that women have traditionally experienced and which has relegated them to smaller scale jobs nevertheless and despite the advances achieved the female representation in the boardroom remains far from the desired levels in this context it is now necessary to enhance the advantages of board gender diversity from both ethical and economic points of view this article examines the relation between board gender diversity and economic results in spain the second country in the world to legally require gender quotas in boardrooms and historically characterized by a minimal female participation in the workforce based on a sample of 125 non financial firms listed on the madrid stock exchange from 2005 to 2009 our findings show that in the period analyzed the increase of the number of women on boards was over 98 this suggests that compulsory legislation offers an efficient framework to execute the recommendation of spanish codes of good governance by means of the increase in the number of women in the boards of firms furthermore we find that the increase in the number of women on the boards is positively related to higher economic results therefore both results suggest that gender diversity in boardrooms should be incremented mandatory laws being a key factor to do so

the persistence of shocks to profitability in this study we use data for 1981 through 1994 on a large sample of u s companies to examine the persistence of incremental industry corporate parent and business specific effects on profitability our results indicate that the incremental effects of industry on profitability persist longer than the incremental effects of the corporate parent and of the specific business changes in industry structure have a more persistent impact on profitability than do changes in firm structure

a theory of the nominal term structure of interest rates a model of the nominal term structure of interest rates is developed that has a positive and stationary process for the interest rate and delivers closed form expressions for the prices of discount bonds and european options on bonds unlike the one state variable version of the cox ingersoll and ross 1985 model this model even in its one state variable version allows the term premium to change sign as a function of the state and the term to maturity and also allows for shapes of the yield curve that are observed in the u s data but that are disallowed in the cox ingersoll and ross model article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

q and the tax bias theory abstract a growing body of literature analyzes the variation in q the ratio of financial market value to asset current replacement cost and makes inferences about attributes such as monopoly power profitability managerial performance etc these studies ignore potential biases embedded in q that result from non neutral tax policies this study examines the association between q and tax biases and establishes that differences in accumulated depreciation tax shields explain significant variation in q the implication that q should be adjusted for tax biases before use in empirical research is examined further adjusting q for tax biases at least with the factors herein leads only to minor changes in econometric analyses

competencies and firm performance examining the causal ambiguity paradox resource based theory argues that resources must be valuable rare inimitable and lack substitutes to confer competitive advantage inimitability is a lynchpin of resource based theory and central to understanding the sustainability of competitive advantage although scholars recognize a positive relationship between causal ambiguity and inimitability the relationship among critical resources called competencies causal ambiguity and firm performance remains an unresolved conundrum one perspective suggests that causal ambiguity regarding competencies and performance is necessary among internal and external managers for sustainable competitive advantage because it severely limits imitation causal ambiguity therefore enhances firm performance another view holds that causal ambiguity places a constraint on the transfer and leveraging of these competencies within a firm in this case causal ambiguity may adversely influence firm performance this paper takes a resource based view to develop and test hypotheses that relate managers perceptions of causal ambiguity to their firm s performance the hypotheses examine relationships between firm performance and 1 causal ambiguity regarding the link between competencies and competitive advantage and 2 causally ambiguous characteristics of competencies research involving 224 executives in 17 organizations provides valuable insights into the relationships between causal ambiguity and firm performance a model is then developed based on these findings particular consideration is given to the differing ways top and middle managers in a firm may experience causal ambiguity and to how these differences may be understood and managed copyright 2001 john wiley sons ltd

the dynamics of technological innovation the case of the pharmaceutical industry abstract this paper examines the mechanisms and dynamics of the process of innovation in companies and sectors of the chemical industry it is based on analysis of science and technology output indicators namely patents and innovations evaluated in terms of originality and in the case of innovations in terms of market success as well radical innovation ri is identified as the kingpin for the evolution of technologies in both the micro and macro economic context not only because it provides a model for imitation but also because it turns out to be more profitable for the innovating companies than incremental innovation at the micro economic level this paper examines the significance of diverse driving forces which lead a company to the launching of projects aiming at ri measures the length of commitment to such projects and describes the dynamic effects generated by the introduction of a successful ri and how they affect the company s subsequent r d and market orientation at the macro economic level this paper identifies the stages of youth growth maturity and decline of the subsectors of the chemical industry examines the distribution of ri and market successful innovations over the development of a sector describes the influence of market demand and capital investment on technological advance and compares the development of national chemical industries the paper concludes with an account of the dynamics of technological innovation in the chemical industry over the period 1930 1985 which is based on the empirical findings of the previous sections

gender diversity in the boardroom and firm financial performance the monitoring role performed by the board of directors is an important corporate governance control mechanism especially in countries where external mechanisms are less well developed the gender composition of the board can affect the quality of this monitoring role and thus the financial performance of the firm this is part of the business case for female participation on boards though arguments may also be framed in terms of ethical considerations while the issue of board gender diversity has attracted growing research interest in recent years most empirical results are based on u s data this article adds to a growing number of non u s studies by investigating the link between the gender diversity of the board and firm financial performance in spain a country which historically has had minimal female participation in the workforce but which has now introduced legislation to improve equality of opportunities we investigate the topic using panel data analysis and find that gender diversity as measured by the percentage of women on the board and by the blau and shannon indices has a positive effect on firm value and that the opposite causal relationship is not significant our study suggests that investors in spain do not penalise firms which increase their female board membership and that greater gender diversity may generate economic gains

economic fluctuations market power and returns to scale evidence from firm level data recent research on aggregate fluctuations coupled with ongoing work in industrial organization has renewed interest in the existence magnitude and cyclical pattern of market power and the extent of increasing returns to scale by exploiting restrictions from dynamic theory and information from financial markets we present a framework for generating quantitative evidence on market power and returns to scale tailoring the econometric model to firm level panel data we calculate the percentage differential between price and marginal cost the lerner index in terms of the parameters from the econometric system results for firms in eleven industries indicate that there is a great deal of heterogeneity in the extent of market power industries with significantly positive lerner indices tend to have substantial increasing returns in the production technology we find that there is only a modest relation between our estimated lerner indices and traditional measures of market power and that when market power varies temporally it is usually procyclical thus variations in the markup of price over marginal cost may help dampen aggregate economic fluctuations

when does corporate venture capital investment create firm value abstract over the past decade billions of dollars have been invested by established companies in entrepreneurial ventures what is often referred to as corporate venture capital yet there is little systematic evidence that corporate venture capital investment creates value to investing firms scholars have suggested that established firms face underlying challenges when investing corporate venture capital namely structural deficiencies inherent in corporate venture capital may inhibit financial gains however firm value may still be created as a result of other benefits from investing primarily providing a window onto novel technology in this paper we propose that corporate venture capital investment will create greater firm value when firms explicitly pursue corporate venture capital to harness novel technology using a panel of cvc investments we present evidence consistent with our proposition the findings are robust to various specifications and remain unchanged even after controlling for unobserved heterogeneity in investing firms our results have important implications for corporate venture capital in particular and technology strategy in general

new venture strategy and profitability a venture capitalist s assessment abstract this study uses theoretically justified criteria from the industrial organization io strategy literature and applies it to a new domain namely venture capitalists decision making specifically the study investigates the types of information venture capitalists utilize when evaluating new ventures and how venture capitalists use this information to assess likely new venture profitability in the interest of advancing our understanding of the decision making policies of venture capitalists this study addresses many of the limitations of previous research a review of io research suggests important relationships between a number of strategy variables and new venture profitability some of the relationships proposed by io strategy research are contingent in nature the strategy variables and their relationships with profitability are investigated in the domain of venture capitalists decision making individual and aggregate decision making analyses identified those strategy variables criteria venture capitalists utilize in assessing likely new venture profitability namely timing key success factor stability lead time competitive rivalry educational capability industry related competence timing key success factor stability interaction timing lead time interaction and timing educational capability interaction on average the most important criterion for venture capitalists in their assessment of profitability is industry related competence the second tier of importance is competitive rivalry timing and educational capability the third tier of importance is lead time key success factor stability and timing lead time interaction other interactions are less important therefore while venture capitalists use contingent decision policies main effects dominate if venture capitalists use a reported 8 to 12 minutes on average to evaluate a business plan sandberg 1986 then this study s findings may help the inexperienced venture capitalist allocate time towards assessing those attributes of primary importance although more complex relationships exist between the attributes the inexperienced venture capitalist can take comfort from this study s findings that main effects dominant amongst senior venture capitalists senior venture capitalists may take less comfort from their importance placed on main effects in light of research from io which suggests the importance of contingent relationships the results may also have practical application towards training how should venture capital firms train their new employees should venture capital firms rely solely on experienced venture capitalists lecturing the inexperienced on the criteria they use in assessing a new venture proposal like most decision makers venture capitalists have limited insight into their assessments and venture capital firms need to be aware of the gap between espoused policies and policies in use the information being taught needs to be supplemented with venture capitalists decision making research that investigates decision policies in use such as this study venture capitalist training could also involve experiential learning in conjunction with cognitive feedback about the decision policies used to accelerate the learning process experiential learning using cognitive feedback maximizes industry related learning while minimizing the cost of inexperienced decisions for the entrepreneur seeking capital this increased understanding of venture capitalists decision making may help them better target their business plans and presentations at those criteria venture capitalists find most critical to the profitability of a new venture

seeing the big picture the influence of industry diversification and business strategy on performance much of the strategic management literature separates industry corporate and business levels of analysis and empirical studies tend to examine these levels independently not addressing how indu

corporate and industry effects on business unit competitive position we partition the variances of market shares which we use as surrogates for competitive position of the business units of all public manufacturing companies available in the trinet data base into industry factors corporate parent specific factors and business unit specific factors our results differ somewhat from rumelt s 1991 which decomposed variances in profitability we find that corporate parent effects on market share are considerably greater than zero when lines of business are defined more narrowly when small business units are included and when firms are medium sized our results suggest that the relative importance of corporate industry and business unit effects depends on the types of criteria such as the level of industry aggregation whether small business units are included and firm size that are used to construct samples copyright 2000 john wiley sons ltd

the term structure of expected recovery rates there is widespread agreement that corporate debts recovery rates are time varying but empirical work in this area is limited we show that the joint information from the term structure of senior and subordinate credit default swaps can identify the level and the dynamics of recovery rates we estimate a reduced form no arbitrage model on 46 firms across different industries we find that the term structure of expected recovery rates is on average downward sloping however an inversion occurs during the 2008 crisis suggesting the market expects higher recoveries conditional on short term survival the inversion is more pronounced for firms in distressed industries

dynamic capabilities what are they this paper focuses on dynamic capabilities and more generally the resource based view of the firm we argue that dynamic capabilities are a set of specific and identifiable processes such as product development strategic decision making and alliancing they are neither vague nor tautological although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence they have significant commonalities across firms popularly termed best practice this suggests that they are more homogeneous fungible equifinal and substitutable than is usually assumed in moderately dynamic markets dynamic capabilities resemble the traditional conception of routines they are detailed analytic stable processes with predictable outcomes in contrast in high velocity markets they are simple highly experiential and fragile processes with unpredictable outcomes finally well known learning mechanisms guide the evolution of dynamic capabilities in moderately dynamic markets the evolutionary emphasis is on variation in high velocity markets it is on selection at the level of rbv we conclude that traditional rbv misidentifies the locus of long term competitive advantage in dynamic markets overemphasizes the strategic logic of leverage and reaches a boundary condition in high velocity markets copyright 2000 john wiley sons ltd

invention and innovation in the chemical industry demand pull or discovery push abstract this paper describes a study of the determinants of the rate direction and scale of inventive and innovative activity in the chemical industry over the period 1830 1980 statistical data are interpreted in the light of case study material in three major sectors dyestuffs plastics and pharmaceuticals theories of technical change and economic growth particularly those of schmookler and schmpeter are examined in relation to this material on the chemical industry the findings suggest that the importance of demand pull and discovery push factors and the validity of schmookler s and schumpeter s theories vary over an industry s life cycle

pricing derivatives on financial securities subject to credit risk this article provides a new methodology for pricing and hedging derivative securities involving credit risk two types of credit risks are considered the first is where the asset underlying the derivative security may default the second is where the writer of the derivative security may default we apply the foreign currency analogy of jarrow and turnbull 1991 to decompose the dollar payoff from a risky security into a certain payoff and a spot exchange rate arbitrage free valuation techniques are then employed this methodology can be applied to corporate debt and over the counter derivatives such as swaps and caps the purpose of this article is to provide a new theory for pricing and hedging derivative securities involving credit risk two sources of credit risk are identified and analyzed the first is where the asset underlying the derivative security may default paying off less than promised this is the case for example with imbedded options on corporate debt the second is the credit risk introduced by the writer of the derivative security who may also default examples include over the counter writers of options on eurodollar futures swaps and swaptions for pricing derivative securities involving credit risk there are currently two approaches the first views these derivatives as contingent claims not on the financial securities themselves but as compound options on the assets underlying the financial securities this is the case for example with the pricing of imbedded options on corporate debt see merton 1974 1977 black and cox 1976 ho and singer 1982 chance 1990 and kim ramaswamy and sundaresan 1993 or the pricing of vulnerable options see johnson and stulz 1987 in practice however this valuation methodology is difficult to use first the assets underlying the financial security are often not tradeable and therefore their values are not observable this makes application of the theory and estimation of the relevant parameters problematic second as in the case of corporate debt all of the other liabilities of the firm senior to the corporate debt must first and simultaneously be valued this generates significant computational difficulties as a result this approach has not

a capability based view of competitive heterogeneity the question of how firms differ is paramount to strategy scholars this question has motivated empirical research on the factors influencing performance differences among close competitors it also has motivated work on factors that increase or decrease the mean performance of firms in an industry theories about resources and capabilities tend to dominate discussions of heterogeneity in performance and superior performance yet the strategy field lacks a cumulative body of empirical work showing how firms differ this article derives conclusions and questions from empirical work on capabilities we then discuss work that complements but lies beyond the boundaries of traditional capabilities research we conclude by suggesting approaches to and areas of future work

how much does industry matter an alternative empirical test empirical studies using federal trade commission line of business data have reported that industry membership explains between 17 percent and 20 percent of financial performance variance among firms this study attempts to replicate these findings using an alternative sample and a methodology based on executives perceptions the results support those reported in previous studies with industry factors explaining about 20 percent of overall performance variance moreover the analysis produces empirically derived industry factors and examines their relative power in explaining industry performance variance

secondary pharmaceutical patenting a global perspective abstract pharmaceutical firms use of secondary patents to extend periods of exclusivity generates concerns among policymakers worldwide in response some developing countries have introduced measures to curb the grant of these patents while these measures have received considerable attention there is limited evidence on their effectiveness we follow a large sample of international patent applications in the us japan the european patent office and corresponding filings in three developing countries with restrictions on secondary patents india brazil and argentina we compare primary vs secondary grant rates across countries consider the differential fates of twin applications filed in multiple countries and undertake detailed analyses of patent prosecution in the three developing countries our analyses indicate that measures to restrict secondary patents in developing countries are having limited impact in none of these three countries are specific policies toward secondary patents the principal determinant of grant rates our analyses also suggest the importance of other procedural aspects of patent systems beyond the formal policies targeting secondary applications that affect outcomes for these applications in developing countries

the effect of product diversification strategies on the performance of health insurance conglomerates abstractthe conglomerate organizational structure of health insurers suggests two distinct methods of product diversification the first is firm level diversification or diversification within individual affiliates and the second is conglomerate level diversification or diversification across affiliates of the conglomerate we hypothesize that using both firm and conglomerate level diversification may magnify the costs or benefits of diversification on the financial performance of the conglomerate our results confirm this hypothesis and suggest a positive relation between health insurer financial performance and the use of both product line diversification methods our results not only contribute to the body of literature related to corporate diversification but are also important to policymakers and all health insurance market participants as portions of the affordable care act continue to be implemented

the validity of profits structure studies with particular reference to the ftc s line of business data the simple proposition that consumerdamaging collusion is more likely to occur when there are fewer competitors has given rise not only to legal restrictions of economic activity thought to restrict output but also to an enormous amount of empirical work attempting to relate market concentration to the exercise of monopoly power most such studies measured market structure by an index of concentration for example four firm concentration or herfindahl and performance by accounting profit for example net profit divided by assets or price cost margins sales less direct costs divided by sales from the positive statistically significant correlations often found between greater concentration and profit with other factors presumably accounted for some researchers conclude that increases in concentration are anticompetitive and that concentration therefore is bad the concentration profits studies have been criticized essentially on two grounds one is that the positive relationship is not indicative of collusive behavior in particular oliver williamson 1968 john mcgee 1971 harold demsetz 1973 1974 and sam peltzman 1977 point out that higher profits could result from efficiencies experienced by large firms which resulted both in greater market shares and high levels of concentration analytical arguments show that higher profits logically follow as much from lower costs that are associated with higher levels of concentration as from collusion determined higher prices some empirical evidence that supports this belief is presented by demsetz peltzman and bradley gale and ben branch 1982 however their findings have been contested on the grounds that the data used are biased or inadequate or that the researchers have not demonstrated that the observed higher profits greater concentration relationship was caused by lower costs 2 the second criticism is that available data provide an inadequate basis for such conclusions the concentration numbers are based usually on industries defined by the commerce department s standard industrial classifications sic the sic definitions tend to be supply production rather than demand determined include nonhomogeneous products and exclude sales of similar products that are included in different sic groups or are imported the profit data are taken from accounting reports that provide poor measures of economic values weiss 1974 describes many of these problems however he does not believe that these shortcomings invalidate the studies as weiss 1979 concludes

bargaining and search with incomplete information about outside options abstract this paper considers a model of bargaining in which the seller makes offers and the buyer can search at a cost for an outside option the outside option cannot be credibly communicated and the seller s offer is recallable by the buyer for one period there are essentially two equilibrium regimes for sufficiently high search cost the game ends immediately otherwise the search occurs in equilibrium compared to the case where the buyer can communicate his outside option the seller is worse off and the game results in search for a smaller set of values of the search cost i e less equilibrium delay c72

absorptive capacity coauthoring behavior and the organization of research in drug discovery we examine the interface between for profit and publicly funded research in pharmaceuticals firms access upstream basic research through investments in absorptive capacity in the form of in house basic research and pro publication internal incentives some firms also maintain extensive connections to the wider scientific community which we measure using data on coauthorship of scientific papers between pharmaceutical company scientists and publicly funded researchers connectedness is significantly correlated with firms internal organization as well as their performance in drug discovery the estimated impact of connectedness on private research productivity implies a substantial return to public investments in basic research

success in high technology markets is marketing capability critical we propose a conceptual framework with the resource based view rbv of the firm as its theoretical underpinning to explain interfirm differences in firms profitability in high technology markets in terms of differences in their functional capabilities specifically we suggest that marketing r d and operations capabilities along with interactions among these capabilities are important determinants of relative financial performance within the industry this paper contributes to the rbv literature by proposing the input output perspective to conceptualize the notion of capabilities specifically this approach entails modeling a firm s functional activities viz marketing r d and operations as transformation functions that relate the productive factors resources to its functional objectives if the firm were to deploy these resources most efficiently any underattainment of the functional objective then is attributable to functional inefficiency or equivalently to a lower functional capability of the firm the input output conceptualization of a firm s capabilities is then estimated using the stochastic frontier estimation sfe methodology sfe provides the appropriate econometric technique to empirically estimate the efficient frontier and hence the level of efficiency achieved by the various firms our study contributes to a number of literatures both methodologically and substantively first it contributes both conceptually and methodologically to the rbv literature conceptually our study suggests that firm capabilities can be viewed in an input output framework methodologically the study suggests the use of stochastic frontier estimation to operationalize and estimate firm capabilities this methodology is to the best of our knowledge the first to allow the researcher manager to infer capabilities from archival data substantively our study contributes to the literature on market orientation by suggesting that a stronger market orientation of a firm should be reflected in a higher marketing capability it also adds to the literature on design for manufacturability by explicating the complementarity among the various functional capabilities and offering empirical evidence on their relative importance in influencing a firm s performance finally our study builds on prior literature that has highlighted the importance of marketing r d coordination as important determinants of new product development and success we highlight below some of our main findings 1 a strong base of innovative technologies enhances a firm s sales by favorably influencing consumers expectations about the externality benefits associated with its product this suggests that a past track record of consistent innovation is a credible signal to current and potential customers of the firm s continued excellence in a technologically evolving market given the importance of influencing customers managers need to tailor their marketing activities around the need to inform customers of the technological excellence of their firm thus customers need to be informed of the innovative technologies that the firm possesses and of the future r d initiatives undertaken by it similarly any potential applications of innovative technology developed by the firm and of technologies under development should be emphasized 2 marketing capability has its greatest impact on the quality adjusted innovative output for firms that have a strong technological base in other words firms with a strong r d base are the ones with the most to gain from a strong marketing capability 3 marketing capability strongly influences the width of applicability of innovations i e a firm s marketing capability enhances its ability to generate innovative technologies that have applications across a range of industries this result carries a strong message for managers a strong market orientation is one of the most fertile sources of ideas for innovation thus marketing needs to be involved from the beginning of the innovation process namely right at the stage when technological ideas are being generated 5 the most important determinant of a firm s performance is the interaction of marketing and r d capabilities this supports the assertion that firms in high technology markets need to excel at two things the ability to come up with innovations constantly and the ability to commercialize these innovations into the kinds of products that capture consumer needs and preferences this finding offers further evidence on the importance of coordination between r d and marketing as suggested in the extant marketing literature finally using archival data our methodology can be used to benchmark a firm s capabilities with other firms in the industry along various functional dimensions this would be an important step in making more informed resource allocation decisions thus the firm can spend more money on those capabilities where it most lags the competition or on those capabilities that are shown to have the maximum impact on firm performance

are internal capital markets efficient using segment information from compustat we find that the investment by a segment of a diversified firm depends on the cash flow of the firm s other segments but significantly less than it depends on its own cash flow the investment by segments of highly diversified firms is less sensitive to their cash flow than the investment of comparable single segment firms the sensitivity of a segment s investment to the cash flow of other segments does not depend on whether its investment opportunities are better than those of the firm s other segments

redefining industry structure for the information age we are entering a new competitive age in which the basis of competition is being fundamentally altered through the introduction of advanced information technologies and public communication infrastructures such as the internet in these environments the nature and locus of competition will radically alter as information becomes an increasingly important resource this paper develops ideas around the strategic characteristics of information information separability and information specificity moreover it attempts to redefine the nature of industry structure in such a competitive environment by examining what constitutes the real boundaries of competition industry concentration related diversification and innovation for firms competing in the information age 1998 john wiley sons ltd

asset pricing under the quadratic class we identify and characterize a class of term structure models where bond yields are quadratic functions of the state vector we label this class the quadratic class and aim to lay a solid theoretical foundation for its future empirical application we consider asset pricing in general and derivative pricing in particular under the quadratic class we provide two general transform methods in pricing a wide variety of fixed income derivatives in closed or semi closed form we further illustrate how the quadratic model and the transform methods can be applied to more general settings i introduction we identify and characterize a class of term structure models where bond yields are quadratic functions of the markov process we label this class the quadratic class and aim to lay a solid theoretical foundation for its future empirical application we identify the necessary and sufficient conditions for the quadratic class and consider the general asset pricing problem under the quadratic framework in particular we propose two transform methods to price a wide variety of interest rate derivatives in closed or semi closed form we further illustrate how the pricing methods can be applied to more general settings examples include option pricing for currencies or stocks with quadratic stochastic volatilities our interests in the quadratic class come mainly from concerns on empirical application recent empirical research within the affine framework of duffie and kan 1996 indicates an inherent tension between i delivering good empirical performance in matching salient features of the interest rate data and ii excluding positive probabilities of having negative interest rates for example backus telmer and wu 1999 and dai and singleton 2000 find that incorporating gaussian state variables in the affine framework significantly increases the flexibility for model design and greatly improves its empirical performance in capturing the conditional dynamics of interest rates dai and singleton 2001

cash flow management and manufacturing firm financial performance a longitudinal perspective abstract a firm s cash flow policies which manage working capital in the form of cash receivables from customers inventory holdings and cash payments to suppliers are inexorably linked to the firm s operations building on earlier research this study i extends prior studies by examining the relationships between changes in cash flow measures and changes in firm financial performance using a longitudinal sample of firm data and ii investigates the direction of the relationship between quarterly changes in cash flow positions and firm financial performance this study is conducted using the generalized estimating equations gee methodology to analyze a longitudinal sample of eight quarters of cash flow and financial performance data from 1233 manufacturing firms the analyses find that changes in the widely used cash conversion cycle ccc metric do not relate to changes in firm performance however changes in the less used operating cash cycle occ metric are found to be significantly associated with changes in tobin s q this examination of how changes in specific cash flow measures relate to changes in tobin s q shows that both reductions in accounts receivables measured as days of sales outstanding dso and reductions in inventory measured as days of inventory outstanding dio relate to firm financial performance improvements that persist for several quarters endogeneity tests of whether a firm s cash flow management strategy leads to changes in firm performance or if the cash flow strategy is a byproduct of firm performance suggest that reductions in dso lead to improved firm financial performance

a study of innovation in the pesticide industry analysis of the innovation record of an industrial sector abstract this is a study of innovation in pesticides from 1930 to 1980 innovation output indicators used are product innovation and patent counts innovations are evaluated in terms of originality and market success market demand is measured by the value of sales per year at constant prices the distribution of these indicators over the 50 year period is compared and contrasted to the historical development of the sector a number of hypotheses are proposed regarding the dynamics of the process of innovation notably the importance of market successful radical innovations as driving forces the central role of large research intensive companies the interplay between basic and applied research and the effects of corporate technological traditions lastly the potential and some limitations in the use of patents as innovation output indicators are described

do markets differ much this essay reports the results of a crosssection study of differences in accounting profitability that sheds light on some basic controversies in industrial economics most previous cross section studies in this field have been concerned with testing hypotheses about structural coefficients in models meant to apply to essentially all markets as we have learned more about the difficulties of constructing such general models and of performing tests on their structural parameters properly structural cross section analysis has fallen out of fashion in contrast to most of the cross section literature the analysis reported here is fundamentally descriptive it does not attempt directly to estimate or to test hypotheses about structural parameters i hope to show by example that one can perform illuminating analysis of cross section data without a host of controversial maintained hypotheses cross section data can yield interesting stylized facts to guide both general theorizing and empirical analysis of specific industries even if they cannot easily support full blown structural estimation one can view the sort of search for stylized facts conducted here as either a replacement for or an input to interindustry structural estimation depending on one s feeling about the long run potential of that research approach this study also departs from much of the cross section literature by being fundamentally concerned with the importance of various effects not just with coefficient signs and t statistics in particular this essay provides estimates of the relative importance of firm market and market share differences in the determination of business unit divisional profitability in u s manufacturing using 1975 data from the line of business program of the u s federal trade commission ftc i find support neither for the existence of firm effects nor for the importance of market share effects moreover while industry effects apparently exist and are important they appear to be negatively correlated with seller concentration in these data section i relates firm market and share effects to current issues and controversies in industrial economics and thus supplies the motivation for our empirical analysis the remainder of the essay treats the data and

towards an economic theory of the multiproduct firm this paper outlines a theory of the multiproduct firm important building blocks include excess capacity and its creation market imperfections and the peculiarities of organizational knowledge including its fungible and taut character a framework is adopted in which profit seeking firms are seen to diversify in order to avoid the high transactions costs associated with using various markets to trade the services of various specialized assets neoclassical explanations of the multiproduct firm are shown to be seriously deficient

diversification ricardian rents and tobin s q according to prevailing theory firms diversify in response to excess capacity of factors that are subject to market failure by probing into the heterogeneity of these factors we develop the corollary that firms that elect to diversify most widely should expect the lowest average rents an empirical test with tobin s q as the measure of rents is consistent with this theory

the relative influence of industry and corporation on business segment performance an alternative estimate rumelt s 1991 widely cited paper presents estimates of the relative influence of industry corporate business unit and other influences on business unit profitability he finds corporations explain almost none of the variability in business unit profitability using a simultaneous equation model we provide alternative estimates of the influence of industry and corporation on business unit performance we find that both corporations and industries influence business unit profitability but corporations have the larger influence copyright 1999 john wiley sons ltd

the political economy of the pharmaceutical industry e conomicsis a practical science since its inception as an independent discipline it has probed the major policy issues of the day the topics that aroused the interests of its practitioners have generally been those that presented government officials with critical choices the modern literature on the economics of the pharmaceutical industry is no exception this body of material originated with the investigations of the kefauver committee in late 1959 public interest was aroused by the spectacle of confrontation between committee and industry the record made by this committee and its successors grew to tens of thousands of pages as claims and counterclaims were offered regarding industry conduct and performance the primary line of attack concerned pharmaceutical prices and profits the committee demonstrated that prices generally exceeded direct costs of manufacturing for 22 major pharmaceutical firms in 1958 costs of goods sold were merely 32 percent of total sales u s senate report 1961 p 31 the committee argued that this fact alone demonstrated the presence of monopoly power while the substantial difference between revenues and production costs permitted high expenditures on research and development it also paid for even higher selling outlays moreover reported rates of return after taxes during this period on the order of 21 to 22 percent exceeded twice the average for all manufacturing the industry replied that on the contrary prices were low relative to the value afforded consumers and high returns on successful products were required to balance the losses from the large numbers of unsuccessful ones the relevant concept of marginal costs according to the industry position must include the costs of developing and marketing new products and therefore prices were not excessive at all although it admitted earning substantial profits the industry argued that without these returns research outlays would be limited and the number of new drugs reduced the committee countered that little of social value arose from industry research molecules were manipulated and the new drugs that resulted were therapeutically similar to those already on the market indeed it suggested that much