price wars in price setting supergames this paper presents a method of generating price wars in price setting supergames the market is one where symmetric oligopolists produce a differentiated product and use price as a strategic variable prices are posted and can be observed by all there is thus little uncertainty or scope for secret price cutting nevertheless price wars occur they are precipitated by periodic but infrequent demand shocks firms use the wars to learn about changed conditions in the market so that they can calculate the new stationary nash equilibrium learning is modeled in a bayesian fashion via the kalman filter copyright 1989 by the london school of economics and political science

investor valuation of the abandonment option abstract we investigate whether investors price the option to abandon a firm at its exit value theory prices this real option as an american put with both a stochastic strike price exit value and a stochastic value of the underlying security the value of cash flows the empirical implications are that firm value increases in exit value after controlling for expected going concern cash flows and that more generalizable assets produce more abandonment option value using discounted earnings forecasts to proxy for expected cash flows and prior literature to categorize asset generalizability we find strong support for the predictions of abandonment option theory

long term attachments and long run firm rates of return long term attachments between workers and firms are common numerous studies have examined worker returns to tenure but little is known of firm returns to firm worker matches yet these attachments represent a human capital asset quasi held by the firm which is not captured by traditional accounting measures of firm assets firms with large quasi holdings of human capital will have higher measured return on assets other things equal analysis of data on 250 large manufacturing firms supports the view that firms profit from long term attachments with their workers consequently unmeasured human capital assets contribute to the explanation of persistence in measured long run excess profits across firms

the search for a critical concentration revisited this paper examines the issue of whether there is a four firm critical concentration ratio above which industries earn supranormal profits a statistical test is employed to investigate the functional stability of the estimated relationship although the initial results indicate a range in the concentration ratio of between 0 48 and 0 55 over which the functional relationship destabilizes additional analysis fails to identify a clear break in the concentration profitability relationship it can only be concluded that a critical concentration does not appear to exist

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

efficiency versus collusion a reformulation of the weiss test the weiss test has been used to discriminate between the efficiency and collusion hypotheses using a conventional oligopoly model we show that the test is valid for the former hypothesis but not the latter contrary to recent emperical studies we find that a negative coefficient on concentration in profitability equations does not refute the collusion hypothesis in fact this finding supports the hypothesis if the sample is dominated by small firms

capacity investment and market power in the economic value of energy firms regulation of energy firms faces the complex problem of balancing private earning a fair rate of return on investment and public assure safe and reliable supply of energy at the lowest possible costs goals tobin s q is a forward looking indicator on investment opportunities and on market power of firms that energy regulators can use for more effective regulation this paper presents the empirical evidence on the determinants of differences in observed values of tobin s q for a sample of large listed energy firms from 10 different countries in the period 2000 2006 we find that adjustment costs represent around sixty percent of the difference between economic and book value of the assets for the representative firm while rents from market power represent the other forty percent therefore across countries there is room for regulatory actions aiming at reducing energy prices but less than what may be inferred from the observed average q values

lessons from the united states s antitrust history abstract the united states s antitrust policy spans more than 100 years for most of its history the united states has had the toughest antitrust laws and enforcement policies of any country in the world a shift to a more permissive attitude with regard to antitrust matters has occurred in recent years however this paper traces the changes in antitrust policy that have occurred and the concurrent shifts in thinking among economists on antitrust questions following this review the paper offers a critical appraisal of both the economic underpinning of the new learnings on antitrust matters and the changes in antitrust policy that have accompanied them it closes with a discussion of the implications of the analysis for european antitrust competition policy

the intertemporal stability of the concentration margins relationship using a longitudinal data base we find that there has been a substantial narrowing of the spread between the price cost margins of concentrated and unconcentrated industries including measures of macroeconomic fluctuations into standard price cost margin regressions we find significant differences in cyclical behavior across market structure we also explore a possible explanation unionization for differences in cyclical behavior finally we investigate the degree to which our results are affected by the potential simultaneity of concentration advertising and the price cost margin

the competitive effects of resale price maintenance the competitive effects of resale price maintenance rpm are theoretically diverse rpm can cause allocation distortions or promote productive efficiencies in the distribution process moreover extant cross sectional empirical evidence is incapable of distinguishing among the potentially disparate effects of rpm this paper conducts hypothesis tests of the alternative theories of rpm the empirical framework relates estimates of the effects of rpm for a cross section of observations to necessary conditions of the alternative models this analysis indicates that rpm is used both to foster cartels and promote efficiencies in the distribution process this result is consistent with the growing body of case study analysis that suggests that rpm is used for a variety of reasons this result also questions the current per se illegal status of rpm in the antitrust laws evidence is also provided concerning the strategic interaction between manufacturers and dealers in the distribution process and the use of financial data in analyzing propositions in industrial organization

foreign direct investment theories entry barriers and reverse investments in u s manufacturing industries this paper investigates empirically whether industrial organization oriented fdi theories explain the recent phenomenon of reverse foreign direct investment in the u s based on the distribution of fdi in two digit sic manufacturing industries we find that capital and advertising intensities act as entry barriers to foreign investments in the u s we also observe that foreign multinationals are attracted by the u s market size and that they invest heavily in industries with intensive r d combined with marketing efforts

size and performance of banking firms testing the predictions of theory abstract in recent years two important literatures on the theory of banking firms have developed one examines the economic functions of banks in environments in which agents are asymmetrically informed another considers the incentive effects moral hazard resulting from deposit insurance both theories make predictions about the relation between banking firm size and performance an empirical analysis of large bank holding companies investigates measures of market valuation and risk of failure limited support is provided for either set of theoretical predictions

industrial organization paradigms empirical evidence and the economic case for competition policy the recent reform of competition policy in canada prompts one to ask whether there remains a tenable economi c case for antitrust policy to answer this question this paper begi ns by sketching competing industrial organization i o paradigms th e empirical evidence bearing on these paradigms particularly the m ainline structure conduct performance paradigm which has provided the main theoretical support for competition policy is examined it is concluded that recent theoretical and empirical work in i o have undermined the traditional economic case for competition policy the last section of the paper attempts a partial reconstruction of the ca se for competition policy along somewhat unorthodox lines

did railroad deregulation lead to monopoly pricing an application of q this paper asks whether given that railroads now have almost total freedom to set their rates competition is sufficie nt to keep railroads from making supracompetitive profits previous a ttempts to measure railroads profits rely on accounting measures of the rate of return but recent work raises serious doubts about the a ccuracy of these measures therefore this paper uses tobin s q the r atio of a firm s market value to the replacement cost of its assets the values of q show that railroads are not making supracompetitive p rofits thus there is no justification for increased regulation of ra ilroad rates copyright 1987 by the university of chicago

fdi theories and the performance of foreign multinationals operating in the u s based on firm specific financial data performance of foreign multinationals operating in the u s is evaluated to determine if they enjoy advantages over u s firms results of this study indicate that foreign firms operating in the u s are less profitable than randomly selected u s firms that they spend more in research and development but less in advertising and that they have higher debt levels combined with higher liquidity in addition the findings also demonstrate that the determinants of excess market value as measured by tobin s q differ between foreign owned firms and american owned firms and that the performance of foreign multinationals differ by country of origin this suggests that foreign owned firms may have different reasons for investing in the u s and that foreign multinationals present investment opportunities to the u s investors distinct from american firms

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

on the measurement of tobin s q abstract we examine the methods commonly employed to estimate tobin s q ratios and find them to be flawed in design and arbitrary in implementation we propose an alternative procedure which is both simpler and more accurate the key to the procedure is an improved measure of fixed asset replacement costs through the proper identification of the vintages of fixed assets that are in place for a firm application of this procedure to a large sample of nonfinancial corporations indicates that existing methods generally produce downward biased measures of q and can result in errors in the ordering of firms by their q s

beta market power and wage rate uncertainty this paper derives the formal relationship between a firm s beta and tobin s q ratio with both price and wage uncertainty present wage uncertainty is shown to affect the sign and magnitude of the relationship with q interpreted as an index of the market power while previous models suggest that systematic risk and market power are negatively related this result depends either on excluding wage uncertainty or on introducing it with unrealistic restrictions by deriving a more ambiguous relationship than other authors a plausible explanation of why empirical research has produced conflicting evidence of the sign of this relationship is provided copyright 1994 by blackwell publishing ltd

tobin s q and the structure performance relationship comment the exchange of comments between william shepherd and michael smirlock thomas gilligan and william marshall this review december 1986 raised two key points that remain unresolved the first point is whether tobin s q ratio a firm s financial market value divided by replacement cost of its assets is a better measure of firm performance than accounting rates of return the second point of contention is whether superior performance however measured can be attributed to efficiency rather than market power this paper offers further clarification on both of these points in section i the performance measure choice is shown to be influenced by fundamental differences between finance and economics in section ii the structure performance model employed by smirlock gilligan and marshall hereafter sgm and shepherd is shown to be a special case of a more general model allowing for a dependence of the market share performance relationship on the concentration ratio the same data from the original study by sgm 1984 are used in section iii to provide a comparison of sgm s findings with empirical results from an alternative specification of the structure performance model this comparison suggests that attributing superior firm performance exclusively to efficiency is not well founded concluding remarks are found in section iv

firm growth and efficiency in the banking industry a new test of the efficient structure hypothesis abstract in this paper we propose a new test of the efficient structure es hypothesis which predicts that efficient firms come out ahead in competition and grow as a result our test has significant advantages over existing ones because it is more direct and can jointly test the so called quiet life hypothesis which predicts that in a concentrated market firms do not minimize costs we then apply this test to large banks in japan consistent with the es hypothesis we find that more efficient banks become larger we also find that market concentration reduces banks efficiency which supports the quiet life hypothesis these findings imply that there is an intriguing growth efficiency dynamic throughout banks life cycle although our findings also suggest that the es hypothesis dominates the quiet life hypothesis in terms of economic impact

single equation multiple regression methodology is it an appropriate methodology for the estimation of the structure performance relationship in banking abstract tests of the structure performance paradigm of the industrial organization literature have been carried out almost exclusively using a single equation multiple regression methodology the purpose of this paper is to suggest that where the firms being considered are multiple product in nature and may pursue objectives in addition to maximizing the value of the firm such a methodology may be inappropriate the results presented in this paper suggest that the absence of a consistently strong positive and statistically significant relationship between market concentration and bank profitability may be traced in part to such an inappropriate methodology

collusion efficiency and pricing behavior evidence from the banking industry this paper examines the validity of competing hypotheses used to explain the observed positive relationship between concentration and profits using price proxies from the banking industry we find that leading secondary firms in a market act as price setters price takers this is true regardless of market concentration we interpret this as evidence of the superior efficiency of leading firms and conclude that the higher profits earned by these firms is due to their superior efficiency and not collusive behavior

on the misuse of the profits sales ratio to infer monopoly power the common use of the profits sales ratio as a measure of the lerner index of monopoly power is flawed even with the assumption of constant returns because of problems connected with the valuation of capital the size of the error is related to the cost of capital the growth rate of the firm the depreciation method used and most important the shape of the stream of benefits resulting from an investment examples show that the error can be quite large further the error is likely to be systematically related to the variables used in regression studies

an institutional approach to the rationality of expectations the issue of expectations is an important one to modern macroeconomic theory despite considerable efforts in recent times the process by which economic expectations are actually formed is still not well understood there are several possible explanations for this one of the more important is that an investigation of the forecasting industry which contributes in a major way to expectations formation has never been carried out as a result and because it is after all an industry like any other a study of the aggregate economic forecasting in canada was undertaken using the now familiar scp paradigm such a relatively careful institutional examination of the uses and production of one of the most important elements going to make up economic expectations gives strong evidence of rational economic processes at work economic theory is therefore correct to treat expectations as rational

in pursuit of monopoly power recent quantitative work in industrial economics this paper reviews empirical work in industrial organization devoted to the question of inferring the existence of monopoly power from data on observed market outcomes like profits and prices the discussion covers inter industry work long conventional in the area newer developments in intra industry analysis and case studies and concludes with some remarks on a small but growing body of work assessing market dynamics the wide range of studies reviewed all generally reveal that market power exists in many industries

sex discrimination and product market competition the case of the banking industry this paper examines the relationship between product market competition and employment discrimination using an especially constructed data set that links microeconomic data on female employment with measures of market concentration in the banking industry the use of firm specific data drawn from this one industry allows estimation of this relationship in a manner that avoids the problems of interindustry differences that have troubled previous studies the results provide strong support for a negative relationship between market concentration and the relative employment of women further we find that individual market shares are unrelated to female employment suggesting that the relationship is due primarily to differences across markets rather than individual firms

sics as delineators of economic markets the standard industrial classification sic is often used to divide firms into homogeneous markets firms classified into the same n 1 digit sic are thought to be more homogeneous than firms sharing only the same n digit sic this study measures how well the sic succeeds at combining firms into homogeneous economic markets assuming that firms in more similar economic markets should display more similar sales changes profit rates or stock price changes than firms in less similar economic markets the author finds that the sic is not successful at identifying firms with such similar characteristic variables copyright 1989 by the university of chicago

testable competing hypotheses from structure performance theory efficient structure versus market power this paper provides a structure performance theory that can accommodate leading firm efficiency as well as several competing market power hypotheses the author derive s testable implications distinguishing the simple collusion product differentiation and scale economy hypotheses from the innovative lea ding firm alternative it is shown that recent evidence of a positive market share price cost margin pcm relationship and a nonpositive concentration pcm relationship can reject the scale economy and simpl e collusion hypotheses in homogeneous product markets unfortunately this same evidence cannot reject the product differentiation hypothe sis in favor of leading firm efficiency copyright 1988 by blackwell publishing ltd

determinants of bank market structure efficiency and political economy variables abstract this paper analyzes the influence of bank efficiency and political economy variables on bank market structure market share and market concentration using a panel data of 2 592 banks from 69 countries over the 1996 2002 period results indicate that the validity of the efficiency structure hypothesis to explain bank market structure varies across countries depending on national political economy variables in particular higher entry requirements more generous deposit insurance and higher extent of government bank ownership reduce the positive influence of bank efficiency on market share and market concentration however tighter restrictions on bank activities better quality of the contracting environment more market monitoring and more market orientation and development of the financial system increase the positive influence of bank efficiency on market share and market concentration jel classification g18 g21 g28 keywords banking structure efficiency regulations supervision institutions

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

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

a reexamination of analysts earnings forecasts for takeover targets abstract we examine analysts earnings forecasts for a sample of takeover targets and document that the announcement month forecasts are systematically revised upward supporting the hypothesis that a takeover announcement conveys favorable information about the target firm in addition we find that abnormal forecast revisions of future stand alone earnings are significantly greater for targets with low tobin s q ratios relative to targets with high q ratios lending further support to the information hypothesis finally we provide evidence that managerial resistance to the takeover does not destroy value our results are in direct contrast to pound 1988

inter industry differences in profitability the legacy of the structure efficiency debate revisited this study presents a simple model on the sources of inter industry variation in profitability and tests its empirical implications in order to shed new light on the long lasting debate over industry profitability the model identifies four key factors that jointly influence an industry s price cost margin i the intensity of strategic investment e g r d and advertising ii the skewness of the distribution of market share or market concentration iii the appropriability of strategic investment and iv the extent to which firms market shares are determined by the intensity of their strategic investment these factors are expected to be positively related to industry profitability and our empirical analysis provides supportive evidence the model also suggests that the conventional single dimensional hypotheses on profitability the market power or market structure hypothesis and the efficiency hypothesis are overly simplified more importantly existing empirical results allegedly supporting each of these hypotheses are spurious to the extent that the distribution of firm specific strategic competence reflects firm heterogeneity in efficiency and at the same time underlies the distribution of market share or market concentration copyright 2009 oxford university press

market structure and worker quality it is frequently asserted although never directly tested that firms in more monopolistic industries hire better qualified workers this paper presents two new results first worker quality education in particular is a strong determinant of whether a worker is employed in a concentrated industry when using a traditional data source second upon expanding the data to include measures of research and development workers of better quality are actually no more likely to locate in concentrated industries these results fit with theories claiming that industries subject to technological opportunities may be more concentrated and that those opportunities demand higher quality workers i introduction at least a score of articles since the 1960s test the hypothesis that more concentrated industries pay workers higher wages other things equal this investigation has been part of a more general examination of whether or not concentrated structure generates inefficiencies beyond the deviation of price from cost unfortunately this large scale effort has not been rewarded with consistent results separate researchers both confirm and fail to confirm an independent role for industrial concentration in wage determination among those who fail to confirm the concentration earnings hypothesis one explanation is offered most often while concentrated industries pay higher wages they obtain better qualified workers the generally acknowledged simple correlation between wages and concentration becomes an insignificant partial correlation in the presence of a vector of controls while some of the typical controls could be considered measures of worker quality others clearly are not it may be one or more of these non quality controls which frequently include industry characteristics which eliminates the significance of concentration for example plant size and unionization known to be correlated with both wages and concentration are among the more likely non quality variables which could explain the lack of the authors thank william j adams william g shepherd gary solon and frank p stafford their suggestions improved early versions of this paper thanks is also expressed to almarin phillips who suggested the association with technological progress those confirming a positive statistical association between wages and industrial concentration include dalton and ford 119771 mellow 119831 kwoka 119831 long and link 119831 and heywood 119861 those failing to find such an association include weiss 119661 rapping 1967 pugel i9801 and freeman and medoff 119811

nominal versus indexed debt a quantitative horse race abstract the main arguments in favor and against nominal and indexed debts are the incentive to default through inflation versus hedging against unforeseen shocks we model and calibrate these arguments to assess their quantitative importance we use a dynamic equilibrium model with tax distortion government outlays uncertainty and contingent debt service our framework also recognizes that contingent debt can be associated with incentive problems and lack of commitment thus the benefits of unexpected inflation are tempered by higher interest rates we obtain that costs from inflation more than offset the benefits from reducing tax distortions we further discuss sustainability of nominal debt in developing volatile countries

tobin s q investment and the endogenous adjustment of financial structure abstract should q theory be modified to take account of financial structure this paper analyzes a general equilibrium q model where financial structure affects firm value agency costs and taxes combine to yield an interior solution for the endogenous debt equity ratio although q is still a sufficient statistic for investment the endogenous adjustment of financial structure alters the relation between the interest rate and investment in this model an increase in the corporate tax rate could either raise or lower the steady state capital stock furthermore both q and investment could jump in opposite directions to that of their steady state values

corporate control and performance in the 1930s i introduction a fundamental assumption of mainstream microeconomics holds that firms strive to maximize economic profits beginning with the work of berle and means 1932 however researchers have seriously questioned if profit maximization is the sole objective for the large modern corporation given various circumstances in particular berle and means 1932 69 contend that as the ownership of corporate wealth has become more widely dispersed ownership of that wealth and control over it have come to lie less and less in the same hands they argue that the main beneficiaries of this transfer of control ultimately have been the managers because it has put them in the position to pursue their own interests at the expense of profits modern managerialist neoclassical theory suggests that corporate managers must be exempt from a number of behavioral constraints to successfully deviate from profit maximization and pursue the five p s of increased pay prerequisites power prestige and patronage first as berle and means note the executives must be free of a stockholder constraint some slack typically exists in this constraint when stock ownership is widely dispersed because an agency problem results from the asymmetry of information regarding true managerial behavior and performance simply put when an individual holds a relatively small percentage of the firm s outstanding stocks there exists little if any willingness in terms of a financial incentive to monitor true performance and ability with regards to corporate power to either actually or potentially discipline management thus the severity of the stockholder constraint generally depends on the percentage of the firm s outstanding stock held by the dominant stockholder second according to williamson 1963 the product market constraint cannot be fully binding since discretionary expenditures require excess profits in a competitive market managers are forced to minimize costs or the firm fails to survive in the marketplace as a result the firm must possess some degree of market power for managers to successfully pursue other goals besides profit maximization third some imperfections must exist in the capital markets otherwise any inefficient behavior on the part of management increases the likelihood of a corporate takeover in some cases as marris 1964 notes the mere threat of a takeover might sufficiently discipline management smiley 1976 points out however that the transaction costs of a takeover gives management some room to exercise discretionary behavior before the risk of a takeover becomes intolerably high fourth fama 1980 argues that imperfections must also exist in the external and internal labor markets otherwise job mobility within and among firms creates an incentive for managers to behave efficiently in addition better jobs and rewards in the future mean better job performance today finally jensen and meckling 1976 show that managers must be awarded an incomplete incentive contract if executive compensation completely depends on performance less inefficient behavior results despite the fact that managers must be at least partially free of all five constraints to successfully deviate from profit maximization a surprisingly large number of researchers including larner 1970 palmer 1973 mceachern 1975 and neun and santerre 1986 has found evidence linking unconstrained managers with lower levels of corporate performance in more modern times 1 these studies typically focus on the consequence of a loosening of the stockholder constraint on profitability researchers either explicitly or implicitly control for the severity of the product market constraint and some slack is assumed in the other three constraints on managerial behavior 2 with the exception of neun and santerre 1986 however these studies use a dichotomous measure of stockholder control which is based upon arbitrary and subjective criteria

on profitability and industrial concentration in pakistan abstract non inclusion of an important element of market structure in the profitability equation by earlier writers might have caused their estimates to suffer from specification error due to an omitted variable we have tried to formulate a more comprehensive model in which elasticity of demand advertising and concentration capture market structure while the supply side has been incorporated by including productivity other factors used to explain the degree of monopoly are capital intensity advertising and trade our results indicate that the main determinants of the profit margin are capital intensity rising productivity and industrial concentration we find that there was some dilution due to competition from foreign trade but its impact has been swayed by other factors

intangible resources tobin s q and sustainability of performance differences this paper tests empirically the hypothesis that the greater the intangibility of a firm s resources the greater the sustainability of its competitive advantage resource intangibility is measured by 1 tobin s q and 2 the predicted value from a hedonic regression of q on several accounting measures of intangibles sustainability is measured by the persistence of firm specific profits using a dynamic panel data regression model i find that intangibles play an effective role in sustaining a firm s competitive advantage as predicted by the resource based view of the firm however the results suggest that intangibles can also lock firms into persistent disadvantages

an empirical study of selected factors influencing the decision to list on foreign stock exchanges the growing internationalization of capital markets suggests that an increasing number of firms perceive the benefits of listing their stocks on foreign exchanges as outweighing the related costs many other firms however still limit listing their securities to their domestic exchanges this study investigates the motives for listing abroad the empirical analyses based on data on 481 multinationals indicate significant association between the likelihood of listing abroad and 1 the relative size of a firm in its domestic capital market 2 the ratio of foreign to total sales

evaluating q as an alternative to the rate of return in measuring profitability the ratio of a firm s market value to its replace ment cost q is often used to measure firms profitability the use of q is increasin g in large part because of the growing realization that errors in evaluating firms capital assets may cause errors in estimates of the accounting rate of return r the same objection however applies t o q this paper reports the results of monte carlo experiments designed to determine whether q is superior to r errors in both q and r are large and potentially serious but do not render either measure useless copyright 1988 by mit press

excess market value the multinational corporation and tobin s q ratio the results of this study show that there is a positive and significant relationship between excess market value of multinational corporations and the degree of international involvement as measured by foreign sales percentage however the excess market value is not determined by the number of foreign subsidiaries nor the interaction between foreign sales and the number of foreign subsidiaries the relationship between excess market value and the two frequently used measures of monopoly power concentration ratio and the lerner index was also examined this study found that the lerner index contributes significantly in explaining excess market value but concentration ratio does not furthermore the positive and significant coefficients of advertising and r d intensity serve as evidence that product market imperfections appear to play a bigger role in explaining the excess market value experienced by mncs during our sample period

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

market share and efficiency a reprise abstract a recent major study claims to have demonstrated the validity of the efficient market hypothesis this conclusion is unwarranted further empirical work suggests that market share is an element of industrial structure and may itself be a reflection of market power

mobility barriers and tobin s q the cross sectional relation of tobin s q to structural features of firms depends on market conditions features such as industry concentration advertising and research and development intensity firm specialization and proxies for the use of specialized resources can operate as barriers to entry or to exit depending on the direction of expectations regressions of q on structural features over periods when the state of the economy was clearly different strongly confirm this view for example concentration was positively related to q in the mid 1960s but negatively related in the mid 1970s coefficients for all structural variables also changed significantly this implies that structural features must be interpreted as indexes of resources flexibility rather than as sources of stable positive rents copyright 1987 by the university of chicago

rates of return on corporate investment in the last two decades productivity has lagged in the united states markets have been lost to foreign competition real income per capita has grown slowly this experience has led to considerable discussion of possible causes 7 one possible cause often mentioned is the quality of managerial investment decisions managers have been accused of overinvesting in obsolete technologies of underinvesting in risky projects with long run payoffs of undertaking unprofitable mergers and of overall poor judgment in their investment policies 39 this paper presents evidence on the returns on investment over the 1970 88 period for a sample of 699 large corporations that is consistent with this view

unions and the financial performance of british private sector establishments summary this paper considers the relationship between unions and financial performance using data from the 1980 and 1984 workplace industrial relations surveys a qualitative indicator of financial performance is utilized and ordered probit estimates presented these indicate that unionized establishments are characterized by lower performance levels than are non union concerns the interface between union effects and relative market power is also explored and the ability of unions to extract a share of the available rents is found to be greater if the plants in which they are located possess a higher market share

advertising price and welfare evidence from the u s brewing industry the welfare effect of advertising has been a subject of controversy among economists for some time one obvious concern is simply the cost of advertising in 1990 for example americans spent 130 1 billion on advertising to put this figure into perspective this amounted to 523 per capita 2 35 percent of gross national product and roughly 80 percent of the national deficit 1 much of the early debate regarding the social desirability of advertising stems from different preconceptions regarding its purpose 13 14 8 49 for example according to the kaldor 29 hypothesis advertising is primarily persuasive or deceptive in nature it changes consumer preferences creates brand loyalty and persuades consumers to favor commodities that they did not previously desire an opinion survey by bauer and greyser 5 indicates that consumers believe that much of advertising is persuasive and greyser and reece 27 158 find that 85 percent of the over 2 700 harvard business review subscribers surveyed believe that advertising persuades people to buy things they do not need if advertising is purely deceptive then it can be classified as a bad and reduces welfare

the concentration conduct relationship in bank deposit markets this study investigates the structure conduct performance relationship in retail deposit markets the study explicitly incorporates conduct as the link between structure and performance in local deposit markets it attempts to determine whether banks typically behave competitively or strategically and whether their conduct is influenced by market concentration the empirical investigation is guided by an equilibrium model of a retail deposit market the model is applied to regression equations for local msa mmda and three and six month cd rates the empirical results indicate that strategic conduct is the norm in mmda and in three and six month cd markets copyright 1991 by mit press