investor preference for large firms new evidence on economies of size in the last several decades industrial organization literature has been replete with studies demonstrating a systematic relationship between accounting rates of return and firm size in the direction of greater and more stable accounting profits for larger firms these studies have been subject to criticism for an alarming number of statistical and conceptual problems the most important of which alleges a serious bias in accounting profit measures as proxies for economic profit 2 the criticisms have resulted in a stalemate in the interpretation of empirical evidence on firm size and performance nevertheless there is continued interest in the area ostensibly resulting from policy concerns with large firm advantages in both product and capital markets this paper provides new evidence concerning the industrial organization literature controversy of the connection between firm size and performance stock market data are used to examine the relationship between capital market returns risk and firm size the findings suggest that even if there were no advantages of large size in the product market equal rates of operating profit large firms would still have a substantial capital raising advantage over small firms this advantage is unrelated to the widely recognized floatation cost economies even after controlling for nondiversifiable risk using the capital asset pricing model capm investors still demonstrate a statistically significant and economically important preference for the securities of larger firms investors apparently place a premium on large firms which is not attributable to large firms observed lower risk as captured by the widely used measure of nondiversifiable risk beta risk this finding a fresh contribution to the

small firms and the merger mania empirical research has found an average or even superior performance of small firms this seems to be at variance with the secular concentration process and the recurrent merger waves this paper tries to integrate size and merger research higher profitability of small firms is explained by their incentive structure and shorter decision lags but also by lower wages and higher individual risk premia their faster growth in the eighties was in addition fostered by diversification of demand miniaturization of technology and a need for flexibility under uncertainty the merger wave on the other hand does not necessarily prove that large firms are superior managers and shareholders may be seduced by stockmarket optimism a sizeable industry of banks agents and lawyers have their own interests in mergers mergers may be important in declining markets and for the acquisition of technology on average mergers do not improve efficiency profits or internal growth small and large firms serve different purposes performance depends on the market incentives and technology the establishment growth and closure of small firms as well as mergers are attempts to find the optimal organization for utility maximization in a world of severe uncertainty and diverse needs

on the relationship between aggregate merger activity and the stock market abstract this paper presents substantial evidence to show that the well documented correlation between aggregate merger activity and indices of share prices is unstable and thus of little predictive value further granger causality testing suggests that such correlations are spurious reflecting other more fundamental forces which jointly determine movements in both series

the organisation of innovation collaboration cooperation and multifunctional groups in uk and german manufacturing marked differences exist between the institutional and social context for innovation in the uk and germany the question addressed here is how these different contexts affect the objectives and organisation of innovation in uk and german manufacturing in particular the paper examines the extent to which uk and german plants engage in inter plant collaboration and cooperation and multifunctional working as part of their innovative activity and explores the reasons for differences in these patterns of involvement the investigation is based on a large scale comparative survey of manufacturing plants in the two countries in germany institutional and social norms are found to encourage collaborative inter plant innovation but aspects of the german skills training and industrial relations systems make the adoption of more flexible internal systems more difficult in the uk by contrast the more adversarial nature of inter firm relations makes it more difficult to establish external collaborations based on mutual trust but less restrictive labour market structures make it easier for uk plants to adopt multifunctional working this is linked to differences in attitudes to the property rights and transaction cost problems inherent in innovation

neo industrial tokyo urban development and globalisation in japan s state centred developmental capitalism this paper analyses the relation between tokyo and globalisation in the framework of regulation theory and attempts to draw theoretical implications for tokyo s current urban development regulation theorists contend that globalisation particularly global capital and finance mobility has led to the crisis of regulatory institutions that sustained the post war fordist growth regime and that the new finance market centred growth regime emerging out of the crisis in the uk and the us is now challenging other capitalist societies tokyo s urban experience in the past decade conforms to and yet deviates from regulation theory the paper argues that although local and national politics have played the most important role in reshaping tokyo s urban development it is japan s state centred developmental capitalist system that has enabled tokyo to resist the new anglo american growth regime tokyo s growth strategy in the 1990s has instead re emphasised manufacturing technology the impact of the new finance m

do trade missions increase trade in an effort to stimulate trade canada has conducted regular trade missions starting in 1994 often led by the prime minister according to the canadian government these missions generated tens of billions of dollars in new business deals this paper uses bilateral trade data to assess this claim we find that canada exports and imports above normal amounts to the countries to which it sent trade missions however the missions do not seem to have caused an increase in trade in the preferred specification incorporating country pair fixed effects trade missions have small negative and mainly insignificant effects dans un effort pour stimuler le commerce international le canada a mene des missions commerciales depuis 1994 souvent sous la direction du premier ministre selon le gouvernement canadien ces missions ont engendre des dizaines de millions de dollars en relations d affaires ce texte utilise des donnees sur le commerce bilateral pour evaluer cette proposition on decouvre que le canada exporte et importe des quantites au dessus de la normale vers et en provenance des pays ou il a mene des missions commerciales cependant les missions ne semblent pas avoir cause un accroissement du commerce dans la specification preferee incorporant les effets fixes des paires de pays les missions commerciales ont des effets faibles negatifs et en gros insignifiants

international migration and trade agreements the new role of ptas this paper provides an empirical analysis of the relationship between preferential trade agreements ptas and bilateral migration flows building on the empirical literature on the determinants of migration flows i estimate a modified gravity model to assess the role of ptas and their content on bilateral migration flows using a sample of 29 oecd destination countries over the period 1998 2008 i show a strong positive effect of ptas on bilateral migration flows i find that the content of ptas also matters when visa and asylum and labour market related provisions are included in ptas this further stimulates bilateral migration flows different estimation strategies including instrumental variables are employed to address the potential endogeneity bias problems related to ptas and their content

late movers outperform first movers in export markets abstract using exporter level data from bulgaria burkina faso egypt guatemala jordan malawi mexico peru and senegal as well as controlling for supply and demand shocks i find that late movers outperform first movers in product destination export markets

raiders or saviors the evidence on six controversial investors abstract carl icahn irwin jacobs carl lindner david murdock victor posner and the late charles bluhdorn are usually portrayed as corporate raiders the evidence here however shows that between 1977 and 1982 when it was first announced that they had purchased stock in a given firm stock prices on average increased significantly the investors activities in target firms for the two years following the initial stock purchase are likewise inconsistent with raiding we discuss two hypotheses that are consistent with the evidence first these investors improve the management of target firms second they are systematically able to identify under priced stocks

export promotion agencies do they work abstract the number of national export promotion agencies epas has tripled over the last two decades while more countries made them part of their export strategy studies criticized their efficacy in developing countries epas were retooled partly in response to these critiques this paper studies the impact of today s epas and their strategies based on new survey data covering 103 developing and developed countries results suggest that on average they have a statistically significant effect on exports our identification strategies highlight the importance of epa services for overcoming foreign trade barriers and solving asymmetric information problems associated with exports of heterogeneous goods there are also strong diminishing returns suggesting that as far as epas are concerned small is beautiful

job creation process in a transition economy in many european countries sme policy is close to being a synonym for job creation most empirical research on the job generation potential of small firms over the last decade has been done in the stable and favorable economic conditions of market economies the paper investigates the role of small firms in more difficult circumstances on an empirical data set for slovenia the paper tries to show that small firms have been the most important employer during the transition period a finding that very likely can be extrapolated for other european transition economies over the last decade slovenia has transformed from a labor managed economic system to a market oriented economy if we compare the firm size structure in a socialist like economy to the firm size structure in a mature market economy close to equilibrium we notice a typical absence of small and medium sized firms with the exception of craft shops that was how slovenia appeared in the early nineties charac terized by the removal of administrative barriers transition encouraged a spontaneous entrepreneurial wave through an expanding small business sector the ensuing changes in employment distribution changed the firm size structure

european industrial policy and industrial policy in europe among the most vexing problems facing those concerned with the formation and implementation of industrial policy is deciding what it is why it exists and whether there ought to be more or less of it than exists at present any random collection of six economists is sure to produce at least a dozen different opinions on the subject not least because many economists have trouble in reconciling their gut reaction that industrial policy should not exist with the obvious fact that it does the vigorous debate that now rages between those who believe that industrial policy should and those that believe that it should not be consciously pursued by gov ernments is but a pale reflection of the true diversity of opinion that exists on the subject even amongst that group of economists who are enthusiastic about industrial policy the range of specific policy proposals that have been put forth is enormous and the debate within this group is no less active and acrimonious than that between the pros and antis following what is a clear if unintended character istic of many of the contributions to this debate this paper is devoted to complicating ratherthan simpli fying the issues in particular the question that we shall explore is whether there might be a type of industrial policy which should be applied at a supra national level although this question has been actively discussed in europe since the signing of the treaty of rome at least the revival of free marketideologies the looming menace of 1992 and recent discussions of european political union have all added a good deal of fuel to the fire more than a few ambitious european politicians have launched initiatives that apparently usurp national policy prerogatives and the response by many national governments has become increasingly angry and strident traditional liberalism struggled for years to define the boundaries of the state in terms of the

on the diversification observability and measurement of estimation risk this paper reexamines how risk return relationships are affected by investor uncertainty about the exact parameters of the joint rate of return distribution we attempt to clarify results relating to three central issues first we address the issue of diversification focusing on an apt factor model framework second we discuss the observability of estimation risk and describe research experimental designs that should encompass the existence of estimation risk and reveal it in the data finally we suggest exploiting contemporaneous return observations on high and low information securities to aid in the measurement of return parameters for low information securities

an inverse relationship between efficiency and profitability according to size of upper austrian firms some further tentative results this paper examines the relationships between profitability and firm size and efficiency and firm size based on firms in upper austria there is considerable evidence suggesting that the average profitability of small enterprises exceeds that of large firms however productivity tends to be positively related to firm size these empirical findings present something of a paradox

immigration and trade creation econometric evidence from canada immigrants may expand trade with their country of origin owing to superior knowledge of or preferential access to market opportunities the authors test this proposition using canadian trade data with 136 partners from 1980 to 1992 in an augmented gravity equation they find that a 10 percent increase in immigrants is associated with a 1 percent increase in canadian exports to the immigrant s home country and a 3 percent increase in imports they also find that among the primary categories of immigrants independents have the greater influence on trade immigration via the entrepreneur class appears to have less impact on trade than all other classes except refugees

economic diplomacy and international trade asean s quest to value claim utilising economic diplomacy theory this study specifies a statistical model to reveal asean members capacity to negotiate better international trade outcomes examining imports into asean members from 134 nations between 1980 and 2001 we find that asean s diplomats were able to pursue more value claiming in economic diplomacy than expected while our results support the commonly accepted view in economic diplomacy that smaller nations are pressured to accept trade outcomes desired by larger nations we also find support for a new perspective smaller nations obtain more favourable trade outcomes as members of a regional trade bloc which cannot be achieved as individual nations we find that asean s conversion to a fully fledged regional trade agreement in 1992 significantly enhanced this capacity this study adds a different perspective to the substantial literature examining cases in trade and economic diplomacy

policy review section in this policy review section gerry stoker of the institute of local government studies presents a critical review of the role of urban development corporations udcs in comparing the experience of the udcs consideration is given to the varying nature of the land and property market in each udc area to the relationship with local authorities and other local bodies and the regeneration strategies pursued by the udcs this is followed by an assessment of the impact of the udcs in economic social and political terms in the second article john britton of the university of toronto examines the theoretical case for interventionist public policies to assist the innovation process in small and medium sized enterprises these arguments are supported by a review of the experience of various national support programmes introduced in the uk in particular the manufacturing advisory service introduced in 1978 and the design advisory service launched in 1982

a direct test of roll s conjecture on the firm size effect empirical research indicates that small firms earn higher average rates of return than large firms even after accounting for beta risk roll conjectured that the small firm effect might be attributed to improper estimation of security betas the evidence shows that while the direction of the bias in beta estimation is consistent with roll s conjecture the magnitude of the bias appears to be too small to explain the firm size effect

jobs and the business life cycle in the uk there have been a number of statistical studies in recent years of the firm life cycle its effects on employment and the role of small firms in the job generation process they have all followed the changes which take place in a population of firms through time birch based his usa national analysis on the dun and bradstreet computer files for 5 6 million establishments covering 80 of all private sector employment and some of his findings were of a controversial nature most british studies to date have been limited to single regions looking at aspects of job generation in detail there is now a series of local studies for the regions of glasgow the midlands cleveland manchester and merseyside the dti ganguly 1982a has carried out an important national study based on vat data and a sectoral study macey 1982 of manufacturing the study described here used the data of dun and bradstreet uk the commercial credit rating market research and information company to estimate job generation pe

factor substitution in u s manufacturing does plant size matter we use micro data for 10 412 u s manufacturing plants to estimate the degrees of factor substitution by industry and by plant size we find that 1 capital labor energy and materials are substitutes in production and 2 the degrees of substitution among inputs are quite similar across plant sizes in a majority of industries two important implications of these findings are that 1 small plants are typically as flexible as large plants in factor substitution consequently economic policies such energy conservation policies that result in rising energy prices would not cause negative effects on either large or small u s manufacturing plants and 2 since energy and capital are found to be substitutes the 1973 energy crisis is unlikely to be a significant factor contributing to the post 1973 productivity slowdown

globalisation as commodification while recognising that most pre capitalist formations exhibited elements of commodity exchange marx argued that capitalism differentiates itself as a genuine commodity system by virtue of two interdependent processes having reached a critical stage of development a stretching of commodity relations to the point where production for the market displaces subsistence production as the primary form and a deepening of commodity relations such that these encompass not only goods and services but the capacities for producing them this paper argues that globalisation can best be understood as the culminating stage of these stretching and deepening processes the former in the sense that commodity relations now embrace the entire planet and the latter in the sense that they cover not merely goods or the capacities for producing goods but also every other type of capacity and every other type of outcome copyright 2005 oxford university press

causes of increased competition in the u s economy 1939 1980 examines the sources of increased competition in the united states u s between 1939 to 1980 in this paper authors consider the review of related literature trends and patterns of competitive structure in the u s economy influence of antirust actions on competition

state government promotion of manufacturing exports a gap analysis this study empirically examines the level of the export related expertise of manufacturing firms in a midwestern state of the united states various problems they face in export business and types of government assistance desired by their stage of export involvement it also investigates the appropriateness of government export assistance and the gap between governmental export promotion efforts and private sector needs it is shown that the identification of expertise problems and government assistance needs by export stage can help government agencies develop a systematic approach to export promotion

the political determinants of international trade the major powers 1907 1990 we test three arguments about the effect of international politics on trade flows the first argument states that trade flows are greater between states with similar interests than those with dissimilar interests the second that trade flows are greater in democratic dyads than nondemocratic dyads and the third that trade flows are greater between allies we examine trade flows between the major powers from 1907 to 1990 this period provides variation on all three independent variables of interest and allows us to separate the three arguments empirically we estimate a gravity model of trade with the above political variables added our results demonstrate that joint democracy and common interests increase trade in a dyad but alliances generally do not even when controlling for polarity of the system

immigrant links to the home country empirical implications for u s bilateral trade flows immigrants ties to their home countries can play a key role in fostering bilateral trade linkages immigrant ties include knowledge of home country markets language preferences and business contacts that have the potential to decrease trading transaction costs empirical results for the united states suggest that immigrant links have historically been important in increasing bilateral trade flows with immigrants home countries copyright 1994 by mit press

the winner s curse and bidder competition in acquisitions evidence from failed bank auctions this study examines the effect of bidder competition in acquisitions we use predictions from auction theory to test whether acquirers of failed banks overpay the winner s curse when bidding in fdic sealed bid purchase and assumption p a transactions auctions the empirical results indicate that winning bids tend to increase as the number of competitors increases as predicted by theory we also find that bid levels of all bidders increase with increased competition which is consistent with bidders failing to adjust for the winner s curse in a common value auction setting however additional tests using winning bids only are consistent with both a common value and a private values model so this result should be interpreted with caution the winner s curse hypothesis states that the winner of a sealed bid auction in which the value of the object being competed for is uncertain tends to be the one who most overestimates the true value of the auctioned object as a result auction winners who fail to recognize this possibility are likely to be cursed by having paid more for the object than its true worth this hypothesis has been applied to various situations including bidding on oil and gas leases capen et al 3 and corporate takeovers roll 16 varaiya 19 support for the existence of the winner s curse has been reported primarily from laboratory experiments bazerman and samuelson 1 kagel and levin 12 testing of the winner s curse hypothesis with market data is in its early stages gilley karels and leone s 7 study of bidding for oil leases provides mixed suport brannman klein and weiss 2 examine bidding behavior in a variety of auction markets and interpret some of their results as supporting the winner s curse hypothesis our study examines the effects of bidder competition and the winner s curse hypothesis within the context of fdic auctions of failed banks our study may also have relevance for the broader corporate control literature this literature uniformly indicates that shareholders of acquired firms earn large

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

evaluating aid for trade a survey of recent studies the demand for accountability in aid for trade is increasing but monitoring has focused on case studies and impressionistic narratives the paper reviews recent evidence from a wide range of studies recognizing that a multiplicity of approaches is needed to learn what works and what does not the review concludes that there is some support for the emphasis on reducing trade costs through investments in hard infrastructure like ports and roads and soft infrastructure like customs but failure to implement complementary reform especially the introduction of competition in transport services may erode the benefits of these investments direct support to exporters does seem to lead to diversification across products and destinations but it is not yet clear that these benefits are durable in general it is difficult to rely on cross country studies to direct aid for trade more rigorous impact evaluation is an underutilized alternative but situations of clinical interventions in trade are rare and adverse incentives because of agency problems and costs because of the small size of project are a hurdle in implementation

does economic diplomacy work a meta analysis of its impact on trade and investment we review the literature on economic diplomacy and provide a meta analysis of 32 empirical studies published in 1986 2011 that deal with the trade and investment impact of economic diplomacy embassies consulates other diplomatic facilities investment and export promotion offices trade and state visits controlling for differences in research design methodology time frame and manner of data we find a positive and significant effect of economic diplomacy on international economic flows with the exception of state visits and that this is true in a sample of 627 t statistics analysed with ols and for a larger sample of 963 reported significance levels analysed with logit thus illustrating robustness with respect to sample and estimation technique our analyses show that reported effects of economic diplomacy on trade and investment in individual studies are sensitive to model specification the primary studies that investigate only one source country are less likely to report significant positive effects compared to other sciences economic studies are less likely to report significantly positive effects of economic diplomacy primary studies lump embassies and consulates general into one indicator miss that these instruments differ significantly embassies consulates and agencies should thus be included as separate instruments in future research

the measurement of capital services in production for uk regions 1968 78 harris r i d 1983 the measurement of capital services in production for uk regions 1968 78 reg studies 17 169 180 the purpose of this study is to obtain meaningful measures of the factor input capital so that estimation of the production function is possible at a regional level firstly gross stock measures are converted into a net stock series and the series obtained are then adjusted for levels of utilization finally some use of the data is made to look at various issues such as which regions have experienced rapid growth in capital stocks the composition of these stocks and changes in the capital labour ratios which have resulted

varieties of capitalism in the twentieth century of the world s multiple national variations on a basically capitalist system the paper compares the century s history of four the british and american the two pioneers whose institutions and economic behaviour patterns most closely confirm to and those of germany and japan whose institutions most significantly deviate from the prescriptions of neoclassical textbooks there is no obvious story of a long and steady process of gradual convergence capitalist rationality slowly washing out the effects of differing cultural traditions all four societies have changed in key respects finance and corporate control structures were arguably more similar in the 1920s than later by the end of the post war golden age there were signs of convergence on similar forms of managerial capitalism the crucial and for us unpredictable question is how far the transition to shareholder capitalism in britain and america over the last two decades will be duplicated in germany and japan copyright 1999 by oxford university press

paying a visit the dalai lama effect on international trade is political compliance a precondition for healthy trade relations with china the chinese government frequently threatens that meetings between its trading partners officials and the dalai lama will be met with animosity and ultimately harm trade ties with china we run a gravity model of exports to china from 159 partner countries between 1991 and 2008 to test the extent to which bilateral tensions affect trade with autocratic china in particular we investigate empirically whether countries that receive the dalai lama despite china s opposition experience a significant reduction of their exports to china in order to account for the potential endogeneity of meetings with the dalai lama the number of tibet support groups and the travel pattern of the tibetan leader are used as instruments our empirical results support the idea that countries officially receiving the dalai lama at the highest political level are punished through a reduction of their exports to china however this dalai lama effect is only observed for the hu jintao era and not for earlier periods furthermore we find that this effect is mainly driven by reduced exports of machinery and transport equipment and that it disappears two years after a meeting took place

the impact of export promotion on export market entry abstract for small open economies it is essential that many firms find their way to the export market and most governments provide some form of export promotion assistance we use detailed firm level data for flanders the largest region in belgium to evaluate whether its program raises firms propensity to start exporting outside the eu single market we find robust evidence for such an effect by relying on the selection on observables assumption which we implement using various estimators we address a likely upward bias due to self selection into support using two strategies i focus on sub samples of firms where endogenous selection into treatment is less likely and ii use firms that receive the weakest form of support as controls for firms receiving more extensive support the effects remain positive and statistically significant but are smaller in magnitude and in the second case estimated much less precisely

on the trade impact of nominal exchange rate volatility what is the effect of nominal exchange rate variability on trade i argue that the methods conventionally used to answer this perennial question are plagued by a variety of sources of systematic bias i propose a novel approach that simultaneously addresses all of these biases and present new estimates from a broad sample of countries from 1970 to 1997 the estimates indicate that nominal exchange rate variability has no significant impact on trade flows

the effect of firm formation and growth on job creation in the united states abstract this paper demonstrates the importance of new firm formation to economic growth it begins by providing data that describe the united states as having had greater employment growth than most developed nations of the world over the last 25 years and focuses upon why job growth in the united states has exceeded that of other nations job creation by firm size we first examine the data on the relative contribution of small and large firms to u s job growth by summarizing research that is uniformly expressed in two year periods and defines small firms as those with less than 100 employees conclusive evidence emerges that small firms are the major sources of net new creation firm entry exit rates and economic growth further understanding of small firm job creation is obtained when we examine firm entry and exit data here we find that firm entry rates vary considerably from period to period range 10 4 12 5 whereas exit rates remain relatively stable from period to period range 9 6 10 4 thus variation in entrepreneurial activity the formation of new firms is the major cause of net increases in the number firms in both the united states and the united kingdom net firm increases are positively related to overall economic activity firm entry exit and job creation further exploration of this correlation can be conducted by examining job creation and loss defined by source entries expansions exits and contractions the data for 1976 through 1984 shown here demonstrate that new entries account for 74 0 of the 50 8 million new jobs created expansions of existing firms accounted for 26 0 small firms less than 500 employees produced 54 6 of the entry jobs and 56 8 of the expansion jobs on the other hand job losses totaled 33 8 million 79 0 due to exits and 21 0 to contractions small firms account for 53 6 of the jobs lost from exits and 47 8 of those lost from contractions overall small firms account for 60 5 of the 17 0 million net new jobs given the data that show correlation between net firm formation rates and economic growth the finding that entry rates vary more than exit rates and the finding that new entries create most of the new jobs it can be concluded that firm formation especially small firm formation is a significant factor in economic growth increases in small firm formation rates have a significant effect on net job creation schumpeter s model and observed market turbulance another finding from this data on job creation by entry expansion exit and contraction is the large amount of job creation and destruction activity taking place for the period studied three jobs were created and two jobs destroyed for each net new job created this describes a turbulent job market with many workers moving from job to job the labor markets are much less stable that normally envisioned this observed phenomenon fits well with schumpeter s theory of capitalism he proposes that capitalistic growth occurs because entrepreneurs use innovations to form new firms which enter existing markets when successful these growing new firms destroy existing market structures causing decline of established firms while creating increased demand and producing overall economic growth if schumpeter is correct one would expect to find high rates of firm formation and failure and large numbers of jobs created by new firms while many jobs are lost by exits and contractions of established firms the findings reported here show this government policy affects on entry exit our results also show that formation of small new firms is a necessary requirement for economic growth historically however government policy has not considered small firm entry as a central issue thus government policies can and have had a negative effect on entry rates and therefore upon economic growth rates furthermore high rates of new firm formation cause a great deal of turbulence in labor markets with three jobs created and two lost for every one net new job such labor turbulence may be seen by policy makers as undesirable as it entails considerable worker movement from job to job as such policy makers have recently proposed policies to protect workers from job loss due to contractions and exits however such protection policies as demonstrated in recent european experience will also construct barriers to entrepreneurial entry the result may be a decline in small firm entry and a decline in economic growth instead of protecting specific jobs appropriate policies are those that facilitate movement of workers from job to job adequate unemployment compensation for short term unemployment fully vested and portable pension plans and retraining programs are examples of policies that allow the labor market to remain flexible while reducing the negative effect on those who lose jobs

small business dynamics in europe this paper examines how the firm size distribution has shifted over the last two decades across a broad spectrum of european countries the evidence suggests that a shift away from large firms and towards small business has taken place particularly is the southern regions and in the high technology indutries

the success of mergers in the 1920s a stock market appraisal of the second merger wave abstract this paper examines the impact on acquiring firm shareholder wealth of mergers during the oligopoly merger wave of the 1920s these acquisitions were relatively unregulated the securities and exchange commission did not exist and antitrust laws were only loosely enforced although the lack of financial market controls and the possibility of monopoly gains should have permitted acquiring companies to capture large take over profits stock price data on 134 firms indicate only modest success the average profitability of an acquisition in the 1920s does not differ from the profitability resulting from mergers in the 1960s and 1970s despite vast differences in the economic environments

aid for trade effectiveness complementarities with economic integration developing countries are increasingly using regional integration as a main policy lever when pursuing a trade led growth strategy and today deep preferential trade agreements go beyond trade policy negotiations and cover trade facilitation issues since aid for trade aft has been recognised as a powerful instrument for increasing developing countries trade capacity by targeting internal trade costs this article tests whether complementarities exist between this type of aid and economic integration using a gravity model on panel data for the period 1995 2005 results indicate that aft when combined with economic integration has been effective in increasing trade flows both south south and north south trade flows have benefited and the combination of the two instruments has been particularly effective in expanding the south s exports to the north finally when breaking down aft into categories assistance to trade related institutions seems to generate the strongest complementarities with economic integration

state visits and international trade politicians travel extensively abroad for various reasons one purpose of external visits is to improve bilateral economic relations in this paper i examine the effect of state visits on international trade i use a large data set covering the travel activities of the heads of state of france germany and the united states between 1948 and 2003 my results indicate that state and official visits are indeed positively correlated with exports a typical visit is associated with higher bilateral exports by about 8 to 10 per cent holding other things constant

confronting the implications of the cournot model with industry and firm data this paper derives testable implications of the standard cournot models and confronts these implications with real world data though we cannot expect that real world may be characterized by a simple static homogeneous model it is surprising that little empirical work exists on testing the implications of this most popular model of oligopoly and non cooperative game theory

legal determinants of external finance revisited the inverse relationship between investor protection and societal well being this article investigates relationships between countries legal traditions and their quality of life as measured by a number of widely reported social indicators in so doing it also offers a critique of a highly influential body of work which is widely cited in the literatures of corporate governance economics and finance that body of work has shown inter alia statistically significant relationships between legal traditions and various proxies for investor protection we show statistically significant relationships between legal traditions and various proxies for societal health our comparative evidence suggests that the interests of investors are not congruent with the interests of wider society and that the criteria for judging the effectiveness of approaches to corporate governance should be broadened

economic development as self discovery in the presence of uncertainty about what a country can be good at producing there can be great social value to discovering costs of domestic activities because such discoveries can be easily imitated we develop a general equilibrium framework for a small open economy to clarify the analytical and normative issues we highlight two failures of the laissez faire outcome there is too little investment and entrepreneurship ex ante and too much production diversification ex post optimal policy consists of counteracting these distortions to encourage investments in the modern sector ex ante but to rationalize production ex post we provide some informal evidence on the building blocks of our model

empirical estimates of beta when investors face estimation risk we examine empirical implications of models of differential information that formalize the following intuition securities for which there is relatively little information are perceived as relatively more risky because of the greater uncertainty surrounding the exact parameters of their return distributions the implication that beta risk for low information firms should decline as information increases is confirmed with several data sets we find such a decline over the first geveral periods subsequent to initial public offerings and initial listings there is also an abrupt risk decline at the first annual earnings announcement this paper examines several empirical implications of security return models involving differential information these models formalize the following intuition securities for which there is relatively little information are perceived as relatively more risky because of the greater uncertainty surrounding the exact parameters of their return distributions the research relates to two streams of literature the first revolves around the new issues and new listings market it begins with ibbotson 1975 and includes for example ritter 1984 beatty and ritter 1986 mcconnell and sanger 1987 and muscarella and vetsuypens 1989 the second is the literature dealing with the effects of differential information on the risk assessment of low information firms this second literature is exemplified by the work of klein and bawa 1976 1977 and barry and brown 1984 1985 in our examination we focus on how increased risk associated with low information firms henceforth called estimation risk manifests itself in observed return data we explore how observed security returns to low information firms appear to researchers in relation to how they appear ex ante to investors who base their predictive distribution of security returns on incomplete information about the parameters of the return generating process we also examine data on new listings and new issues to exemplify some of the relationships the data support the most obvious and direct implication of the differential information model that the expected systematic risk of low information firms decreases as time passes and information increases our evidence as in ibbotson that risk declines with seasoning rejects a restrictive null hypothesis that information risk is diversifiable and the under

exploring the heterogeneous effects of export promotion a semiparametric varying coefficient model is used to explore the heterogeneity in returns to export promotion across countries differences in characteristics of export promotion agencies drive the heterogeneity in returns interestingly characteristics that matter for export growth do not necessarily matter for gdp per capita growth a 1 percent increase in export promotion budgets is associated with an average increase in exports of 0 10 percent and an average increase in gdp per capita of 0 06 percent however these average returns hide a lot of heterogeneity returns in terms of exports vary from 0 percent in cyprus and vietnam to 0 22 percent in portugal returns in terms of gdp per capita show less heterogeneity varying from 0 05 in malawi to 0 10 percent in portugal and nicaragua

employment change in the small business sector evidence from five manufacturing industries this paper examines the scale and nature of employment flows into and out of the small business sector sbs in five united kingdom manufacturing industries over the period 1979 85 it first provides a taxonomic framework for analysing these flows it then draws on specially prepared analyses from the annual census of production acop for the uk to show that the sbs in each industry has experienced very substantial turbulence although the sbs across all five industries lost only four per cent of 1979 employment over the period movement in and out each represented about half of 1979 employment most gains and losses were in the very small size bands the paper also briefly explores the relationship between births and deaths and industrial characteristics across the five industries the study raises questions about the causes and costs of high turbulence in the sbs it also demonstrates the potential value of the acop data base for longitudinal studies of business in the uk 1

the mess of the public industrial production in austria a typical case of public sector inefficiency the economics of property rights the x efficiency approach the economic theory of bureaucracy the public choice theory and the findings about union controlled firms have been used to explain inefficiency in the public sector in general these approaches however have been rarely applied specifically to public industrial production in competitive markets with private goods characteristics in austria a sixth of the industrial production takes place in public enterprises until lately there were neither thorough audits nor strict efficiency controls by the government or administration for a long time the obvious inefficiencies were tolerated by the taxpayers the government and even by the opposition moreover in the austro keynesian era the public industrial firms were implicitly used for reaching the government s stabilization policy goals immediately this brought about big losses and created a heavy burden on the federal budget nonetheless the microeconomic consequences of this kind of austrian public industrial policy have not been analysed satisfyingly

using jump diffusion return models to measure differential information by firm size portfolios of stocks issued by small firms are well known to earn rates of return in excess of those commensurate with their market sensitivities one common explanation for this phenomenon is that small firm stocks are riskier than large firm stocks because less information is available about the former than about the latter a necessary condition for such an explanation to be valid is that the information effect not be eliminated by combining the individual stocks into portfolios this paper uses jump diffusion return models to gauge the impact of information by firm size the results show that portfolios of small firm stocks are no more prone to information surprises than are portfolios of large firm stocks however portfolios of small firm stocks are found to react more severely than portfolios of large firm stocks when surprises do occur

disentangling the effects of fair trade on the quality of malian cotton the increasing importance of premium segments and private labels raise skepticism about the ability of fair trade to help smallholders compete in high value added markets using panel data collected in mali this paper contributes to the debate by estimating the impact of fairtrade certification on the quality of malian cotton controlling for the nonrandom certification of producers results show a significant impact on the quality of cotton produced by both certified and geographically close noncertified growers via spillover effects the analysis suggests that contract farming enforced by third parties and demonstration effects foster the adoption of innovative agricultural practices

assessing the profitability of growth by acquisition a premium recapture approach abstract this paper makes a case that because of the large premiums paid over the last 20 years by companies undertaking growth by acquisition this growth probably has been unprofitable the case has three parts the first develops a model designed to show for any premium paid for any acquiree the performance improvement required to recapture this premium and create value for the acquiring company the second part reports the distribution of premiums paid for a large sample of acquirees and uses this model to determine the specific performance improvements necessary to bring about value creation for the new parents of the acquirees the third part uses historical rate of return data to show that for typical acquirees these improvements call for levels of performance that are difficult to attain and sustain in u s industrial markets

reply on comment to small firms and the merger mania research on performance differences between small and large firms is booming it emerges relatively separated from the mainstream industrial organization literature inspired by levy s comment on an earlier paper we try to bridge the gap between the two areas especially we screen non cooperative game theoretical models for predictions on performance differences most of them forecast higher profits for larger firms but there exist also some models which predict the opposite for very specific circumstances

introduction economic performance and small business this paper introduces the special issue of small business economics on performance the concept of economic performance refers to the degree to which society s resources are being used as efficiently as possible where the field of industrial organization has emphasized the influence of market concentration on economic performance the papers of this special issue zoom in on the link between firm size and economic performance

small firms business dynamics and differential development of economic well being in recent years a growing stream of research has examined the relationships between structural characteristics of regions and their levels of new firm formation this empirical study aims at supplementing such findings with analyses that include other forms of business dynamics and also the possible well being effects of such dynamics from a unique and comprehensive data set that tracks all births deaths expansions and contractions of commercial business establishments in sweden 1985 89 six groups of regions with different patterns of dynamics are extracted by means of cluster analysis the clusters structural characteristics and their development of economic well being are also compared the results suggesta that the patterns of business dynamics are contingent on the structural characteristics of regions b that high formation and turnover of establishments are associated with a relative increase in economic well being andc that small autonomous firms have a vital role in this process

differential information and security market equilibrium we propose a simple model of equilibrium asset pricing in which there are differences in the amounts of information available for developing inferences about the returns parame ters of alternative securities in contrast with earlier work we show that parameter uncer tainty or estimation risk can have an effect upon market equilibrium under reasonable conditions securities for which there is relatively little information are shown to have relatively higher systematic risk when that risk is properly measured ceteris paribus the initially very limited model is shown to be robust with respect to relaxation of a number of its principal assumptions we provide theoretical support for the empirical examination of at least three proxies for relative information period of listing number of security returns observations available and divergence of analyst opinion

strategies for cross national comparisons matching research issues and analysis objectives comparisons across different national economies can make a major contribution to understanding the role of entrepreneurial activity and new firm foundings in economic growth and change at least four cross national strategies are possible 1 direct comparisons 2 historical or time series correlations 3 comparison of cross market analyses or 4 comparison of cross regional analyses the distinctive value of cross regional analyses is considered and illustrated with a comparison of the effects of manufacturing births on economic growth in the u s and japan

plant size and industry mix effects on uk regional productivity wage costs and operating surplus roper s 1998 plant size and industry mix effects on uk regional productivity wage costs and operating surplus reg studies 32 325 332 the ability of a region to create wealth depends both on the competitiveness of its individual firms and its industrial structure this paper examines the effect of industry mix and plant size structure on the wealth generating capacity of the uk regions from 1980 91 reflecting the findings of similar us studies the analysis suggests that in general uk regions structural disadvantages act to reinforce rather than counter plant level productivity wage cost and operating surplus profitability differentials thus lagging regions face a three fold disadvantage poorly performing plants disadvantageous industry mix and plant size structure this suggests a need for a strategic approach to policy which must aim to counter regions structural disadvantages as well as to improve the competitiveness of existing plants roper s 1998 les effets de la taille des et

corporate takeovers the efficiency arguments in recent years the tender offer takeover has been praised and damned with a ferocity suggesting that the survival of capitalism is at stake the truth as in most disputes with substantial metaphysical content is more prosaic some takeovers enhance economic efficiency some degrade it and the balance of effects though not fully known is most likely a close one in this essay i try to lay bare the debate s foundations and bring it back to earth with an injection of evidence

small firm entry in us manufacturing a cross section empirical analysis examining the entry behavior of small firms is provided in this paper while the authors find that certain traditional market structure characteristics and entry barriers have a strong impact on small firm entry behavior the reliance upon innovative strategy by small firms also explains a significant amount of the variation in the pattern of entry by small firms they conclude that small firm entry is at least partially determined by entry barriers industry specific characteristics facilitating retaliatory conduct by incumbent firms and the reliance upon innovative strategy by small firms copyright 1989 by the london school of economics and political science

does aid for trade enhance export performance investigating on the infrastructure channel today there are few empirical studies assessing the effectiveness of aid for trade on trade pe rformance furthermore existing works do not test channels by which this impact is transiting we address this question using an empirical analysis constructed in two steps following a model of export performance we first test if institutions and infrastructure our two potential channels of transmission are indeed determinants of export performance secondly we test the impact of aid for trade sectoral flows on the determinants that were highlighted in the first part we show that the infrastructure channel appears to be highly significant in the first step whereas the institutional one turns out to have limited impact on developing countries exports furthermore in our second step aid for infrastructure seems once instrumented to have a strong and positive impact on the infrastructure level our results indicate that a 10 increase in aid to infrastructure commitments per capita leads to an average increase of the exports over gdp ratio for a developing country of 2 34 it is also equivalent to a 2 71 reduction of the tariff and non tariff barriers this highlights the very high economic impact of aid for trade throughout the channel of infrastructures

efficiency and profitability an inverse relationship according to the size of austrian firm this paper tries to shed some light on the austrian situation of the efficiency of firms according to their size class for total austria we find that large firms seem to be more efficient with respect to value added per employee but small firms are more efficient with respect to the gross residual quota and to profitability value added wages value added on the other side a similar analysis for upper austria does not show this result here firms with the size of 500 employees or more seem to be the most efficient with respect to efficiency and profitability and only the employment cost efficiency criteria reveals the picture the smaller the firm the more cost effective it seems to be hence the result obtained from most studies in europe that at least the biggest firms are not the most efficient can only be confirmed to a limited extent for upper austria

evidence of creative destruction in the u s economy schumpeter discusses the importance of innovation and new firm entry in a capitalistic economy as a means to creatively destruct oligopolies and generate new economic wealth he warns of rd schumpeter feared the obsolescence of entrepreneurship would result in an increasing concentration of wealth among large corporations and toward socialism

assessing the impact of oil prices on firms of different sizes its tough being in the middle recent empirical research has found evidence of a relationship between oil price movements and stock prices most published research investigates the relationship between oil price movements and stock prices using either economy wide measures of stock prices or industry sector measures of stock prices an important question that has largely gone unanswered relates to the relationship between oil prices and stock prices when the size of firms is allowed to vary relative to large firms do oil price movements have larger or smaller impacts on the stock prices of small or medium sized firms the answer to this question could have important policy implications that affect economic growth and prosperity in this paper a panel of firms is followed over a 17 year period to investigate the relationship between oil price movements firm size and stock prices evidence is found that shows the relationship between oil price movements and stock prices does vary with firm size and the relationship is strongest for medium sized firms

california s exports and the 2004 overseas office closures i introduction nearly all states in the united states fund export promotion programs such as overseas offices state officials often justify using tax dollars on overseas offices by claiming that the offices help small and medium sized firms initiate or increase exports if overseas offices work as justified then the state s aggregate exports to countries with an overseas office will be greater than if the offices did not exist despite the general willingness of state governments to fund overseas offices 40 states had at least one in 2002 their effectiveness is unknown although debated measuring the success of an overseas office is difficult because of a causality problem if states that are good exporters use overseas offices because they are already good exporters then the ordinary least squares regression estimate on the impact of the offices is upwardly biased this bias potentially causes false positives on their statistical significance early twenty first century california provides a work around to the causality problem california operated 12 overseas trade offices at an annual cost of 6 million it closed all of its offices on january 1 2004 primarily because of a 2003 state budgetary shortfall of 40 billion that forced reductions in many state programs the budget of the entire economic development agency housing the overseas offices was eliminated furthermore there was a perception that the overseas offices were ineffective after a may 2003 expose by kindy 2003a b reported a lack of oversight and false claims by the offices although no citations for wrongdoing were issued this expose damaged the public reputation of the offices as of this writing none of the offices have re opened the closure of california s 12 offices provides an opportunity for a direct estimate of their impact on california s exports because the decision to close the offices was as a result of the 2003 budget crisis an exogenous intervention this exogenous intervention allows for an unbiased test to determine if the difference in exports from california to the set of countries with trade offices is equal to the difference in exports to a set of countries without an overseas office before and after the january 1 2004 closures if there is no statistically significant difference in exports before and after the office closures compared to those where no office existed then it cannot be the case that the overseas offices made an impact on state exports distinguishable from random events this differences in differences methodology is standard it is the unique circumstance of the california budget crisis that is key because of its exogeneity to the office export relationship applying the differences in differences estimator to a sample of 44 countries 12 with overseas offices over 8 years yields a point estimate suggesting if the offices had not closed california s exports to those countries would have been 2 3 larger in the best case scenario this estimate although economically reasonable is not statistically different from zero under a battery of alternative specifications and robustness checks there is no statistically relevant impact of overseas offices on california s exports to those countries during the 1980s and early 1990s international business and marketing scholars studied the effectiveness of export promotion programs including overseas offices the resulting literature largely based on surveys and interviews with export promotion participants does not reach a consensus wilkinson and brouthers 2000 provide a succinct review of these early studies in addition to their own mixed findings using data from 1990 more recently wilkinson keillor and d amico 2005 examined a cross section of u s state export program expenditures and manufacturing exports they find a positive correlation but they do not control for state or country features

institutional investment mergers and the market for corporate control the increasing importance of institutional investors as shareholders in individual companies has led to an important debate on their impact on corporate performance in this paper we focus on their role in the market for corporate control this has so far been the subject of very little systematic investigation despite its theoretical and practical significance we consider the impact of financial institutions using two u k merger samples and employing both univariate and multivariate techniques of analysis in the first sample drawn from the low merger period 1981 1983 pre and post merger differences are found between merging companies with and without a significant institutional presence however in the takeover boom year of 1986 from which the second sample is drawn all such distinctions become blurred

explaining differences in productive efficiency an application to belgian municipalities the purpose of this paper is to measure and explain variations in productive efficiency of municipal governments in belgium technical efficiency is evaluated using a non parametric method based on the free disposal hull fdh reference technology we first calculate input output and graph farrell efficiency measures for a cross section of all 589 belgian municipalities in a second stage of the analysis we explain the calculated differences in efficiency in terms of variables related to the structural characteristics of municipalities and to the institutional environment

firm dynamics and industrialization in the chinese economy in transition implications for small business policy abstract this article first presents a review of the development of different types of domestic enterprises state owned enterprise soes collectiveowned enterprises coes and other enterprises oes which include mainly private enterprises compared with other transition economies coes are actually an important source of china s rapid economic growth they are vaguely defined cooperative without a well defined ownership structure there is no equivalent organizational structure similar to coes in western economies the purpose of this article is to study the empirical relationship between the size of domestic enterprises including state owned enterprises collective owned enterprises and other enterprises and their firm dynamics growth by investigating whether they grow according to gibrat s law the majority of coes and oes were formed after the economic reform the rapid growth of these non state enterprises especially coes is actually the driving force behind the rapid development of the industrial sector our empirical results suggest that gibrat s law does not hold for all types of enterprises the rejection is especially strong for coes moreover small enterprises are growing faster than their larger counterparts in terms of employment and output this conclusion leads to at least three implications 1 there has been little research into the dynamics of soes and coes in an economy in transition our results not only help stimulate further research in this area but also provide information for designing policies to speed up the economic reforms 2 until now the chinese government has not had a comprehensive small business policy given our empirical results there is an implication for government policy prescription to achieve china s development targets of rapid industrialization and lower unemployment or underemployment the chinese economy can reap more dynamic benefits by breaking up a giant and inefficient enterprise especially inefficient soe into a number of smaller enterprises in addition more small enterprises also improve competition in the marketplace and force other inefficient soes to improve their performance further research should be undertaken to examine the viability of this policy 3 because coes are the majority of small manufacturing enterprises the rapid growth of coes after their formation that are simply the opposite of the type of private organizations the center of the central and east european reforms is rather surprising to academics although some hypotheses like cooperative culture and moral framework for rights are put forward to explain their superior performance the validity of such hypotheses has not been empirically tested yet this is a fruitful area for further research

firm size distribution and price cost margins in dutch manufacturing industrial economists surmise a relation be tween the size distribution of firms and performance usually attention is focused on the high end of the size distribution the widely used four firm seller concentration ratio c4 ignores what happens at the low end of the size distribution we investigate to what extent the level and the growth of small business presence influence price cost margins in dutch manufacturing we use a large data set of 66 industries for a thirteen year period this allows the investigation of both small business influences within a framework in which that of many other market structure variables is also studied evi dence is shown that price cost margins are influenced by large firm dominance growth in small business presence capital intensity business cycle international trade and buyer con centration

comment on small firms and merger mania considering its importance to the field of industrial organization our understanding of the determinants of firm size has some major gaps this becomes quite clear upon reading aiginger and tichy s recent review hereafter a t 1991 of the many empirical studies of firm size they critically examine the separate literatures on the performance of large and small firms and on the efficiency of mergers they find inconsistencies within each of these literatures more interesting they discuss a glaring inconsistency between the evidence in the literature and actual behavior while much of the performance literature indicates that small firms have average or superior performance large firms typically takeover smaller firms efficiency and survival would seem to dictate against this merger mania a t provide a number of interesting insights they offer six hypotheses on why small firms might outperform large firms and challenge the industrial organization view that economies of scale and scope require large firm size they stop short however of arguing that large firms are inefficient recognizing that they may simply perform different roles than small firms their discussion or mergers is more critical of large firms while they do not entirely dismiss the possibility that mergers may yield efficiencies they offer six alternative hypotheses they suggest that mergers tend to r ieci tnance stotiniaierormanagenteili optimism nonprofit maximizing behavior and other unproductive tendencies this comment focuses on the role of firmspecific capital product life cycles and product niches the relative performance of large vs small firms is reconsidered in this light followed by an examination of the merger literature and the practice of takeovers by large firms large firms are viewed less skeptically here than by a t nevertheless the purpose of this note is less to challenge a t than to elaborate on some of their points and suggest additional possibilities the questions raised by a t are central to the field of industrial organization and worthy of further attention