high risk low return and vice versa the effect of product innovation on firm performance in a transition economy common wisdom suggests that high risk strategies will be associated with high expected returns and vice versa focusing on the effect of new product development on firm performance in this paper

basic goods the effects of commodity transfers and the international economic order comment abstract graciela chichilnisky has used a two good three income group general equilibrium model of the world economy to study the welfare effects of aid we show that one of her two theorems is wrong and that after this one is corrected both can be generalized

business group affiliation and firm search behavior in india responsiveness and focus of attention this paper investigates the effects of organizational form on problemistic search we contrast how indian firms affiliated with business groups and unaffiliated firms evaluate performance and react by adjusting their internal technology search and external market search we propose that compared with unaffiliated firms business group affiliated bg affiliated firms are more externally oriented in setting aspiration levels and more likely to respond to low performance in the market domain we find support for an external orientation of bg affiliated firms and find that group affiliation determines the responsiveness to performance feedback in different search domains the findings suggest a need to add considerations of organizational form and governance to the theory of organizational search

commodity transfers and the international economic order a comment abstract graciela chichilnisky has recently examined the transfer problem in a free trade model with three income groups she argues that a transfer of endowments from a high income group in the north to the south will have such an adverse effect on the latter s terms of trade that it will end up worse off after the transfer and this holds in a stable market this note elaborates on chichilnisky s model and identifies necessary and sufficient conditions for her result it is claimed that the result derives from implicit and implausible restrictions on the trading behaviour of the low income group in the north

a behavioral theory of r d expenditures and innovations evidence from shipbuilding i base an integrated model of innovation development and launch on the behavioral theory of the firm this model specifies that research and development expenses are increased when low performance causes problemistic search and when excess resources cause slack search innovations generated by search are launched if low performance gives managers high risk tolerance using data from shipbuilding firms i show that high performance reduces r d intensity and innovation launches and high slack increases r d intensity as predicted

supply chain integration and national collectivism abstract integration at an intra organizational and supply chain sc level has been well studied to determine its benefits and drawbacks the foundation of these studies is their assumption that managers choose integration based on economic considerations following the behavioral theory of the firm btf strategic decisions are not always based on economics but are subject to the usual phenomena associated with aspirational levels in this respect the potential influence and consequences of national culture building aspiration levels on the integration choice of decisionmakers remain unrecognized this study researches the relationship between national collectivism values and the observed internal and external sc integration sci of companies we postulate that national collectivism values generate an aspirational need that moves integration as a potential choice to satisfy this need more into decisionmakers focus we explore the influence of two dimensions of a national culture of collectivism values in group and institutional on decisionmakers choice of higher or lower degrees of plant level integration in addition we explore the operational performance efficacy of firms integration practices we combine data from two multi country datasets using mixed effect models to analyze data from seven countries the results indicate national collectivism values are positively related with plant level use of internal but not of external sci furthermore sci is positively related to operational performance the study supports and extends btf it supports the assumption of behavioral forces in modern firms decision making and adds national culture as an external force to the theory

accounting for retail land sales analysis of a mandated change abstract this study assesses the stock market s reaction to a series of events leading up to a mandated change in accounting for retail land sales evidence is found to support the conclusion that the market reacted to some of these events in a manner consistent with the effects of the accounting change on debt annagement contracts a distinctive aspect of the analysis is the efficient use of security returns data to detect market reactions and to derive empirical distributions of test statistics employed the analysis is extended by a model for grouping regression equations known as seemingly unrelated regressions however the gains from this extension are modest

variable risk preferences in new firm growth and survival we outline and test a decision making theory of new venture growth and survival building upon research in entrepreneurship and decision making under risk we hypothesize that entrepreneurs attention to survival and aspiration reference points changes based on venture age experience based learning size differences in decision complexity and performance decision domain examining a panel of 14 760 new ventures in the professional services sector our findings show how risk preferences change as a venture ages and increases in size this approach offers a more nuanced view of decision making under risk and provides a theoretical explanation for the common patterns of new ventures probability of exit and growth diminishing with age and size

variations in r d investments of family and nonfamily firms behavioral agency and myopic loss aversion perspectives the behavioral agency model suggests that to preserve socioemotional wealth loss averse family firms usually invest less in r d than nonfamily firms however behavioral agency model predictions a

a positive theory of environmental quality regulation this paper demonstrates that environmental quality regulation may enhance producer wealth while simultaneously reducing an externality problem by restricting access to common property regulation not only corrects a resource misallocation but it creates a scarcity rent as well in the recent history of environmental quality the common access problem has been addressed by federal and state agencies through a standards based approach rather than through the enforcement of tradable property rights as a consequence rents from the right to use these assets have accrued to producers the data are convincing that there is a strong interplay between producers consumers and the victims of pollution each party has some influence on the outcome and one sided analysis neglects many important aspects of regulation environmental quality regulation is complicated but many of the observed perplexities are consistent with a rent seeking self interest theory of government 46 references 1 figure 7 tables

consistent estimation of cross sectional models in event studies event studies often include cross sectional regressions of announcement effects on exogenous variables if the event is voluntary and investors are rational then standard ols and gls estimators are inconsistent consistent ml estimators are constructed for a cross sectional model of horizontal mergers relating announcement effects to exgeneous characteristics of firms and industries the ols and ml estimates differ dramatically for bidders but not for targets the evidence suggests that managers of bidders but not targets have valuable private information about the potential synergies from proposed mergers article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

oil shocks and oil stocks evidence from the 1970s the present paper examines the returns to 29 oil companies listed on the new york stock exchange during the period surrounding the oil shock of 1973 the returns are decomposed into production refining foreign and domestic operations the hypothesis that domestic price controls benefitted refiners is tested finally the hypothesis that oil price risk was priced in the sense of the arbitrage pricing theory is tested

competitive threats constraint and contagion in the multiunit firm do unexpected events experienced by one line of business adversely affect other lines of business in diversified firms we use fine grained data on the film industry in the united states to show that such contagion frequently occurs when a distributor opens a film in theaters and concurrently releases an older title to home video being exposed to a competitive threat a period of unexpected volatility in the theatrical market at the time of a film opening leads the distributor to suffer a loss in sales on the concurrent home video release further analysis revealed that managers responded to these competitive threats by intensifying the advertising and promotion of their films in theaters suggesting that they diverted resources and attention away from home video our results therefore suggest that the effects of unexpected events do spread across lines of businesses within firms and consequently that resource constraints may limit the ability of firms to engage effectively in multiple markets

capital gains tax and equity values empirical test of stock price reaction to the introduction and reduction of capital gains tax exemption abstract this paper evaluates the differential effect on stock prices of the introduction in canada of 500 000 capital gains tax exemption and the reduction of this limit to 100 000 two years later using the seemingly unrelated regression methodology and controlling for thin trading and heteroscedasticity the empirical evidence indicates that the changes in capital gains tax laws had a differential effect on low dividend yield and high dividend yield stocks on both occasions while the evidence indicates that the stock market anticipated the 1985 capital gains tax law changes the significant market reaction to the 1987 reduction of the exemption occurred a day before and after the reading of the tax reform proposals in parliament thus it can be inferred from the results that despite the presence of tax sheltering opportunities in canada changes in capital gains tax laws affect equity values

the possibility of recipient harming donor benefiting transfers with more than two countries the possibility of a commodity transfer among nations which simultaneously benefits the donor and harms the recipient is examined an example of a three country exchange economy is presented where a transfer may be made which gives the counter intuitive result the result is then explained

back to basics behavioral theory and internationalization international business ib scholars over reliance on a select few theories leaves our understanding of firm internationalization incomplete the behavioral theory of the firm btf can offer new insights and can be used to model a broad range of firm actions we focus on the three basic btf components problemistic search learning by doing and vicarious learning these components help us understand why firm behaviors are more dynamic and heterogeneous than other theories allow btf with its emphasis on how firms assess performance according to aspiration levels selectively learn and update routines and selectively incorporate the learning of others is better suited to examine the diversity and change increasingly observed in internationalization decisions we explain why scholars should move beyond dynamizing static theories and show btf s applicability to behaviors involving change such as multi mode market entries and market re entries btf also helps examine the decision to internationalize in the first place nascent firm internationalization location choices international market adaptation and headquarter subsidiary relationships we encourage ib scholars to use theories that can handle the complexity increasingly associated with modern firm growth and propose btf as a promising starting point

the effect of standardized information on firm survival and marketing strategies we argue that standardized information disclosure information using a common format and uniform metrics creates asymmetric opportunities for firms which affects their strategies and survival we test our predictions using a longitudinal quasi experimental field study involving the nutrition labeling and education act of 1990 nlea and we focus on firm market share within a category as a key asymmetry findings indicate that in general the nlea had no effect on firm responses however when accounting for firm differences we observe that the nlea led to 1 an increase in small share firm exits and 2 a greater increase in distribution for large share firms no concurrent increase in price by large share firms following the nlea was observed we conclude by discussing the implications of these effects for firm strategy the design of public policy and theories regarding the impact of information on markets

investment in technological innovations an option pricing approach abstract this paper develops a model of the optimal investment strategy for a firm confronted with a sequence of technological innovations we incorporate many of the most important characteristics of real world technology markets for example we permit innovations to be stochastic in their arrival times and their profitability we also incorporate learning so that firms adopting current innovations become better able to benefit from future innovations the model yields four distinct investment strategies the model is then used to predict actual firm policy these implications are discussed and compared with observed firm behavior

george stigler s contribution to the economic analysis of regulation george stigler changed the way economists analyze government regulation this enormous legacy is essentially embodied in two articles his 1962 analysis of electricity rates with claire friedland and his 1971 theoretical piece there were to be sure precursors and successors in his own work but none of them so profoundly affected the course of intellectual inquiry as these two the importance of both articles rests more i believe with the questions each posed than with the answers even by the standards of the day neither piece evinced the sort of technical sophistication that the profession has come to admire neither produced conclusions that were impervious to all serious subsequent challenges but both produced insights that have altered the course of research in the area to this day to understand stigler s contribution it is best to proceed chronologically and to begin with the state of the field around 1962 there is room here only for caricature rather than extensive survey however i think it is fair to say that the field derived its main energy from the normative economics of marginal cost pricing the proper role of government was to correct the private market failures that prevented attainment of marginal cost pricing applied economic analysis of regulation was then largely descriptive and its main tendency was to show how the regulatory institutions constrained departures from marginal cost pricing monopoly was viewed as the main barrier to marginal cost pricing and the natural monopoly occupied center stage in the economics of regulation the prime examples of natural monopoly were sup1 man made monopolies were the main subject matter of industrial organization stigler s profound influence on this field is summarized by harold demsetz s article in this issue

the temporal trajectories of innovative search insights from public hospital services abstract this article explores the temporal trajectories of innovative search drawing on conceptual ideas from the behavioural theory of the firm it proposes that the level of temporal persistence in organisations innovative search activities is affected by four key factors these include i the mode of innovative search as well as organisations ii strategic aspirations iii slack resources and iv performance feedback this conceptual model is tested in the context of public hospital services in england results from dynamic panel data analyses reveal stronger temporal persistence in science than in practice based innovative search activities findings also suggest that specialist hospitals relying on a continuous stream of new products services and processes to meet their strategic aspirations are better positioned to sustain science based innovative search activities than their generalist counterparts similarly results uncover a positive association between the availability of financial slack and hospitals ability to continuously engage in superior levels of science based innovative search contrary to theoretical expectations however positive performance feedback does not appear to have any persistence enhancing effect

organizational inertia and momentum a dynamic model of strategic change this study provides an empirical test of hannan and freeman s theory of structural inertia we examined the changes organizations undertook in response to a major environmental change in addition

keep searching and you ll find what do we know about variety creation through firms search activities for innovation this article critically reviews and synthesizes the contributions found in theoretical and empirical studies of firm level innovation search processes it explores the advantages and disadvantages of local and non local search discusses organizational responses and identifies potential exogenous triggers for different kinds of search it argues that the initial focus on local search was a consequence in part of the attention in evolutionary economics to path dependent behavior but that as localized behavior was increasingly accepted as the standard mode studies began to question whether local search was the best solution in all cases more recently the literature has focused on the trade offs being created by firms having to balance local and non local search we account also for the apparent variety paradox in the stylized fact that organizations within the same industry tend to follow different search strategies but end up with very similar technological profiles in fast growing technologies the article concludes by highlighting what we have learnt from the literature and suggesting some new avenues for research

does being r d intensive still discourage outsourcing evidence from dutch manufacturing being r d intensive has traditionally been seen as an impediment to outsourcing this study confirms that empirically this was the case for a set of manufacturing industries in the netherlands in the early 1990s but also shows that r d intensity became a positive predictor for changes in outsourcing levels over the 1990s suggesting firms in r d intensive industries have increasingly started to rely on partnership relations with outside suppliers this confirms the need to move the analysis from scale opportunism and appropriation concerns to a relational perspective when studying outsourcing in r d intensive industries

state regulation of takeovers and shareholder wealth the case of new york s 1985 takeover statutes past studies of takeover regulations have found that such rules increase the premiums paid to the shareholders of successfully acquired targets jarrell and bradley argue that these higher premiums harm shareholders by discouraging takeover activity and protecting inefficient managers bebchuk argues that the higher premiums do not significantly reduce the number of takeovers so that shareholders benefit on average from the higher premiums paid in successful acquisitions this article uses the event study method to measure the net effect of two takeover statutes passed by the new york state legislature in 1985 the results support the conclusion of jarrell and bradley that despite the higher premiums paid to successfully acquired target shareholders ex post these laws on average harm shareholders ex ante

agency models in different stages of ceo tenure the effects of stock options and board independence on r d investment this study examines how r d investment is shaped by governance devices combining the two agency models of limited competence and managerial opportunism it suggests that governance devices exert differing effects in early vs later stages of ceo tenure early in ceo tenure r d investment is reduced by stock options and board independence whereas in later stages these effects reverse r d investment is enhanced by stock options and board independence an empirical test on a sample of u s companies provides support for the hypothesized effects for policy makers this study implies that r d investment can be enhanced by setting rules and standards of good governance that take into account ceo time in office and firm context

a failure inducement model of research and development expenditure abstract empirical evidence for the schumpeterian suggestion of a positive relationship between profitability and innovative effort is slim in fact the opposite is often suggested an alternative failure inducement hypothesis argues that firms make innovative efforts when performance falls below a minimum threshold resulting in a negative relationship between profitability and r d expenditures data on r d expenditures in italian industry in the early 1980s a period of severe economic crisis show that both hypotheses are relevant for firms whose profits are well above or well below average respectively

corporate social strategy competing views from two theories of the firm this paper compares two theories of the firm used to interpret firms corporate social strategies in order to derive new insights and questions in this research area researchers from many branches of strategic management agree that firms can strategically allocate resources in order to achieve both long term social objectives and competitive advantage however despite some progress in investigating corporate social strategy studies rely on fundamentally diverging theoretical approaches this paper will identify compare and begin to integrate two competing theories of the firm implicit in corporate social strategy scholarship the resource based and behavioural theories of the firm i discuss the implications of these two theories for both researchers and practitioners on key debates within corporate social strategy and conclude by suggesting several fruitful avenues for future research based on the emerging integration of these two theories of the firm within the strategy literature

know how and asset complementarity and dynamic capability accumulation the case of r d dynamic capabilities enable firms to create new products and processes and respond to changing market conditions this empirical investigation of dynamic r d capabilities deals with the role of complementary know how and other assets in the context of changing conditions in the u s petroleum industry during the 1970s and early 1980s the analysis suggests that in response to rising oil prices firms with larger amounts of complementary technological knowledge and physical assets also undertook larger amounts of r d on coal conversion a synthetic fuels process 1997 by john wiley sons ltd

doing more with less innovation input and output in family firms family firms are often portrayed as an important yet conservative form of organization that is reluctant to invest in innovation however simultaneously evidence has shown that family firms are flourishing and in fact constitute many of the world s most innovative firms our study contributes to disentangling this puzzling effect we argue that family firms owing to the family s high level of control over the firm wealth concentration and importance of nonfinancial goals invest less in innovation but have an increased conversion rate of innovation input into output and ultimately a higher innovation output than nonfamily firms empirical evidence from a meta analysis based on 108 primary studies from 42 countries supports our hypotheses we further argue and empirically show that the observed effects are even stronger when the ceo of the family firm is a later generation family member however when the ceo of the family firm is the firm s founder innovation input is higher and contrary to our initial expectations innovation output is lower than that in other firms we further show that the family firm innovation input output relationships depend on country level factors namely the level of minority shareholder protection and the education level of the workforce in the country

network centrality and organizational aspirations a behavioral interaction in the context of international strategic alliances the authors wish to acknowledge the financial support provided by the spanish ministry of science and education under projects eco2013 48496 c4 2 r eco2013 48496 c4 4 r and eco2017 48496 c4 4 r

an examination of the impact of the garn st germain depository institutions act of 1982 on commercial banks and savings and loans this paper evaluates the effects of events leading to the passage of the garn st germain depository institutions act of 1982 the evidence suggests that the call for reform by president reagan s housing commission and the senate passage of the bill produced positive abnormal returns to stockholders of large savings and loans and commercial banks stockholders of small s ls and banks on the other hand generally experienced negative abnormal returns furthermore when hopes of passage of the act faded significant negative positive abnormal returns were experienced by stockholders of large small s ls and banks this study examines the impact of the passage of the garn st germain depository institutions gsgdi act of 1982 on commercial bank and savings and loan stockholder returns the gsgdi act represents one of two major revisions of the financial system over the last twenty years the other being the depository institutions deregulation and monetary control act of 19801 the proposal for such a change reflected the growing inadequacy of the regulatory structure of financial institutions to adapt to rapid changes in technology shifting consumer demands for financial services and extremely volatile interest rates efforts to reform the financial system resulted in passage of the gsgdi act of 1982 which included provisions seeking to improve both the implementation of monetary policy and the degree of equity in the regulation of financial institutions such improvements were intended to reduce the operational and financial risk of financial institutions a central issue in the economics of regulation is whether regulatory actions benefit the economic agents they are intended to benefit a large body of literature exists which examines the economic effects of regulation much of this literature has utilized the concepts and methods of welfare economics to assess the extent

an analysis of the impact of deposit rate ceilings on the market values of thrift institutions this paper examines the impact of changes in deposit interest rate regulations on the common stock values of savings and loan institutions the analysis indicates that stockholder owned savings and loans s l s have experienced statistically significant declines in equity market values at the announcement of the removal of ceilings on certain consumer small saver certificate accounts and the introduction of short term variable rate money market certificates we find the evidence to be consistent with the hypothesis that s l s have earned economic rents from restrictions on interest rates paid to small saver accounts and that relaxation of interest rate ceilings has reduced these rents a central issue in the economics of regulation is whether regulators behave in a way that primarily benefits the economic agents whose actions they are supposed to regulate the proposition that regulation is demanded and acquired by the regulated and that regulations are designed and administered primarily for their benefit was originally put forth by stigler 19 and has come to be known as the capture theory of regulation an alternative view is that regulators adopt policies which serve some other perhaps public or possibly the regulators own interest and that administration of these policies does not benefit the regulated entities this paper examines the regulation of savings and loan associations deposit interest rates and reports evidence pertaining to the impact of the administration of regulation regulation of interest rates paid to depositors in federally insured savings and loan associations began in 1966 since that time several changes in the maximum allowed interest rates deposit rate ceilings have been made these changes present an opportunity to observe the impact of one form of regulatory action on savings and loan institutions deposit rate regulation has been the subject of extensive previous research the empirical investigations have focused primarily on two issues 1 the allocational efficiency and wealth redistribution effects of rate ceilings and 2 the impact of deposit rate ceilings on the flow of funds into the residential

japan s shift from process to product patents in the pharmaceutical industry an event study of the impact on japanese firms in 1975 japan expanded the scope of its patent law by introducing product patents for newly developed chemical and pharmaceutical products we use rate of return data from the tokyo stock exchange for japanese pharmaceutical companies to examine the impact of the change in the patent law our empirical findings indicate that the passage of the new patent law induced an excess return of approximately 26 percent to a portfolio of large pharmaceutical companies companies with r d programs specializing in new product development experienced large gains while companies with r d programs specializing in imitative process patents experienced no gains

the economic incidence of the interstate commerce act of 1887 a theoretical and empirical analysis of the short haul pricing constraint the public and private interest hypotheses permeate contemporary regulatory analyses both theories are used to explain the inception of the first major federal regulatory agency the interstate commerce commission icc according to the public and private interest hypotheses the regulations promulgated by the icc benefited either railroads or shippers this paper presents an alternative view consistent with the multiple interest theory of regulation it is demonstrated that the major regulatory instrument of the icc the short haul pricing constraint shpc altered the equilibria of railroad markets in a way which benefitted the class of shippers short haul shippers facing monopolistic railroad markets the shpc also benefitted some railroads by increasing the correspondence between unregulated cooperative and regulated noncooperative levels of long haul shipments the proposition that the icc benefited short haul shippers and railroads is supported by an empirical analysis of the effects of the inception of federal regulation and implementation of the shpc on stock prices the results of the paper indicate that the public and private interest interpretations of the icc are neither contradictory nor complete but instead are complementary a theoretical and empirical analysis of the chief regulatory mechanism of the icc provides this synthesis

the transfer problem with three agents once again characterization uniqueness and stability abstract an earlier paper in this journal chichilnisky 1980 gave for the first time sufficient conditions for the transfer paradox to occur in 3 agent economies with stable markets this paper comments on several other papers written about these results and extends the results further here we give necessary as well as sufficient conditions for the transfer problem to occur in an economy with three agents at a unique and walrasian stable equilibrium

stock price reaction and value relevance of recognition versus disclosure the case of stock based compensation this study examines the equity price reaction to the pronouncements related to accounting for stock based compensation and assesses the value relevance of recognition versus disclosure in financial reporting we document that firms exhibit significant abnormal returns around the issuance of the exposure drafts proposing to require recognition of stock based compensation costs and also around the event reversing that decision to require disclosure only while encouraging recognition we also document that the abnormal returns are most pronounced for high tech high growth and start up firms our results are consistent with the contracting theory and show that disclosure is not a substitute for recognition r 2002 elsevier science b v all rights reserved

toward an aspiration level theory of open innovation although open innovation has become increasingly established in the management literature comprehensive theoretical explanations of what drives firms to be open are sparse taking the perspective of the behavioral theory of the firm we conceive of open innovation as a form of nonlocal search arguing that firms will turn to open innovation when substantially under or over performing relative to their aspirations we further enquire how this relationship is moderated by firm specific innovation related resources human capital research and development investment and patents employing a representative survey of uk firms we find some evidence of moderation allowing us to present explanations of search through open innovation and contribute to the behavioral theory of the firm itself

customer power strategic investment and the failure of leading firms why might firms be regarded as astutely managed at one point yet subsequently lose their positions of industry leadership when faced with technological change we present a model grounded in a study of the world disk drive industry that charts the process through which the demands of a firm s customers shape the allocation of resources in technological innovation a model that links theories of resource dependence and resource allocation we show that established firms led the industry in developing technologies of every sort even radical ones whenever the technologies addressed existing customers needs the same firms failed to develop simpler technologies that initially were only useful in emerging markets because impetus coalesces behind and resources are allocated to programs targeting powerful customers projects targeted at technologies for which no customers yet exist languish for lack of impetus and resources because the rate of technical progress can exceed the performance demanded in a market technologies which initially can only be used in emerging markets later can invade mainstream ones carrying entrant firms to victory over established companies

the relationship between federal contract r d and company r d according to recent estimates federal budget outlays for research and development rd this component will rise 28 percent and absorb 70 percent of all federal r d spending in 1984 compared to under 50 percent in 1980 since work corresponding to about one half of the dollar value of the federal r d program is generally performed by private industrial firms under contract with federal agencies the rapid increase in federal r d outlays will presumably be reflected in a similar increase in the value of commitments by industrial firms to perform government r d one of the most important economic questions posed by the large prospective increase in resources allocated to federal contract r d concerns its consequences for the economy s rate of technical progress of productivity growth in the next section i argue that the ultimate impact on productivity depends on how company decisions to finance r d are affected by the availability of federal contract r d funds i then provide a brief review and critique of previous studies of the relationship between companyand federalfinanced r d performed in industry and present new estimates which differ from existing ones with respect to both methodology and implications these estimates are consistent with the hypothesis that increases in federal r d activity tend to be associated with significant reductions in companyfinanced r d a number of studies have attempted to determine the ceteris paribus effects of company and federal r d on the rate of productivity growth p by estimating variants of the equation

performance feedback and firm risk taking the moderating effects of ceo and outside director stock options we contribute to the behavioral theory of the firm and the behavioral agency model by developing a theoretical framework that predicts the differential interaction effects of performance feedback and values of stock option grants of multiple agents on firm risk taking we explain how chief executive officers ceos versus outside directors awarded with stock option grants perceive negative or positive deviations from prior performance we argue that in a negative attainment discrepancy context high values of option grants will increase the risk aversion of ceos who already bear excessive employment and compensation risks resulting in less risk taking however it will enhance the risk taking propensity of influential outside directors who increase monitoring and support for risky projects because their risk preferences are better aligned with those of shareholders in a positive attainment discrepancy context high values of option grants will amplify risk aversion in both ceos and outside directors who

leviathan as an inventor an extended agency model of state owned versus private firm invention in emerging and developed economies we examine the relative merits of state soe and private poe ownership on firm invention output in emerging as well as developed economies firm soe affords a vehicle by which governments throughout the world encourage risky investment in new technological paths yet from a traditional agency theoretical standpoint soes are plagued by low powered incentives and dysfunctional involvement e g wasteful budgets and political meddling which reduces soe performance relative to poes to examine this paradox we build an extended agency model which rather than overlooking agency cost drivers entertains a more balanced view in which these so called agency liabilities in fact benefit soes particularly in the sphere of inventions we argue that given relatively higher levels of managerial autonomy soes may outperform poes in some types of inventive output we further propose that key boundary conditions operate to modify this base effect in that contexts lacking political constraints a condition found in most emerging economies increase the risk of political meddling reducing managerial autonomy so that any soe inventive advantages wane significantly we also hypothesize that this negative effect of weak institutions is attenuated in high invention productivity sectors empirically we track the frequency pioneerism and impact of patent inventions of 521 soes and matched poes for 16 years across 43 countries and 22 industries we find empirical support for our hypotheses based on a robust set of fixed effects regression analyses aided by a battery of checks to assess self selection and omitted variable bias

welfare effects of aid under quantitative trade restrictions the paper examines the effects of tied aid on the welfare of both the donor and the recipient countries we depart from the previous literature by assuming preexistence of quantitative trade distortions to mitigate these distortions the donor country provides aid that is tied to the rationed good conditions for the presence of the transfer paradox and of the enrichment of both countries are derived and interpreted under the stability of the system furthermore we show that whereas untied aid cannot increase global welfare tied aid unambiguously does so

foreign aid and public goods abstract most less developed countries ldcs use foreign economic aid to finance public consumption goods or public intermediate inputs this paper constructs a two country general equilibrium trade model where an income transfer that takes place between the two countries is used by the recipient to finance a public consumption good within this framework the paper identifies the conditions under which the income transfer improves or deteriorates the donor country s terms of trade and shows that the transfer can be welfare enriching for the donor and welfare immiserizing for the recipient country the paper also demonstrates that the transfer can raise reduce world welfare in which case a welfare increase decrease in both the donor and the recipient country is possible

in search of the just u s oil policy a review of arrow and kalt and more in december 1979 the carter administration and the congress were embroiled in debate about the administration s new energy policy to reduce u s imports of foreign oil president carter was invoking his statutory authority to remove gradually existing price control regulations on u s crude oil to lessen the perceived equity problems of decontrol the administration submitted to congress legislation that politically tied the gradual elimination of price controls to the levying of a windfall profits tax within this political environment the american enterprise institute released a pamphlet by kenneth arrow and joseph kalt december 1979 entitled petroleum price regulation should we decontrol p 47 given the political issues at that time the authors mysteriously addressed only the economic wisdom of either reversing the presidential intention of decontrolling the industry or pursuing immediate decontrol comparing the cases for immediate instead of gradual decontrol was not explicitly undertaken most ironic was the authors complete silence on what their economic analysis implied for the wisdom of levying the then contemplated and nowimplemented windfall profits tax

variable risk preferences and adaptive aspirations abstract observations of human decision making indicate that risk preferences depend on the values of possible outcomes relative to levels of aspiration a model of such variable risk preference is specified it suggests that some risk averse behavior may result from a human tendency to focus on targets and from the adaptation of those targets to experience rather than from a fixed trait of risk aversion in addition the model shows how risk preferences varying around adaptive aspirations produce both a greater long run likelihood of survival and a higher average return for survivors than do fixed risk preferences

antecedents of convergence and divergence in strategic positioning the effects of performance and aspiration on the direction of strategic change this paper investigates drivers of convergence and divergence in strategic positioning in terms of resource allocation decisions the study based on the behavioral theory of the firm suggests two unexplored kinked curve relationships between performance gaps and strategic convergence divergence first the study suggests a negative relationship between a focal firm s performance relative to aspiration levels and strategic convergence divergence where the slope is steeper when performance is above the aspiration level second it suggests a positive relationship between a target firm s performance relative to a focal firm s performance and strategic convergence divergence where the slope is steeper when a target firm s performance is below a focal firm s performance empirical analysis of dyad level data in the u s food processing industry reveals that the direction of a firm s strategic change is shaped by its aspiration level its performance level and the performance gap between it and the firm it selects as a model this study contributes to the current literature by offering preliminary indications of when and how a firm moves closer to or further away from other competing firms in its strategic position

determinants of firms backward and forward looking r d search behavior this study develops and operationalizes a behavioral forward looking search model by incorporating prospect theory organizational risk literature and the logic of the behavioral theory of the firm with recognition of the bounded rationality of decision makers and the goal directed rule based nature of organizations this model suggests that a comparison between firms performance expectation and performance target translates the cognitive representation of the firms future into their subsequent actions by examining the research and development r d expenditures of u s manufacturing firms from 1980 to 2001 this study explores how performance aspirations expectations and slack affect decision making about firms r d search investments the findings show that both performance feedback and performance prospect are important determinants of firms search behavior after controlling for firm industry and time effects in addition backward and forward looking determinants have interactive effects on search behavior firms problem driven search activity further increases when firms feel unlikely to achieve the performance target for another year in contrast search intensity is reduced when firms expect to improve their performance from an underperforming situation to an outperforming situation the findings suggest that future research on performance feedback and experiential learning should also consider the effect of forward looking prospects on firm behavior

immiserizing transfer under variable returns to scale this paper examines the welfare consequences of a unilateral transfer for both the transfer paying and the transfer receiving country in which the production functions are subject to variable returns to scale we obtain the conditions for the strong paradox that is the welfare of the transfer paying country improves and that of the transfer receiving country declines in the standard two country framework the conditions for the weak paradox that is both the transferor and transferee gain or lose simultaneously and the normal results that is the transferor loses and the transferee gains are also derived transferts appauvrissants quand les rendements a l echelle sont variables ce memoire examine les effets de bien etre d un transfert unilateral a la fois pour le pays donateur et le pays recipiendaire quand les fonctions de production ont des rendements variables a l echelle les auteurs d6veloppent les conditions qui sous tendent le paradoxe fort i e le cas oii le bien r ils d6rivent aussi les conditions qui sous tendent le paradoxe faible i e le cas oui les deux pays gagnent ou

proactive r d management and firm growth a punctuated equilibrium model the external environment is characterized by periods of relative stability interspersed with periods of extreme change implying that high performing firms must practice exploration and exploitation in order to survive and thrive in this paper we posit that r d expenditure volatility indicates the presence of proactive r d management and is evidence of a firm moving from exploitation to exploration over time this is consistent with a punctuated equilibrium model of r d investment where shocks are induced by reactions to external turbulence using an unbalanced panel of almost 11 000 firm years from 1997 to 2006 we show that greater fluctuations in the firm s r d expenditure over time are associated with higher firm growth developing a contextual view of the relationship between r d expenditure volatility and firm growth we find that this relationship is weaker among firms with higher levels of corporate diversification and negative among smaller firms and those in slow clockspeed industries

using information diffusion models to estimate the impacts of regulatory events on publicly traded firms abstract analysis and evaluation of regulatory actions require inexpensive and timely information about resultant costs and benefits this paper extends the traditional event study methodology for assessing the impact of regulatory actions on the value of publicly traded firms we use diffusion theory to construct several models of how markets adjust to regulatory events ex ante preference for a particular model is based on prior knowledge about the characteristics of the regulatory event and information diffusion patterns we demonstrate the use of the methodology by applying it to an analysis of the impacts of a regulatory action taken to protect the northern spotted owl

failure to complete cross border m as to vs from emerging markets while cross border mergers and acquisitions m as involving emerging markets have been increasing in recent years a high percentage collapse before completion this study investigates how the predictors of cross border m a completion involving emerging markets depend upon the direction of global expansion i e investment inbound to a developing market or outbound from a developing market analysis based on 15 years of data from four emerging economies brazil russia india and china from 1995 to 2010 reveals fundamental differences in the predictors of inbound vs outbound m a completion country level factors reflecting differences in political trade and legal environments strongly affect the completion for inbound m as but have a much weaker influence on outbound m as by contrast firm level factors such as past m a experience have a significantly stronger effect on completion for outbound than for inbound m as most interestingly two deal level factors the percentage of stake sought by the acquirer and whether or not the deal is a cash transaction increase the likelihood of completion for inbound but decrease it for outbound m as these findings have important managerial implications for enhancing the success of global expansions

the deterrence effects of vicarious punishments on corporate financial fraud this study extends the research on corporate financial fraud by developing a new perspective on the deterrence effects of vicarious punishments premised on social learning theory we posit that firms vicariously learn about punishments from their peers by picking up modeling cues environmental cues and social cues in the inhibitive learning process thus being deterred from committing future fraudulence using a matched sample of 604 observations of chinese listed firms between 2002 and 2008 our findings show that an observing firm is deterred from committing fraud if the peers in its industry are caught and punished we further find that such deterrence effects are subject to how the observing firm evaluates the possibility of being caught and the likelihood it will be punished the same way if it violates similar prohibitions in particular inhibitive learning effects are positively moderated by punishments of prominent firms and model observer similarity but negatively attenuated by the development of the legal system our study sheds light on the corporate fraud literature by illuminating the indirect inhibitive learning process from vicarious punishments and identifying the conditions for differential learning deterrence outcomes of the observing firms

why good firms do bad things the effects of high aspirations high expectations and prominence on the incidence of corporate illegality recent high profile corporate scandals involving prominent high performing firms cast doubt on assertions that the costs of getting caught decrease the likelihood such high performers will act illegally we explain this paradox by using theories of loss aversion and hubris to examine a sample of s p 500 manufacturers results demonstrate that both performance above internal aspirations and performance above external expectations increase the likelihood of illegal activities the sample firms prominence enhanced the effects of performance above expectations on the likelihood of illegal actions prominent and less prominent firms displayed different patterns of behavior when their performance failed to meet aspirations

partnering with leviathan the politics of innovation in foreign host state joint ventures forming international joint ventures ijvs with political institutions in emerging economies involves both benefits and risks for multinational enterprises mnes while political partners can provide ijvs with various resources their political status equips them with a strong position to appropriate rents in ijvs we address this tension by examining how host state ownership affects both innovation inputs and outputs in china based ijvs over 2008 2013 despite the potential government opportunism we find more r d investment innovation inputs made in ijvs with state partners than in those with private ones thus r d investment can be politically motivated and symbolically managed to ensure continued resource exchanges with the host state this political pressure is mitigated when foreign parents directly transfer home country based technology to ijvs when the host market dependence of ijv is weak and when ijvs are located in a deregulated region moreover we find foreign host state jvs deliver fewer innovation outputs measured by patent data than foreign private jvs which implies the failure of state partners to adequately absorb foreign technologies these findings highlight both the state partners powerfulness to boost ijv innovation investment and their limits in shaping ijv innovation outcomes and bear rich implications for the management of mne host government relationships

standard errors in event studies even if true abnormal returns are uncorrelated estimated abnormal returns are not this paper presents a simple formula for the variance of estimated cumulative abnormal re turns both returns and dummy variable procedures for estimating the standard error correctly taking account of both intertemporal and contemporaneous correlation of esti mated residuals are discussed they are then applied to an event study of post merger performance it is shown that ignoring either the intertemporal or contemporaneous correlation of residuals can result in significant underestimates of standard errors

the tylenol incident ensuing regulation and stock prices the much publicized tylenol incident in 1982 led to stringent packaging regulations for over the counter pharmaceutical drugs the sudden incident and the swift progression of associated events offer a unique opportunity to assess the wealth effects of the resultant regulations the market value of common stock of johnson johnson makers of tylenol declined by approximately 29 percent amounting to 2 31 billion although other firms in the industry also suffered significantly their share price decline did not occur around the tylenol incident but occurred around the subsequent packaging reg ulation proceedings on average 28 other pharmaceutical firms analyzed in this study experienced a decline of 310 million per firm or a total of about 8 68 billion the results suggest that the regulation had a significant negative effect on the common stock prices of firms in the pharmaceutical industry

does the japanese stock market price bank risk evidence from financial firm failures the ability of the japanese stock market to appropriately price the riskiness of japanese financial firms has been frequently questioned particularly in light of japan s widespread financial distress in recent years and poor disclosure requirements this paper examines the response in equity returns of japanese banks to the failure of four commercial banks and two securities firms between 1995 and 1998 using event study methodology the analysis finds that share prices of surviving banks on the whole responded unfavorably to the failures and that financially weaker survivors were more adversely affected this suggests that despite the distress and alleged opaqueness bank shareholders were able to use available indicators of financial condition both to incorporate new information quickly into stock prices and to differentiate among banks

studying firm specific effects of regulation with stock market data an application to oil price regulation regulations are often introduced and reformed in response to unanticipated changes in market forces in late 1973 for example opec quadrupled the world price of oil and u s policy makers responded by imposing oil price regulation such events pose a fundamental problem of interpretation for studies that use stock prices to identify the economic effects of regulation what portion of the capital gains or losses experienced by investors in regulated firms is due to regulation and what portion is due to unanticipated economic events to answer these questions we use microeconomic theory to derive hypotheses about how the capital gains and losses created by opec pricing and u s regulatory policies are related to the underlying characteristics of petroleum firms we test the hypotheses by including a model of firm specific abnormal returns in the standard market models of common stock returns earned by investors in petroleum firms the results indicate the u s oil production and refiner access to price controlled crude oil were sources of capital gains and that u s and foreign refining were sources of capital losses

the impact of the 1980 depository institutions deregulation and monetary control act on market value and risk evidence from the capital markets the depository institutions deregulation and monetary control act of 1980 brought about major changes in the banking industry this study employs capital market data to examine the act s impact on the relative competitive positions of distinct classes of firms within the industry the evidence supports the hypothesis that federal reserve system banks profited from the regulatory change at the expense of nonmember banks and savings and loans copyright 1988 by ohio state university press

behavioural additionality of r d subsidies a learning perspective the use of r d grants as a policy instrument has been motivated by economic arguments of market failure neo classical econometric studies have analysed the additionality of one euro of subsidies on both the investments of companies in the r d process and the output of that r d process more recently behavioural additionality has been launched as a third form of additionality in contrast to input and output additionality behavioural additionality is related to changes in the processes that take place within the firm in this paper we analyse the determinants of the behavioural additionality of r d grants to explain the mechanism through which behavioural additionality is obtained we use organizational learning theory as a guide to formulate our hypotheses hypotheses are tested using a telephone survey of 192 recipients of r d grants provided by the iwt in flanders in 2001 2004 matched to a sample of 84 firms that undertake innovation activities but which had never had a grant bid accepted we find that congenital learning and interorganizational learning lead to increased behavioural additionality however these learning effects decrease with the number of subsidized projects that are undertaken by the company

ceo hubris and firm risk taking in china the moderating role of managerial discretion this study linked ceo hubris to firm risk taking and examined the moderating role of managerial discretion in this relationship drawing on upper echelons theory and behavioral decision theory we

the impact of corporate governance practices on r d efforts a look at shareholders rights cross listing and control pyramid the paper considers the impact of multiple shareholder oriented governance practices on rd decisions based on a sample of 5 528 firms belonging to 110 large french listed business groups our results substantiate the idea that shareholder oriented governance practices and a lower position in a control pyramid are better for rd investment the introduction of any additional shareholder oriented practice is found to result in more rd we show however that this anglo americanization of the french corporate governance system is only partial we provide evidence of the co existence of an old french system of corporate governance with a hybrid model of corporate governance the lack of concrete results on complementarity among shareholder oriented governance practices casts doubt on the stability of this hybrid model in the french context

the incidence of regulatory rents in the motor carrier industry this article focuses on two questions in the debate over motor carrier regulation first did regulation create eliminate or have no effect on monopoly rents in the trucking industry second ifthere were rents what was their incidence were they received by owners oftrucking firms dissipated through higher costs or captured by the teamsters union data on share price responses to deregulation announcements reveal declines in expected profits of 8 19 of totalfirm value this suggests that regulation created monopoly profits and indicates that at least some of these rents accrued to owners of trucking firms firms responses to regulatory change are modelled as functions of company s operating characteristics and measures of unionization operating efficiency and service characteristics are shown to affect the impact of deregulation on share values

economic consequences of increasing the conformity in accounting for uncertain tax benefits abstract commentary during the development of fasb interpretation no 48 suggests the interpretation could be costly for firms because new disclosure requirements could be used by the irs to more effectively challenge uncertain tax positions stock returns around fin 48 pronouncements suggest investors were not concerned about an increase in tax costs and investors responded favorably to initial disclosures required under fin 48 however we document a significant negative market reaction to subsequent news of a senate inquiry into these disclosures consistent with investors revising their beliefs over the potential for additional tax costs

a test of the hotelling valuation principle time series tests of the hotelling r percent rule for natural resource prices have not been strongly supportive but the tests and the data are subject to serious difficulties we propose here an alternative testing strategy based on another but less widely known implication of the hotelling model we test this implication which we call the hotelling valuation principle by regressing the market values of the reserves of a sample of u s domestic oiland gas producing companies on their estimated hotelling values we find that the estimated hotelling values account for a significant portion of the observed variations in market values and that the hotelling measures are better indicators of the market values of petroleum properties than two widely cited publicly available alternative appraisals

a behavioral theory of market expansion based on the opportunity prospects rule what explains organizational search and choice when multiple opportunities are available to the decision makers drawing on the behavioral view of the firm and on the attention based view this study proposes a theoretical model centered on the opportunity prospects rule to explain market expansion defined as the extent how many and the selection which of multiple available opportunities that are actually pursued by competing firms we test our model using longitudinal fine grained data on commercial banks undertaking more than 1 300 opportunity choices the findings show that firms do use the opportunity prospects rule when exercising market expansion choices and that slack and performance feedback moderate the effects of opportunity prospects this paper contributes to organizational decision making research and to the behavioral view of the firm by showing the importance of considering an opportunity driven approach by demonstrating the relevance of simplifying rules to explain the search for the consequences of alternatives by extending recent efforts to provide a more forward looking perspective to model organization behavior and by showing when slack and performance feedback moderate the effects on market expansion of the opportunity prospects rule

trade liberalization comparative advantage and scale economies stock market evidence from canada abstract the canada united states free trade agreement fta provides an excellent opportunity to analyze the impact of a comprehensive trade liberalization in this paper a stock market event study is employed to capture investors expectations about the consequences of this agreement for manufacturing firms in canada the primary question addressed is whether abnormal stock market returns corresponding to news about the fta are consistent with hypotheses based on comparative advantage and economies of scale the results indicate that both comparative advantage and scale economies played a role in determining investors perceptions of the impact of the fta

banking on commitment intended and unintended consequences of an organization s attempt to attenuate escalation of commitment examining commercial lending decisions we found that increased monitoring of decision makers and changing decision makers attenuated escalation of commitment but also produced unintended effects

impact on equity prices of pronouncements related to nonpension postretirement benefits abstract this study examines the impact on equity prices of nine pronouncements related to the proposed accounting for nonpension postretirement benefits compared to a control group the experiment firms exhibit significant negative abnormal returns around the issuance of the exposure draft on nonpension postretirement benefits the negative abnormal returns are most pronounced for firms with few retirees relative to current employees firms with high debt ratios small firms and firms currently reporting these benefits on the pay as you go basis these results are consistent with the contracting cost hypotheses

testing a causal model of corporate risk taking and performance the determinants of organizational risk taking and its impact on economic performance are critical issues in strategic management using a model that included risk performance performance expecta

the role of relative performance in inter firm mobility of inventors abstract prior research has emphasized the influence of inter firm mobility on knowledge flows and innovation yet we have an incomplete picture of the antecedents of inventor mobility building on theoretical traditions related to decision making based on limited asymmetric bounded information and economic and other incentives our paper suggests that after controlling for individual performance and other variables previously shown to affect inter organizational mobility an inventor s performance relative to his co patenting group alters his likelihood of mobility our analysis of 2648 inventors in the pharmaceutical industry shows that for those performing above their reference group of past and current co inventors in patenting an increase in relative performance decreases the likelihood of mobility and for those performing below the reference group a decrease in relative performance decreases the likelihood of mobility we also find that when inventors have more external scientific collaborations their likelihood of mobility increases and this variable moderates the relationship between the performance gap and mobility but only for those performing above their peers