understanding corporate coherence theory and evidence abstract multiproduct firms are perceived to be coherent in their scope yet there is no strong theoretical foundations to explain coherence in modern industrial organization theory this paper shows that as u s manufacturing firms grow more diverse they maintain a constant level of coherence between neighboring activities this finding runs counter to the idea that firms with many activities are generally more incoherent a framework is then presented which appeals to the nature of enterprise learning path dependencies and the nature of the selection environment to explain the ubiquity of coherent diversifiers

the regulatory treatment of utility diversification recent regulatory reform has gradually relaxed the constraints on vertical and horizontal diversification of public utilities after earlier strategies of conglomerate diversification utilities more recently started to expand into domestic and international activities more closely related to their core business sound diversification may improve corporate performance but raises complicated policy issues in firms operating in both regulated and unregulated markets the paper studies the problems of cross subsidization risk shifting and profit shifting that may result under conditions of partial regulation policy approaches that enable firms to pursue efficient diversification while reducing inefficient diversification incentives created by partial regulation are being analyzed

diversification multi market contact and profitability this paper analyses the relationships between diversification multi market contact and industry profitability it focuses on the link between diversification and multi market contact to show that when diversification establishes or increases the extent to which firms meet in more than one market the effect of such multi market contact is to increase the possibility that collusion emerges as an evolutionary stable strategy as a result multi market contact may increase the potential for tacit collusion and so lead to higher profitability the effects of diversification and multi market contact on the price cost margin and the rate of return to capital are estimated using a specially constructed new database for uk manufacturing industry in 1979 this database provides information on the diversification and multi market contact of 418 firms across 134 manufacturing industries thus linking firm and industry level data the results show a clear positive effect of multi market contact on industry profitability

diversification by regulated monopolies and incentives for cost reducing r d the regulator is able to reduce the regulated revenue requirement due to the cost savings resulting from economies of scope then some of the benefits of joint production ultimately may be passed on to the consumers of the regulated products in the form of lower prices diversification into unregulated markets also increases the firm s incentives to engage in process innovation by providing opportunities for earning profits in unregulated markets investments in process innovation can lead to lower future costs of producing the regulated product and potential future price reductions to regulated customers i present a model of the firm s decision to diversify into an unregulated market and look at the implications of that decision for a firm s incentive to innovate and for consumer welfare the firm s choice is strongly influenced by the extent to which the regulator reduces the amount of fixed cost included in the regulated revenue requirement should the firm choose to diversify i show that if the regulator is able to observe production costs accurately at the time of a rate review then diversification increases the firm s incentive to innovate and leads to higher gains in consumers welfare over time

technological accumulation diversification and organisation in uk companies 1945 1983 a survey of more than 4 000 significant innovations and innovating firms in the uk from 1945 1983 shows that the scope and organisation of technological activities vary greatly as functions of firms principal activities and size 1 technological opportunities and threats are greatest in firms in chemicals and engineering opportunities in such science based and specialist supplier firms in general emerge horizontally in related product markets and downstream in user sectors in scale intensive e g steel vehicles and supplier dominated e g printing construction firms opportunities tend to be upstream in related production technologies breakthrough innovations in science based firms also induce clusters of technological opportunities upstream for suppliers horizontally for partners and downstream for users their effective exploitation requires diversity of firms technological activities greater than that strictly required for current output 2 the nature of technological opportunities and of organisation for their exploitation also varies with firm size firms with fewer than 1 000 employees have major opportunities with specialised strategies in mechanical engineering and instruments the prevalence of broad front technological strategies and of divisionalisation increases sharply with firm size together with dependence on formal r and d activities the size of innovating divisions has diminished sharply over the period divisionalisation improves the goodness of fit between the core business of innovating divisions and the innovations themselves but 40 have remained consistently outside the core business of divisions 3 these findings help identify the key tasks of technological strategy in firms in different industries and of different sizes thus in large firms divisionalisation can create the small size of unit conducive to effective implementation but it cannot absolve central management from the continuous task of matching technological opportunities with organisational forms and boundaries

diversification patterns and survival as firms mature we focus on the relationship between age and diversification patterns of german machine tool manufacturers in the post war era we distinguish between minor diversification adding a new product variation within a familiar submarket and major diversification expanding the product portfolio into new submarkets our analysis reveals four main insights first we observe that firms have lower diversification rates as they grow older and that eventually diversification rates even turn negative for old firms on average where negative diversification corresponds to exit from certain product lines second we find that product portfolios of larger firms tend to be more diversified third with respect to consecutive diversification activities quantile autoregression plots show that firms experiencing diversification in one period are unlikely to repeat this behavior in the following year fourth survival estimations reveal that diversification activities reduce the risk of exit in general and to a varying degree at different ages these results are interpreted using penrosean growth theory

the optimal selection of small portfolios portfolios that are risk return efficient in the sense of markowitz sometimes contain too many securities to be attractive to the small investor an optimal portfolio subject to a size constraint can be found by an implicit enumeration algorithm that is much faster than a previous approach and moreover allows the inclusion of securities whose coefficient is negative a simple and computationally very efficient heuristic method that almost always produces optimal portfolios is described as well

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

performance effects of added cultural distance in the path of international expansion the case of german multinational enterprises this paper contributes to the debate on the performance impact of added cultural distance in the multinational enterprise s mne s expansion path our research focuses on the ability of mnes to handle complexity associated with added cultural distance in international expansion and on the effect this may have on profitability we hypothesise that firms that make expansion moves involving a high level of added cultural distance per unit of time and those that expand in culturally distant countries in an irregular fashion that is with a higher variability will be less profitable we test these hypothesised relationships using detailed data on 2404 expansion moves undertaken by our panel of 91 german mnes whose expansion paths we tracked during periods ranging between 5 and 20 years

voting collective action and liberalisation in latin america the rise and fall of the hillinger paradox chile s economic and political evolution after the 1982 83 financial crisis has been offered as a model for the rest of latin america this paper interprets the 1973 military coup and national recovery during the 1980s and 1990s in terms of the presence and absence respectively of the hillinger 1971 paradox the paradox arises when democratic voting on platforms consisting of several issues leads to majority support for a platform itself consisting of issues none of which is supported by the majority in the early 1970s a particular expression of the hillinger paradox led chile to the verge of a bloody civil war and to a prolonged military dictatorship in the mid 1980s an important policy question that of differentiated industrial protection versus free trade was solved by a stable compromise in favour of the latter this avoided the hillinger paradox and eventually made electoral politics possible again

clusters entrepreneurial ecosystem co creation and appropriability a conceptual framework extant literature on clusters underplays the role of entrepreneurs and entrepreneurial management in creating and co creating organizations markets and supporting ecosystems we employ transaction costs resource knowledge capabilities and power control based theories to provide a comparative static governance based perspective on clusters we embed this into a more general co evolutionary entrepreneurial theory of the emergence evolution and co evolution of markets ecosystems and clusters we suggest that clusters can involve advantages that help engender superior appropriation of co created value as compared to alternatives entrepreneurial managers faced with a degree of choice will help co create clusters and be part of them for as long as they can appropriate more value in this way than through alternatives

beating the market with small portfolios evidence from brazil abstract optimal portfolios with a restriction on the number of assets also referred to as cardinality constrained portfolios have been receiving attention in the literature due to its popularity among market practitioners and retail investors in most cases however the interest is in proposing efficient optimization methods to solve the problem with little or no attention to the characteristics of the resulting portfolio such as risk adjusted performance and turnover we address this question by implementing a tractable reformulation of the cardinality constrained version of the minimum variance portfolio we analyze the out of sample performance of cardinality constrained portfolios according to alternative criteria and check the robustness of the results for portfolios with alternative number of assets and under alternative re balancing frequencies our empirical application for the brazilian equities market shows that cardinality constrained minimum variance portfolios with very few assets e g 3 stocks can deliver statistically lower portfolio risk and higher sharpe ratios in comparison to the market index similar results are obtained for constrained portfolios with 5 and 10 assets and under daily weekly and monthly re balancing frequencies our evidence indicates that it is possible to obtain better risk adjusted performance with fewer securities in the portfolio by using an improved allocation scheme

entry into emergent and uncertain product markets the role of associative rhetoric we analyze how firms use media associative rhetoric in their decisions to enter emergent and uncertain product markets in the context of our study this type of rhetoric associates the logics of firms existing markets with the not yet legitimated logics of a newly emerging market our panel study shows that firms enter such markets faster when the associative rhetoric has higher versus lower volume positive versus negative tenor firms versus journalists analysts as the source of information and generalizations versus specific cases as the focus we discuss the implications of our findings for institutional theory and market entry

gibrat s law and diversification this article presents an analysis of the growth patterns of the worldwide top 200 firms in the pharmaceutical industry a test of the gibrat s law of proportionate effect is performed and we find in line with previous literature a violation concerning the variance of growth using disaggregated data on sub markets we are however able to show that this violation can be completely accounted for by a diversification effect namely a scale relation between the number of sub markets in which a firm is active and its size to interpret these findings we propose a stochastic branching model of firm diversification consistent with a notion of cumulative corporate competences

the costs of related diversification the impact of the core business on the productivity of related segments i develop the thesis that in related diversified firms the core business in my analysis the largest business may provide benefits such as scope economies to a related segment but it may also exert power and constrain the segment to act in its interests in various internal and external transactions this enables the core business to shift productivity gains toward itself from the segment which could lead to various inefficiencies within the related diversified firm using input output flow data and a multilevel model with the segment as the unit of analysis i first show that a segment s productivity is lower compared with a single business firm when it shares backward and forward complementarity i e when it shares transactions with common suppliers and customers with the core business correspondingly i show that as a mirror image the core business s productivity is enhanced when the business shares backward and forward complementarity with segments and when segments are backward integrated with it i e when the core business provides outputs to segments these shifts in productivity and the attendant inefficiencies do not seem to be destroying the entire value from related diversification overall the findings support the argument that the power and influence exerted by the core business and concomitantly the subsidization of the core business by related segments is an important source of costs borne by segments in a related diversified firm

selective intervention and internal hybrids interpreting and learning from the rise and decline of the oticon spaghetti organization infusing hierarchies with elements of market control has become a much used way of simultaneously increasing entrepreneurialism and motivation in firms however this paper argues that such internal hybrids particularly in their radical forms are inherently hard to successfully design and implement because of a fundamental incentive problem of establishing credible managerial commitments to not intervene in delegated decision making this theme is developed and illustrated using the case of the world leading hearing aids producer oticon in the beginning of the 1990s oticon became famous for its radical internal hybrid the spaghetti organization recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by organizational means neglecting however that about a decade later the spaghetti organization has given way to a more traditional matrix organization in contrast an organizational economics interpretation of oticon organizational changes is developed this lens suggests that a strong liability of the spaghetti organization was the above incentive problem frequent managerial meddling with delegated rights led to a severe loss of motivation and arguably caused the change to a more structured organization refutable implications are developed and the discussion is broadened to more general issues of economic organization

corruption and development a review of issues in this paper we start with a discussion of some of the different denotations of the problem of corruption we then consider the ways in which the damaging consequences of corruption operate in a developing economy while not ignoring its possible redeeming features in some cases we pursue the question of why corruption is perceptibly so different in different societies and also persistent finally we examine the feasible policy issues that arise in this context

on the optimal selection of portfolios under limited diversification abstract we address the problem of selecting portfolios which maximize the ratio of the average excess return to the standard deviation among all those portfolios which comprise at most a pre specified number k of securities under the assumptions of constant pairwise correlations and no short selling we argue that the simple ranking procedure of elton gruber and padberg effectively solves the problem for all values of k and that as a function of k the optimal ratio increases at a decreasing rate we also clarify why further generalization or extension of our results to other situations is improbable

organizational capabilities and the economic history of the industrial enterprise in my book scale and scope 1990 i focused on the history of the modern industrial firm from the 1880s when such firms first appeared through world war ii i did so by comparing the fortunes of more than 600 enterprises the 200 largest industrial firms at three points in time world war i 1929 and world war ii in each of the three major industrial economies those of the united states britain and germany in this paper i first describe the similarities in the historical beginnings and continuing evolution of these enterprises and then outline my explanation for these similarities next i relate my explanation of these empirical regularities to four major economic theories relating to the firm the neoclassical the principal agent the transaction cost and the evolutionary finally i suggest the value of the transactions cost and evolutionary theories to historians and economists who are attempting to explain the beginnings and growth of modern industrial enterprises

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

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

diversification incentives under price based and cost based regulation this article considers two schemes of regulationforfirms that serve both monopoly markets and markets subjected to substantial competition the first form cost based regulation combines elements of rate of return regulation on monopoly markets with filly distributed cost pricing much like the form of regulation currently in place in the domestic telephone industry the secondform price based regulation would establish rate caps on noncompetitive services and allow the firm to enter into competitive markets and charge whatever prices it might like in those markets models of both forms of regulation are developed and analyzed with respect to incentives for cost misreporting choice of technology cost reducing innovation choices of prices and output levels and diversification into competitive markets

an empirical test of the incentive effects of deposit insurance the case of junk bonds at savings and loan associations this paper analyzes how financial markets reacted to s l diversification into junk bonds the authors report that junk bond holdings are positively correlated with both the volatility of s l equity returns and the interest rates paid on large cds next they examine the impact of junk bonds on equity returns for poorly capitalized s ls greater risk taking increases the value of deposit insurance and should lead to higher stock returns however a well capitalized institution that increases junk bond holdings should not experience stock price gains the authors find that this is the case for the sample of s ls they studied copyright 1994 by ohio state university press