research development and firm growth empirical evidence from european top r d spending firms abstract following recent literature we present a model of endogenous firm growth with r d investment as one of the main mechanisms of growth our study evidences a positive effect of r d intensity on the sales growth by using ols quantile regressions and gmm system estimators for a sample of 754 european firms for the 2003 2007 period we also find this association is more intense in high growth firms and is especially significant when referring to high technology sectors this paper gives empirical support to those recommendations from policy makers and business leaders for maintaining the r d expenditures especially in high technology sectors even when facing a recession

do markets overreact international evidence abstract in this paper using the conrad and kaul s methodology we test for the overreaction hypothesis which maintains that stock prices systematically overshoot and therefore their reversal can be predicted from past performance in seven industrialized countries consistent with the findings of conrad and kaul we see no evidence of overreaction in the us however returns to long term contrarian strategies in other countries seem to be generally significant moreover we find that in the majority of the countries while returns to arbitrage portfolios based on price are higher than those based on size the latter generally outperform the winner loser arbitrage portfolios

current account deficits and debt accumulation in latin america debate and evidence abstract in this paper i examine competing explanations for the behavior of latin america s current account in the 1970s and 1980s after briefly reviewing the focus of various economists on internal or external factors i outline a financial breakdown view which stresses the role of the changing availability of capital during this period of time i then turn to econometric work which 1 establishes the plausibility of viewing capital availability as a constraint on the current account and 2 offers some support for all three views of the determinants of latin america s current account

size r d productivity and decision styles we extend the size innovation debate by incorporating decision making style as a relevant factor in the innovation process we propose that the size of firms affects the scale and quality of product innovation through the adoption of different decision making styles using the literature on cognition we conceptualize decision making style as the degree to which firms rely on analytical information for decision making during the r d process using longitudinal data of spanish firms we show that as firms increase in size they rely more extensively on analytical decision tools for the innovation activity additionally we show that the size of firms is negatively related to product innovation productivity in terms of scale and positively related to the quality and that these relationships are mediated by firms reliance on analytical decision making style we discuss theoretical and managerial implications for innovation research and practice

size seasonality and stock market overreaction recent research finds that the prior period s worst stock return performers losers outperform the prior period s best return performers winners in the subsequent period this potential violation of the efficient markets hypothesis is labeled the overreaction phenomenon this paper shows that the tendency for losers to outperform winners is not due to investor overreaction but to the tendency for losers to be smaller sized firms than winners when losers are compared to winners of equal size there is little evidence of any return discrepancy and in periods when winners are smaller than losers winners outperform losers

ceo characteristics and firm r d spending over the past fifteen years a number of studies have examined the determinants of firm r d spending these studies however almost invariably focus on the role of firm or external ownership characteristics in predicting r d spending while overlooking the attributes of the top managers involved in allocating corporate resources in this study we change that focus by empirically examining how r d spending as compared to industry competitors varies at firms based on the characteristics of their ceos using a sample of publicly traded firms we find that ceo characteristics explain a significant proportion of the sample variance in firm r d spending even when corporate strategy ownership structure and other firm level attributes are controlled in terms of individual ceo characteristics we find that r d spending is greater at firms where ceos are younger have greater wealth invested in firm stock and signifacant career experience in marketing and or engineering r d in contrast to existing theory we find that the amount of a ceo s formal education had no significant association with r d spending once a ceo has attained a college degree however significant r d spending increases are found at firms where ceos have advanced science related degrees from subgroup analyses we further find that ceo effects on relative r d spending increase with longer ceo tenure implying that ceos over time may mold r d spending to suit their own preferences from these results we make implications for both research on determinants of r d spending and managerial practice

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

time varying risk and long term reversals a re examination of the international evidence long term reversals ltrs have been extensively documented as existing in international markets the predictability of returns opens the question whether investors should continue to diversify across international markets such predictability also has implications for the corporate decision of where and when to raise capital this paper re examines the international evidence for long term contrarian profits using a longer time horizon than all previous studies 81 years of data from 1925 to 2005 and finds that the long term contrarian anomaly disappears when time varying conditional alphas are considered this is true even without transaction costs for the marginal trader conservative transaction costs subsume ltr profits whether returns are risk adjusted or not this suggests that benefits from actual trades on ltrs do not negate a strategy based on diversification although time varying beta has been extensively documented as ineffective in describing ltrs this paper demonstrates that it is important to control for time variation in alpha a full conditional capital asset pricing model captures the ltr premium this suggests that macroeconomic factors are important for understanding ltrs and their associated risk

nonstationary expected returns abstract recent evidence reveals significant negative serial correlation in aggregate market wide stock returns we extend this result to relative market adjusted returns demonstrating negative serial correlation in five year returns we then test two competing explanations 1 market mispricing and 2 changing expected returns in an efficient market the tests are conducted using the capital asset pricing model to estimate relative returns the evidence suggests that negative serial correlation in relative returns is due almost entirely to variation in relative risks and therefore expected relative returns through time we document substantial relative risk shifts particularly for extreme performing stocks

capital flight from latin america abstract this paper focuses on capital flight from latin america during the 1970s and 1980s after estimating the extent of such flight i suggest that capital flight imposes growth costs erodes the tax base and worsens income distribution i then use regression analysis to investigate the causes of capital flight as well as the role of capital controls and imf programs in slowing flight i conclude by criticizing the current policy approach to the capital flight problem and suggesting some new directions

contextual influences on the corporate entrepreneurship performance relationship a longitudinal analysis abstract over the past several years corporate entrepreneurship has been widely touted by executives and researchers alike as an effective means for revitalizing companies and improving their financial performance for the most part the call for greater entrepreneurial behavior on the part of established companies has been accepted on faith as an inherently desirable objective the implicit logic behind the pervasive belief in the value of corporate entrepreneurship seems to be that risk taking innovation and aggressive competitive action the key elements of entrepreneurial corporations will help in identifying and pursuing lucrative product market opportunities and in providing new bases for achieving superior competitive positions but what do we really know about the financial consequences of corporate entrepreneurship most of the evidence that corporate entrepreneurship pays off is anecdotal in nature or based on cross sectional studies that focus on the short term implications of entrepreneurial behaviors as such in a definitive sense we know very little about the financial consequences of corporate entrepreneurship in an attempt to improve our understanding of this issue this article describes a study of corporate entrepreneurship and its impact on company financial performance data were collected from three different samples over a seven year period to assess the longitudinal impact of corporate entrepreneurship on firm performance these samples consist of 24 medium sized manufacturing firms representing 14 industry segments 39 chemical companies and 45 fortune 500 industrial firms representing five industry segments data were gathered on each sample using both primary and secondary sources regression analysis was then used to analyze the data the results suggest that corporate entrepreneurship has a positive impact on financial measures of company performance this effect on performance which tends to be modest over the first few years increases over time suggesting that corporate entrepreneurship may indeed be a generally effective means for improving long term company financial performance moreover the results indicate that corporate entrepreneurship is a particularly effective practice among companies operating in hostile environments as opposed to benign environments the study has three principal implications for practicing managers first the study documents the general financial viability of engaging in corporate entrepreneurship this is not to suggest that corporate entrepreneurship is a panacea for improving financial performance however entrepreneurial behavior when considered on the whole i e across firms and industries is associated with superior financial performance second the study suggests a need to use a long term time horizon in order to adequately judge the financial consequences of corporate entrepreneurship the use of a shorter evaluation period may not allow sufficient time for entrepreneurial actions to have their full market and corresponding financial impact finally the study identifies the context specific character of effective entrepreneurial practice specifically corporate entrepreneurship appears to be a particularly effective strategic practice among firms operating in hostile business settings

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

long term market overreaction the effect of low priced stocks conrad and kaul 1993 report that most of de bondt and thaler s 1985 long term overreaction findings can be attributed to a combination of bid ask effects when monthly cumulative average returns cars are used and price rather than prior returns in direct tests we find little difference in test period returns whether cars or buy and hold returns are used and that price has little predictive ability in cross sectional regressions the difference in findings between this study and conrad and kaul s is primarily due to their statistical methodology they confound cross sectional patterns and aggregate time series mean reversion and introduce a survivor bias their procedures increase the influence of price at the expense of prior returns

an agency theoretic explanation of capital flight abstract overvalued exchange rates high and variable interest rates and over expansionary fiscal policies are known to encourage capital flight capital flight can also result from an agency problem between the population and the political leaders the agent borrows more funds abroad than can be profitably invested in the domestic economy and appropriates some of the funds low rates of return in the domestic economy encourage the capital flight

r d and the growth of firms empirical analysis of a panel of italian firms abstract this paper deals with the growth of firms and with their innovative activities the main hypothesis of the paper maintains that firms with a strong commitment to r d have a higher rate of growth because they succeed in the product market after a review of the related literature the paper presents an econometric analysis of the r d growth of firms relation based on a database of italian firms data on a sample of 500 firms with time series in the range 1989 1997 were drawn from the mediocredito survey of italian manufacturing descriptive analysis shows that the sales growth rate of firms with r d is higher than that of firms without r d econometric analysis is performed in two steps first we apply a panel unit root test im k pesaran h shin y 1997 testing for unit roots in heterogeneous panels dae university of cambridge mimeo to verify whether the firm size significantly affects firm growth the test confirms gibrat s law that firm size has a stochastic trend second we explore whether there are variables with stochastic trends that could account for firm size according to our estimates the growth rate of firms is positively correlated with research intensity in these estimates a further interesting result is that investment in ict is not significant or shows a parameter with negative sign

diversification strategy and r d intensity in multiproduct firms this study provides empirical evidence that choice of diversification strategy systematically affects r d intensity in large multiproduct firms research and development intensity in dominant busin

ceo duality as a double edged sword how boards of directors balance entrenchment avoidance and unity of command when a firm s chief executive officer is also the chairperson of its board directors have opposing objectives according to organization theory such ceo duality establishes strong unambiguous le

international debts what s fact and what s fiction presidential address to the western economic association july 2 1988 schwartz international debts the official strategy on the international debt problem was breached in may 1987 when citicorp acknowledging the likelihood of credit losses on its latin american loans announced that it was increasing its reserves by 3 billion nineteen banks between 26 may and 8 july also announced additions to their loan loss reserves in aggregate amounting to over 12 billion according to musumeci and sinkey 1988 in may 1988 the general accounting office gao estimated that reserves of u s banks against their troubled loans to ldcs totaled about 21 billion whereas adequate provisioning would require reserves of 49 billion see the wall street journal 19 may 1988 the gao used prices on secondary debt markets in determining the adequacy of loan reserves the banks and regulators however dispute the gao s report see the wall street journal 13 may 1988 the secondary markets they contend are thin and transactions of even moderate size cannot be executed at quoted prices the price quotations may also misrepresent the prospect of repayment for the following reason by holding a foreign country s debt a creditor bank has been subject to the implied obligation to lend new money pro rata to that country however by selling the debt on the secondary market a creditor bank is released from that obligation and hence may accept a lower price than would otherwise be the case on the other hand as sachs and huizinga 1987 579 87 note the decline in bank equity prices since 1982 closely matches the secondary market valuation of ldc exposure the qualifications concerning the significance of the secondary market prices of foreign debt did not apply to prices of foreign bonds that in the past traded at a discount in the market those prices reflected solely the probability of repayment of the bond the additions to loan loss reserves in 1987 reduced the banks reported income and their book capital equity was reduced by a transfer to reserves and plans to issue equity were announced by many banks following their additions to reserves the reserves however are not charged against current income for tax purposes should write offs occur in the future or agreements be reached with the debtors to reduce outstanding debt the losses will be charged to reserves with no effect on reported income latin american debt has not been written down because of the additions to reserves and no forgiveness is involved for ldc debts the banks face difficulties in reducing their developing country debt by sales swaps and write offs loan agreements may prohibit repurchase of the debt by the borrower hence limiting the sales option 14 swaps for local currency or equity have had only small effects on debt reduction j p morgan and company earlier this year devised a program with mexico that had the blessing of the u s treasury morgan swapped 400 million of its mexican government debt for 263 million twenty year mexican government bonds the mexican issue was collateralized by twenty year u s treasury zerocoupon bonds at time of sale priced to pay 8 41 percent annually that mexico bought with 2 56 billion of its international reserves swaps by other banks participating in the program reduced mexico s bank debt by about 1 billion although a 10 billion reduction had been forecast morgan regarded the swap as advantageous because it also served to reduce its obligation to supply future loans to mexico for other banks the size of the discount on the swap made the deal unattractive 15 the third way for the banks to reduce exposure to developing country debt is write offs write offs have limited appeal they risk inciting political pressure to force debt forgiveness the regulators the u s government and international agency lenders continue to pressure the banks to provide additional loans to the latin american debtors that are either in arrears on interest payments or pay a large percentage of their trade surplus to cover service charges

the contrarian investment strategy does not work in canadian markets this paper tests the overreaction hypothesis using monthly data for stocks listed on the toronto stock exchange over the 1950 1988 period unlike de bondt and thaler 1985 1987 it finds statistically significant continuation behavior for the next one and two year s for winners and losers and insignificant reversal behavior for winners and losers over longer formation test periods of up to ten years while the systematic risks of the winners decrease significantly over all test periods the systematic risks of the losers increase significantly for only the 12 month formation test periods unlike chan 1988 the only significant change in variance from the formation to test periods occurs for the losers for the 12 month formation test periods the findings are robust for january versus non january and size based portfolios unlike zarowin 1989 1990 the findings are robust for various performance measures specifically market adjusted car and the jensen 1968 and sharpe 1966 portfolio performance measures

measuring abnormal performance do stocks overreact abstract a highly controversial issue in financial economies is whether stocks overreact in this paper we find an economically important overreaction effect even after adjusting for size and beta in portfolios formed on the basis of prior five year returns extreme prior losers outperform extreme prior winners by 5 10 per year during the subsequent five years although we find a pronounced january seasonal our evidence suggests that the overreaction effect is distinct from tax loss selling effects interestingly the overreaction effect is substantially stronger for smaller firms than for larger firms returns consistent with the overeaction hypothesis are also observed for short windows around quarterly earnings announcements

external disturbances domestic policy responses and debt accumulation in nigeria abstract this paper provides a case study of the link between external shocks domestic policy responses and external debt accumulation in nigeria the indonesian experience during 1970 1989 is provided as a contrast for policy comparison a significant part of the increase in external debt in the two countries corresponds to financing of capital flight after 1981 current account deficits assumed greater importance in the accumulation of external debt the growth in external debt was caused in part by adverse external conditions the results of this study show that the nigerian debt crisis was exacerbated by inappropriate policy responses indonesia avoided a crisis by applying prudent real exchange rate management and fiscal restraint

research and development cash flow agency and governance uk large companies this paper investigates the determinants of r d expenditure using a sample of uk listed companies with the highest spend from 2000 to 2005 we investigate the effect of corporate governance and ownership on r d using panel data the results provide some evidence that more governance tends to depress r d activity a finding that is robust to whether a composite or disaggregated index of governance is used one innovation of the paper is that we treat agency and finance effects interactively the ownership stake of the ceo appears to be supportive for r d

r d investment and financing choices a comprehensive perspective abstract we posit that the effects of r d investment on financing choices depend on the degree of intervention barriers and appropriation discrepancy between capital providers and the firm based on these two contingencies we categorize financing instruments into four types common equity common stock convertible securities preferred stock and convertible debt transactional debt corporate bonds and relational debt bank and commercial loans from the experiences of 39 petroleum firms during the period 1976 2005 we found r d investment has a positive effect on the use of common equity a u shaped effect on the use of convertible securities and an inverted u shaped effect on the use of relational debt to raise capital these effects are sustained over several years

the quality of managers in centralized versus decentralized organizations a central task of the leadership of any organization is the choice of its successors and subordinates corporate presidents spend a significant part of their time selecting upper management tenured faculty sometimes spends months deciding whether particular individuals should be admitted into their ranks the effort and contentiousness which often go into this process suggests that it has important consequences for the organization it is recognized that there are large differences in individuals abilities and that the abilities of those in leadership inevitably affect the performance and survival of the organization our objective here is to examine how the centralization or decentralization of decision making authority affects the quality of the managers who are actually selected this question is naturally dynamic because the quality of current managers is not only influenced by that of past managers but it in turn affects the quality of future managers we consider stylized economies consisting of an arbitrary number of hierarchies organizations of different sizes the size of a hierarchy is the number of managers within the hierarchy one of whom is the hierarch the boss and others are subordinates the current hierarch appoints his own successor and those of his subordinates but has no influence on any other hierarchy this assumption exaggerates somewhat the typical asymmetry of authority between the hierarch and the subordinates our definition of a more or less centralized economy is intuitive an economy is more centralized if it has a larger proportion of the total number of managers in larger hierarchies our main result is that there is a greater variability over time in the steady state quality of managers in a more centralized economy this is because highly capable decision makers have greater beneficial effects on the managerial choices in a more centralized economy by the same token highly incapable managers placed in the same positions have greater deleterious effects

swinging for the fences the effects of ceo stock options on company risk taking and performance we unpack the concept of managerial risk taking distinguishing among three of its major elements the size of an outlay the variance of potential outcomes and the likelihood of extreme loss we

income and price elasticities for exports of developing countries income and price elasticities for non oil exports of non opec developing countries play an imp ortant role in the development of policy responses to the debt crisis these elasticities are estimated for the major standard internation al trade classification commodity groups based on two stage least sq uares and quarterly data for 1973 to 1984 the income elasticity for non oil exports ranges between 1 4 and 1 9 the analysis also tests t he properties of the error term the dynamic specification and para metric stability the sensitivity of the results is assessed using sh iller s lags and band spectrum estimation copyright 1988 by mit press

long run versus short run decisions r d and market structure in spanish firms abstract i present new econometric evidence on the relation between market structure and r d using data on spanish firms i adopt a different approach from previous studies by distinguishing between long run and short run decisions of firms regarding r d i assume that the long run or strategic decision is whether to conduct r d or not and the short run choice is how much to invest once the firm decides to be innovative i argue that market structure affects long run r d decisions but does not affect short run ones a heckman type selection model is used to test such a relation the results are robust to several specifications and measures of monopoly power

ceo duality and firm performance what s the fuss rising shareholder activism following poor corporate performance and a subsequent drop in shareholder value at many major u s corporations had rekindled interest in duality and corporate governance despite limited empirical evidence duality chairman of the board and ceo are the same individual has been blamed in many cases for the poor performance and failure of firms to adapt to a changing environment in examining the relationship between duality and firm performance this study considers the announcement effects of changes in duality status accounting measures of operating performance for firms that have changed their duality structure and long term measures of performance for firms that have had a consistent history of a duality structure our results suggest that 1 the market is indifferent to changes in a firm s duality status 2 there is little evidence of operating performance changes around changes in duality status and 3 there is only weak evidence that duality status affects long term performance after controlling for other factors that might impact that performance

are stock price reversals really asymmetric a note abstract one of the enigmatic findings about the stock market overreaction effect is that it is asymmetric we argue that this apparent anomaly may be entirely illusory resulting from the peculiar properties of returns the test period return on a contrarian portfolio is not always a satisfactory measure of the strength of price reversals this also renders interportfolio comparisons about the symmetry of reversals more difficult we develop an alternative measure the reversal coefficient which takes account of this deficiency some empirical corroboration is also provided

the revolving door external debt and capital flight a philippine case study abstract in recent decades the private citizens of a number of third world countries accumulated substantial external assets via capital flight at the same time their governments incurred large external debts this paper proposes a classification of hypothetical linkages between capital flight and external debt disbursements and examines the strength of these linkages in the philippines during 1962 86 econometric analysis and anecdotal evidence indicate that large sums of capital flowed into and out of the philippines through a financial revolving door on this basis i conclude that there is scope for political and legal challenges to the legitimacy of a substantial fraction of the country s external debt

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

an analysis of external debt positions of eight developing countries through 1990 abstract this paper traces the accumulation of large external debts by eight developing countries since 1973 it presents a framework that provides a useful measure of the economic burden of the external debts of these countries simulations based on data from the eight countries are reported