price inertia and market structure empirical evidence from austrian manufacturing 1993 price inertia and market structure empirical evidence from austrian manufacturing applied economics vol 25 no 9 pp 1175 1186

direct estimation of synergy a new approach to the diversity performance debate this study examines the linkages between relatedness and synergy in the context of diversification among u s pharmaceutical firms for the period 1960 1980 rather than assume as in the entropy herfindahl and concentric indices of diversification that the levels of synergy generated by different related combinations of business units are identical we estimate synergy directly using a modified version of the concentric index in addition to estimating synergy using capital market performance of the firm as a whole we examine the effects of nondrug diversification on the innovative productivity of firms pharmaceutical divisions alone our two main findings are that production relatedness such as that between drugs and chemicals in fact did not imply synergy over the period of our study and that the patterns of synergy for different types of relatedness shifted over time with the industry life cycle

new issues in corporate finance flow of funds data are used to compare methods of finance in 5 countries over the period 1970 to 1985 many of the problems associated with previous studies are avoided by estimating net instead of gross financing proportions the degree of consolidation of accounts reciprocal arrangements between borrowers and lenders and compensating deposit requirements on borrowers no longer distort financing patterns corrections for inflation are provided by employing flow rather than stock figures and using own aggregation procedures to derive stock measures significant variations in financing emerge these are not readily explained by traditional descriptions of corporate finance in particular taxation as an alternative the paper suggests that relationships between borrowers and lenders establish forms of commitment that are conducive to the provision of long term finance the separation between investment and finance which has been the starting point of corporate finance theory is untenable in a multiperiod context in which terms of finance define future allocation of control

the firm as an epistemic community the knowledge based view revisited based on a social constructivist conceptualization of knowledge as residing in groups of practitioners epistemic communities this paper proposes a new perspective on the knowledge based view of the firm and sketches the outline of a new research agenda it argues that the cost of governing knowledge processes depends as much on the cognitive background of the exchange partners as on the tacitness of the knowledge firms exist because they may form epistemic communities in their own right with enabling and motivational properties superior to those of markets in the governance of knowledge processes across epistemic boundaries establishing a firm as an epistemic community requires transaction specific investments that are difficult to realize under market forms of governance

cost externalities and corporate diversification abstract this paper examines the optimal time of entry by established firms that strategically exploit cost externalities resulting from experience transfer from their core product line to the entered market established firms may delay entry even under conditions when newborn firms would enter early the paper can also explain other entry scenarios including early diversification at an initial loss into markets that newborn firms would never enter the shape of the experience curve in the entered market strongly affects these differences in scenarios

explaining firm capital structure the role of agency theory vs transaction cost economics the study of capital structure has increasingly gained importance in strategic management research paradigms derived from organizational economics have also gained popularity in explaining firm actions agency theory and transaction cost economics represent two such paradigms that rely on the notion of market imperfections notwithstanding the similarities between them these two offer different explanations of the role of debt and equity in a firm the governance abilities of the financing structures and the nature of assets of the firm provide two key sources of differences viewing capital structure from transaction cost economics gives rise to predictions that are contradictory to those presented by agency theory it is argued that the extant evidence mainly supports the transaction cost viewpoint two organizational phenomena leveraged buyouts and product diversification are used to highlight the comparison

diversifying entry some ex ante explanations for postentry survival and growth links between theoretically determined preentry conditions and the postentry performance of diversifying entries made by large industrial firms are examined industry firm and relatedness variabl

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

sources of superior performance market share versus industry effects in the u s brewing industry using financial measures of performance we investigate the sources of value creation in the u s brewing industry between 1969 and 1979 we find that market share gains in this industry at this time are not correlated with changes in value and that the performance of individual leading firms is highly correlated our interpretation is that the success of market share building strategies depends critically on specific industry conditions specifically in the absence of fundamental shifts in the relative resource positions of individual firms share gains may come at too high a price in addition the research shows that intra industry correlations in returns may result from excessive competition rather than collusion

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

configuration of value chain activities the effect of pre entry capabilities transaction hazards and industry evolution on decisions to internalize we integrate insights from organizational capabilities organizational economics and industry evolution to examine industry entrants boundary choices about value chain activities and test hypotheses in 1978 2009 data from a sample of u s bioethanol producers we find support for our predictions that transaction hazards decomposed as either enduring or transient over the stages of industry evolution are positively associated with the choice to internalize value chain activities pre entry experience in an activity increases the likelihood of its internalization and reduces the effect of enduring transaction hazards on the internalization choice importantly we also distinguish between firm and founder level pre entry capabilities that is the capabilities of firms versus those of founders diversifying entrants with firm level integrative capabilities are more likely to internalize value chain activities than start ups and this effect persists over the industry s life cycle the relationship between pre entry experience with an activity and the likelihood of internalizing it is also stronger for diversifying entrants findings improve understanding of the relationships among capability development boundary choice and industry evolution

broadband adoption and firm productivity evaluating the benefits of general purpose technology we examine the relationship between the deployment of broadband which we classify as a general purpose technology and the productivity of the deploying firms using panel data that comprises information on all the major local exchange carriers in the united states telecommunications industry from 1995 to 2000 this relationship is an important indicator of the economic impact of new technology adoption we provide a comprehensive analysis of the literature on general purpose technologies as well as on the economic consequences of information and communications technology diffusion and develop a framework to empirically assess the impact of broadband deployment on the productivity our results find a positive relationship between broadband deployment and the carriers productivity and suggest that encouraging the deployment of broadband technologies in addition to the benefits to consumers and firms at the receiving end of the new technology create the potential for better technological efficiencies and increased productivity for the deploying firms the benefits can be enhanced as the firms studied operate in two sided markets where the network effects brought about by the multitude of interconnections can be substantial because of possible second order spillovers of productivity copyright 2010 the author 2009 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

applying and advancing internalization theory the multinational enterprise in the twenty first century internalization theory has provided a resilient analytical framework that explicitly or implicitly underlines much of international business scholarship internalization theory is not a monolithic body of knowledge instead it has devolved into several streams each of which focuses on the interests of particular epistemic communities while also acting as a more generic organizing framework for those more broadly interested in its application to real world challenges following a review of the various streams we trace the frontiers of current research of the broader internalization framework and identify emerging themes raised by the papers in the special issue these include transaction cost considerations in the bundling and recombination of assets across diverse contexts the growing relevance of quasi internalization the theoretical challenges of bounded rationality for internalization theory and the increasing disconnect between ownership control and responsibility these developments point to new research frontiers for scholars looking to apply or advance internalization theory

r d internationalization and growth of newly listed firms european evidence the initial public offering ipo is an important stage in the life cycle of privately held and entrepreneurial firms for innovative firms eager to capitalize on their technological advances an ipo represents a springboard for a rapid international expansion of sales however there is little research on the longer term post ipo strategic evolution of newly listed companies including their internationalization we build on international entrepreneurship and dynamic capabilities perspectives and examine interrelationships between r d exporting and growth of newly listed firms in the uk germany italy and france using panel data for 1110 ipos during the period 1985 2004 we found that r d intensity is an important antecedent factor for internationalization of sales both r d and export intensities have a positive effect on the sales growth of newly listed firms however r d intensity is path dependent and is determined by levels of accumulated intangible assets and debt in terms of time dynamics the growth of ipo firms is at its highest level just after the float whereas export intensity increases as ipo firms mature we conclude that managers and ipo investors need to take into account not only growth opportunities but also past innovation strategies and financial constraints on managers strategic choices

environmental values and the frame of reference abstract wants may be distinguished by the extent to which they are positional positional wants are determined by one s frame of reference defined by comparison with peer group consumption and by one s own previous consumption the growth in positional wants is not uniquely related to environmental resource depletion but the two do strongly overlap several implications follow first social reductions in positional consumption may yield environmental benefits at little cost to consumers the costs are however spread over time and depend on the rate of adaptation the strength of the social reference effect determines whether individuals are subject to an isolation or an assurance problem and hence the degree to which cuts need to be centrally imposed if they are to succeed it is suggested that the negative consequences of international positioning could be ameliorated by the replacement of conventional income accounts by a welfare index that more fully incorporates environmental costs secondly the neoclassical utility function can be regarded as a special case of the reference based welfare function provided that it is restricted to positive explanations of how momentary choices are made reference based preferences have more in common with the findings of psychologists and hence open a way to consilience between economics and natural science finally the frame of reference also allows a dynamic perspective to the debate on the commensurability of wants

impact of information technology capital on firm scope and performance the role of asset characteristics this research draws on transaction cost and resource based theory to examine how information technology it capital moderates the relationship between different types of assets and firm scope both vertical integration and diversification the analysis suggests that it capital enables firms with narrowly valuable assets to be less vertically integrated and less diversified and enables firms with broadly valuable assets to be more vertically integrated and more diversified the moderating influence of it capital on the relationship between different types of assets and firms vertical and product market scope is consistent with transaction cost as well as resource based traditions abstract from author

competitive dynamics and economic learning an extended resource based view in this paper a conceptual framework for the analysis of economic learning is developed economic learning by analogy with organizational learning results in the development of economic competences or capabilities shared between firms which rest on a foundation of economic resources from which value is generated and economic routines through which resources are utilized it is the mobility of resources and their exchange and production dynamics along evolutionary pathways which underpins the plausibility of a notion of economic learning the paper elaborates this framework as a resource based view rbv of the economy as a whole as an extension of the rbv of the firm such a framework captures the dynamics of exchange and circulation of technologies know how and intangible assets as well as of tangible assets and capital goods it is concerned with investment behavior by entrepreneurs rather than with the behavior of producers and consumers in goods and services markets within this resource economy framework it is possible to generate an account of the resource dynamics that underpin production of goods and services including resource propagation diffusion imitation replication and recombination these processes encompass evolutionary pressures experienced through resource variation selection and retention entrepreneurial initiatives take the form of resource recombinations while resource innovation captures the creation of new economic resources such as technological standards such a perspective brings into focus the resource specialization and configurations that drive real economies within firms and between firms that translates into enhanced or diminished performance of the economy as a whole copyright 2003 oxford university press

the endogenous relationship between innovation and diversification and the impact of technological resources on the form of diversification abstract this research has endeavoured to build on earlier research on the relationship between a firm s technological resources and the direction of its diversification by trying to confirm the endogeneity of this relationship and by addressing the influence of innovation on the choice of the mode of diversification based on a sample of spanish firms our results suggest that innovation drives diversification but not the reverse the second important finding of this research is the empirical confirmation that knowledge assets are not related to the diversification mode

information technology effects on firm performance as measured by tobin s q despite increasing anecdotal evidence that information technology it assets contribute to firm performance and future growth potential of firms the empirical results relating it investments to firm performance measures have been equivocal however the bulk of the studies have relied exclusively on accounting based measures of firm performance which largely tend to ignore it s contribution to performance dimensions such as strategic flexibility and intangible value in this paper we use tobin s q a financial market based measure of firm performance and examine the association between it investments and firm q values after controlling for a variety of industry factors and firm specific variables the results based on data from 1988 1993 indicate that in all of the five years the inclusion of the it expenditure variable in the model increased the variance explained in q significantly the results also showed that for all five years it investments had a significantly positive association with tobin s q value our results are consistent with the notion that it contributes to a firm s future performance potential which a forward looking measure such as the q is better able to capture

sunk costs uncertainty and market exit a real options perspective in this article we examine whether the option value of keeping an operation alive will deter firms from exiting an industry we find that uncertainty dissuades firms from exiting an industry but only when the sunk costs of entering and exiting that industry are sizeable moreover we argue and find that sunk costs can be influenced by the technological intensity of an industry by the extent to which a firm competes on the basis of innovation and by the firm s diversification strategy copyright 2009 the author 2009 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

do esg controversies matter for firm value evidence from international data the aim of this paper is to investigate the relationship between environmental social and governance esg controversies and firm market value we use a unique dataset of more than 4000 firms from 58 countries during 2002 2011 primary analysis surprisingly shows that esg controversies are associated with greater firm value however when interacted with the corporate social performance csp score esg controversies are found to have no direct effect on firm value while the interaction appears to be highly and significantly positive building on this evidence we attempt to explore the channels through which csp may enhance market value conducting sample split analysis indicates that higher csp score has an impact on market value only for high attention firms those firms which are larger perform better located in countries with greater press freedom more searched on the internet more followed by analysts and have an improved corporate social reputation thus our findings provide new insights on the role of firm visibility through which firms can profit from their csp

linking corporate strategy to capital structure diversification strategy type and source of financing this study examines the relationship between corporate strategy and capital structure specifically the diversfication and financing strategies of a firm the results show that equity financing is preferred for related diversification and unrelated diversification is associated with debt financing additionally firms diversifying through acquisitions are more likely to use public sources of financing and those emphasizing internal development of new businesses depend primarily on private sources of financing using simultaneous equation estimation we found a reciprocal relationship between a firm s financial strategy and its corporate diversification strategy mode and nature of diversification are also reciprocally interrelated 1998 john wiley sons ltd

bank information monopolies and the mix of private and public debt claims this article examines the determinants of the mix of private and public debt using detailed information on the debt structure of 250 publicly traded corporations from 1980 through 1990 we find that the relationship between bank borrowing and the importance of growth opportunities depends on the number of banks the firm uses and whether the firm has public debt outstanding for firms with a single bank relationship the reliance on bank debt is negatively related to the importance of growth opportunities in contrast among firms borrowing from multiple banks the relationship is positive

a qualitative response analysis of uk firms employment and output decisions this paper investigates firms employment and output decisions and presents some empirical evidence concerning the rationality of firms expectations the dymanic model is based on the assumptions of convex adjustment costs and monopolistic competition in the product market the results are obtained using categorical information on individual firms contained in business surveys collected by the confederation of british industry ordered probit models are used to estimate the employment and output equations we find that expected demand is a critical determinant of firms decisions the effect of changes in cost conditions is not as well determined and the data are not consistent with the rational expectations hypothesis

the wacc fallacy the real effects of using a unique discount rate in this paper we test whether firms properly adjust for risk in their capital budgeting decisions if managers use a single discount rate within firms we expect that conglomerates underinvest overinvest in relatively safe risky divisions we measure division relative risk as the difference between the division s asset beta and a firm wide beta we establish a robust and significant positive relationship between division level investment and division relative risk next we measure the value loss due to this behavior in the context of acquisitions when the bidder s beta is lower than that of the target announcement returns are significantly lower

capital structure and investment in regulated network utilities evidence from eu telecoms this article analyzes the relationship between firm financial and investment decisions and regulatory outcomes in network industries where regulatory opportunism is often viewed to lead to underinvestment we develop a model to describe the effect of an increase in leverage on regulated rates retail as well as wholesale and company investment we then test the model s predictions using a panel of 15 eu public telecommunication operators ptos over the period 1994 2005 our results show that the data cannot reject the model s predictions that leverage positively affects regulated wholesale and retail rates as well as the ptos investment rate moreover since leverage does affect wholesale charges that alternative operators pay to access to the incumbent s network infrastructure we also find that an increase in leverage is followed by a decrease in the number of competitors and by an increase of the incumbent s market share this suggests that the use of debt to discipline the regulator s lack of commitment within a vertically integrated network industry may somewhat impair or delay retail market competition but has a favorable counterpart in mitigating the underinvestment problem

r d and internal finance a panel study of small firms in high tech industries since joseph schumpeter economists have argued that internal finance should be an important determinant of r d expenditures yet almost without exception previous empirical studies have not found evidence of such a relation using newly available data the authors investigate this puzzle with a panel of 179 small firms in high tech industries under each estimation strategy they employ the authors find an economically large and statistically significant relationship between r d investment and internal finance their results are consistent with the view that because of capital market imperfections the flow of internal finance is the principal determinant of the rate at which small high tech firms acquire technology through r d copyright 1994 by mit press

inventories and price inflexibility a firm maximizing expected discounted profits taking account of the actions of its competitors choosing price and output before stochastic demand is known and holding inventories or unfilled orders to accommodate discrepancies between output and demand is shown to respond to a change in demand by changing its output whether the demand change is transitory or permanent but by changing the price it charges only if the demand change is permanent this proposition is shown to be consistent with german data the data are qualitative the empirical analysis uses the multivariate conditional logit model the empirical results are summarized by gamma coefficients

the firm as a nexus of treaties part 1 knowledge its acquisition sharing and or asymmetry the participatory generation of information rents and the theory of the firm masahiko aoki common knowledge and the co ordination of economic activities jacques cremer profit sharing information and employment matti pohjola part 2 vertical integration and the strategic management of the enterprise what is vertical integration michael h riordan vertical integration transaction costs and learning by using kurt lundgren the firm as a nexus of internal and external contracts torger reve part 3 issues of labour organization the viability of worker ownership an economic perspective on the political structure of the firm henry hansmann intellectual skill and the role of employees as constituent members of large firms in contemporary japan kazuo koike the implicit contract for corporate law firm associates ex post opportunism and ex ante bonding robert h mooking part 4 finance and the political structure of the firm capital structure as a mechanism of control a comparison of financial systems erik berglof long term contracts in financial markets hakan lindgren the principle of external accountability in competitive markets herbert gintis union militancy and plant designs kar ove moene can transaction cost economics explain trade associations marc schneiberg and j rogers hollingsworth

customer satisfaction productivity and profitability differences between goods and services there is widespread belief that firms should pursue superiority in both customer satisfaction and productivity however there is reason to believe these two goals are not always compatible if a firm improves productivity by downsizing it may achieve an increase in productivity in the short term but future profitability may be threatened if customer satisfaction is highly dependent on the efforts of personnel if so there are potential tradeoffs between customer satisfaction and productivity for industries as diverse as airlines banking education hotels and restaurants managers in these types of service industries as well as goods industries in which the service component is increasing need to understand whether or not this is the case for example if efforts to improve productivity can actually harm customer satisfaction and vice versa the downsizing of u s and european companies should be viewed with concern it follows that developing a better understanding of how customer satisfaction and productivity relate to one another is of substantial and growing importance especially in light of expected continued growth in services throughout the world economy the objective of this paper is to investigate whether there are conditions under which there are tradeoffs between customer satisfaction and productivity a review of the literature reveals two conflicting viewpoints one school of thought argues that customer satisfaction and productivity are compatible as improvements in customer satisfaction can decrease the time andeffort devoted to handling returns rework warranties and complaint management while at the same time lowering the cost of making future transactions the second argues that increasing customer satisfaction should increase costs as doing so often requires efforts to improve product attributes or overall product design a conceptual framework useful in resolving these contradictory viewpoints is developed the framework serves in turn as a basis for developing a theoretical model relating customer satisfaction and productivity the model predicts that customer satisfaction and productivity are less likely to be compatible when 1 customer satisfaction is relatively more dependent on customization the degree to which the firm s offering is customized to meet heterogeneous customers needs as opposed to standardization the degree to which the firm s offering is reliable standardized and free from deficiencies and 2 when it is difficult costly to provide high levels of both customization and standardization simultaneously to move forward from the model s propositions to the development of testable hypotheses we argue that services are more likely than goods to have the preceding characteristics hence tradeoffs between customer satisfaction and productivity should be more prevalent for services than for goods although this classification is not precise many services are standardizable and many goods have a service component it has the advantage of allowing an initial test of the propositions the empirical work employs a database matching customer based measures of firm performance with traditional measures of business performance such as productivity and return on investment roi the central feature of this database is the set of customer satisfaction indices provided by the swedish customer satisfaction barometer scsb the scsb provides a uniform set of comparable customer based firm performance measures and offers a unique opportunity to test the study s hypotheses the findings indicate that the association between changes in customer satisfaction and changes in productivity is positive for goods but negative for services in addition while both customer satisfaction and productivity are positively associated with roi for goods and services the interaction between the two is positive for goods but significantly less so for services taken together the findings suggest support for the contention that tradeoffs are more likely for services hence simultaneous attempts to increase both customer satisfaction and productivity are likely to be more challenging in such industries of course this does not imply that such firms should not seek improvements in both productivity and customer satisfaction for example appropriate applications of information technology may improve both customer satisfaction and productivity simultaneously the findings should provide motivation for future research concerning the nature of customer satisfaction and productivity as well as appropriate strategy and tactics for each one it is worth emphasizing that this is an issue that is not only important today but certainly will become even more important in the future as the growth of services continues and world markets become increasingly competitive the importance of customer satisfaction will also increase to compete in such a world firms must strike the right balance between their efforts to compete efficiently and their efforts to compete effectively

the firm as a dedicated hierarchy a theory of the origins and growth of firms in the formative stages of their businesses entrepreneurs have to provide incentives for employees to protect rather than steal the source of organizational rents we study how the entrepreneur s response to this problem determines the organization s internal structure growth and its eventual size large steep hierarchies will predominate in physical capital intensive industries and will have seniority based promotion policies by contrast e at hierarchies will prevail in human capital intensive industries and will have up or out promotion systems furthermore e at hierarchies will have more distinctive technologies or cultures than steep hierarchies the model points to some essential differences between organized hierarchies and markets at the root of most enterprises generating economic surplus is an entrepreneur with a unique critical resource such as an idea good customer relationships a new tool or superior management technique a fundamental problem of entrepreneurship is how to enlist the cooperation of the many agents necessary for production without ceding to them too much of the surplus generated by the enterprise the risk of being expropriated however is always inherent in production in particular the entrepreneur has to give her employees whom we call managers close proximity or access to the critical resource for them to learn to produce effectively for example a manager has to understand the idea be in contact with the key customers and suppliers or even learn the entrepreneur s unique managerial techniques in order to work effectively but access also gives the manager the opportunity to expropriate this critical resource and compete against the entrepreneur managers may steal the idea walk away with clients or mimic the entrepreneur s management style and start up a rival concern the greater the access a manager has the more he can appropriate and the more effectively he can compete this paper explores the role of organizational design in

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

product line expansion and resource cannibalization abstract diversification research argues that new products are more successful when they leverage a firm s intangible resources which may support multiple activities without engendering rivalry for their use however numerous complementary resources may also be needed to exploit a firm s intangibles if these resources are in limited supply or if it takes time to acquire and assimilate additional resource capacity then new products may impose costs on existing products by cannibalizing the services of firm resources our analysis of product introductions within the pharmaceutical industry provides evidence of resource cannibalization and suggests that product market experience helps offset some of these costs

do firms learn to create value the case of alliances we investigate whether firms learn to manage interfirm alliances as experience accumulates we use contract specific experience measures in a data set of over 2000 joint ventures and licensing agreements and value creation measures derived from the abnormal stock returns surrounding alliance announcements learning effects are identified from the effects of unobserved heterogeneity in alliance capabilities we find evidence of large learning effects in managing joint ventures but no such evidence for licensing contracts the effects of learning on value creation are strongest for research joint ventures and weakest for marketing joint ventures these results are consistent with the view that learning effects are more important in situations characterized by greater contractual ambiguity copyright 2000 john wiley sons ltd

covenants and collateral as incentives to monitor although monitoring borrowers is thought to be a major function of financial institutions the presence of other claimants reduces an institutional lender s incentives to do this thus loan contracts must be structured to enhance the lender s incentives to monitor covenants make a loan s effective maturity and the ability to collateralize makes a loan s effective priority contingent on monitoring by the lender thus both covenants and collateral can be motivated as contractual devices that increase a lender s incentive to monitor these results are consistent with a number of stylized facts about the use of covenants and collateral in institutional lending modern finance theory suggests that financial intermediaries such as commercial banks insurance companies and finance companies monitor and control their borrowers on behalf of other investors 1 this article investigates how the loans made by these institutions can be structured so as to best enhance the institutions role as delegated monitors covenants and collateral are common features of loans made by financial institutions but these features are somewhat difficult to justify consider loan covenants clauses in a loan contract that require the borrower to take or refrain from various actions berlin and mester 1992 magee and sridhar 1994 and park 1994 show that by giving institutions the right to renegotiate or call loans when covenants are violated covenants serve as tripwires that enhance the flexibility and efficiency of financial contracting also as documented in smith and warner 1979 control rights from covenants reduce borrower adverse selection or moral hazard nevertheless by allowing institutions to demand repayment based on any information contractible or not

using monte carlo analysis to investigate the relationship between overconsumption and uncertain access to one s personal utility function abstract the failure of income and subjective well being to correlate strongly beyond subsistence levels has been well documented this is an important observation from an environmental perspective because it suggests that some excess consumption could be curbed without leading to a decline in subjective well being at the same time there is evidence that access to one s internal utility function is imperfect indicating that choices may approximate utility maximization but that the correspondence is unlikely to be exact here i use a monte carlo model to incorporate findings from hedonic psychology to investigate the question of how imperfect access to one s utility may lead to negatively affective overconsumption through asymmetries in how people are able to budget their time according to the model consumer debt leads to a compounding of this issue although it cannot return well being to the ideal level some hedonic costs of this overconsumption can be partially mitigated through required vacation in excess of what individuals would chose themselves in a fully functioning market perhaps along the line of the european model

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

firm specificity in corporate applied r d much corporate research and development r d has characteristics that tie it strongly to the firm in which it takes place and which may make the process of undertaking r d or the outcome of the r d difficult for other firms to duplicate perfectly that is the r d is firm specific this is particularly true for more highly applied r d which tends to involve incremental technological change and often entails alterations and enhancements to existing firm assets production processes and products the often firm specific nature of corporate r d tends to receive relatively little attention in the study of technological innovation this article outlines the primary characteristics of firm specificity in r d and discusses two interrelated consequences of such firm specificity 1 heterogeneity in the r d applications of firms within an industry and 2 increased ability of firms to earn returns to r d often termed appropriability both factors have important implications for firm strategy empirical

explaining the swollen middle why most transactions are a mix of market and hierarchy why are firms sometimes more efficient than markets at organizing transactions why are most transactions arrayed neither at the pure market nor at the pure hierarchy end of the continuum but rather in the swollen middle incorporating features of both market and hierarchy why don t firms make greater use of price incentives this paper addresses these three questions by developing a model of the choice of institution one key building block is the distinction between organizing methods hierarchy and the price system and institutions firms and markets hierarchy and the price system are two distinct methods for organizing transactions each with particular costs and benefits markets and firms are institutions which use one or both of these methods although markets predominantly use prices and firms rely principally on hierarchy there is not a one to one correspondence between prices and markets or between hierarchy and firms indeed the paper argues that it is generally more efficient to use a mix of both methods than to specialize in either the paper focuses on the enforcement properties of prices and hierarchy hierarchy controls individuals directly by constraining their behavior by imposing behavior constraints while prices do it indirectly by measuring their outputs through price constraints under hierarchy individuals receive a salary to do as told while self employed individuals governed by the price system are rewarded on the basis of their output each system has its own biases using prices maximizes effort minimizes shirking but incites individuals to inflate the price and or reduce the quality of their output it encourages cheating relying on hierarchy results in the opposite bias under hierarchy individuals are not paid in function of their output but instead are rewarded for following directives they have thus strong incentives to minimize effort to shirk unless properly supervised but being paid a fixed sum to follow orders they have few incentives to cheat hence the price system experiences low shirking but potentially high cheating costs while hierarchy faces low cheating but high shirking costs organizing costs are the sum of shirking and cheating costs any given transaction will be organized by the mix of price and hierarchy i e by the mix of price and behavior constraints that minimizes organizing costs a transaction will be organized within a firm if the reduction in cheating costs achieved by replacing price constraints by behavior constraints exceeds the resulting increase in shirking costs and by the market in the opposite case the paper shows that cheating and shirking costs increase more than proportionately as one concentrates in either pure price or behavior constraints hence using a mix of both methods generally minimizes the sum of cheating and shirking costs this explains why most transactions exhibit features of both markets and hierarchy the paper shows clearly the tradeoff involved between price and behavior constraints it explains the costs and benefits of using two types of price incentives in firms piecework and profit centers and predicts when they will be used

computerisation and wage dispersion an analytical reinterpretation the rich countries have recently seen a dramatic rise in income inequality all the more surprising because the long term trend had been toward equality this paper examines one of the leading explanations computerisation in the workplace i offer a theory of computers impact on white collar work which goes far toward explaining the timing form and locus of recent labour market changes the theory looks at the bureaucratic and organisational applications of computers that have been first largest and most influential they have two effects on firms demand for labour at different skill levels

tobin s q and the importance of focus in firm performance using tobin s q as a measure of performance we seek to estimate the relative importance of industry focus and share effects in determining firm performance our methods are analogous to those of richard schmalensee and like him we find that industry effects account for the majority of the explained variance however we also find that firm effects exist in the form of focus effects that is narrowly diversified firms do better than widely diversified firms we interpret this finding as consistent with profit maximization by firms with different factor endowments

the capital structure of a regulated firm we examine the equilibrium price investment and capital structure of a regulated firm using a sequential model of regulation we show that the firm s capital structure has a significant effect on the regulated price consequently the firm chooses its equity and debt strategically to affect the outcome of the regulatory process in equilibrium the firm issues a positive amount of debt and the likelihood of bankruptcy is positive debt raises the regulated price thus mitigating regulatory opportunism however underinvestment due to lack of regulatory commitment to prices persists in equilibrium

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

the moderating role of the complementary nature of technological resources in the diversification performance relationship this article analyzes the moderating role of complementary technological resources in the diversification performance relationship our contention is that entry into a new market poses challenges to complementary resources that are already being exploited and that diversification thus comes at a substantial cost to the diversifying firm using a sample of the world s largest manufacturers we find that the effect of diversification on productivity is positive for firms with an initially low level of overall technological complementarity firms that specialize and have existing complementarities are negatively affected by diversification because the process of unbundling and rebundling technological resources is disruptive to productive firms

management and ownership effects evidence from five countries despite the growing recognition in the corporate governance literature that the relationship between ownership concentration and profitability is context dependent this issue has not yet been subjected to direct empirical investigation using a single cross national sample this study empirically examines the ownership concentration performance relationship across the nations of canada france germany the united kingdom and the united states essentially we argue that the correlation if any between ownership concentration and firm profitability differs across countries in a systematic way determined by the national system of corporate governance results indicate that important and statistically significant differences do in fact exist across the countries studied 1998 john wiley sons ltd

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

intangible resources as a key factor in the internationalisation of spanish firms abstract in this paper we analyse the effect of the availability of intangible resources measured by way of tobin s q on the probability of spanish firms increasing their international diversification we find that this impact is positive and statistically significant we also discover that firms with a higher endowment of intangible resources increase their presence in their current markets concentration and that those with a multinational status also expand to new markets scope

q and the tax bias theory abstract a growing body of literature analyzes the variation in q the ratio of financial market value to asset current replacement cost and makes inferences about attributes such as monopoly power profitability managerial performance etc these studies ignore potential biases embedded in q that result from non neutral tax policies this study examines the association between q and tax biases and establishes that differences in accumulated depreciation tax shields explain significant variation in q the implication that q should be adjusted for tax biases before use in empirical research is examined further adjusting q for tax biases at least with the factors herein leads only to minor changes in econometric analyses

capital markets and corporate control a study of france germany and the uk this paper examines the relation between capital markets and corporate control in france germany and the uk it compares levels of takeover activity in the three countries and describes the degree to which takeovers are associated with changes in corporate control the paper examines the influence of regulation on forms of corporate ownership and control it compares regulation pertaining to the rights of employees managers and shareholders in the three countries and finds that regulatory rules are related to patterns of ownership and control changes the paper suggests that a fundamental objective of control changes is to correct managerial failure and that takeovers are suited to the correction of particular classes of managerial failure that cannot be readily rectified by contracts thus markets with low levels of takeovers may suffer from a low level of correction of managerial failure however by changing ownership takeovers may give rise to an inability of owners to commit themselves to the long term interests of managers and employees as a consequence financial systems with active takeover markets may be associated with inadequate investment in firm specific assets and an unduly short term investment horizon there is therefore a tradeoff between alternative methods of correcting managerial failure this is particularly important for european countries facing an extension of uk takeover activity to the continent the process is being encouraged by the european commission which aims to harmonize regulation on a uk style takeover code harmonization of regulation may have far reaching consequences for the structure of different countries capital markets and in view of the tradeoff is of uncertain merit

the choice of technology and capital structure under rate regulation this paper examines a regulated firm s choice of technology it presents a model in which regulatory opportunism induces the firm to adopt a technology that gives rise to cost functions with higher variable costs and lower fixed costs than is socially optimal this distortion arises because the regulated price is positively correlated with marginal costs consequently a technology with low marginal costs implies a low regulated price and hence is unattractive to the firm debt financing is shown to alleviate this distortion because it induces regulators to increase the regulated price to prevent the firm from financial distress thereby reducing the cost to the firm of adopting technologies with low marginal costs when regulators restrict the firm s ability to issue debt the firm may have an incentive to goldplate i e waste resources this incentive disappears when the firm can use its most preferred mode of financing

application specific r d capabilities and the advantage of incumbents evidence from the anticancer drug market this paper examines the proposition that during competence destroying technological changes incumbents are incompetent in researching in house a radically new technology they only retain market leadership if their undestroyed proprietary complementary assets compensate for their research incompetence in contrast to prior research i propose that there is not one but two sets of capabilities necessary to execute research and development r d sets that differ in their market specificity a technology specific set i e technological platforms that are non market specific and an application specific set i e knowledge of the application that is therefore market specific although all markets require both sets of capabilities to execute r d prior research has analyzed cases where the application was not as complex and therefore application specific capabilities did not represent strategic factors because at the start of a technological discontinuity application specific capabilities are undestroyed and have accrued only to incumbents when complex enough these capabilities can represent a source of competitive advantage for these firms even in the face of competition from diversifying entrants reusing previously acquired technological platforms i find evidence consistent with my proposition based on data on outcomes from drug discovery as estimated through clinical endpoints in phase i trials for firms competing in the anticancer drug market one of the most complex markets within pharmaceuticals as the market transitions into the biotechnology revolution the proposition in this paper implies that although technological platforms can help firms move across markets application specific r d capabilities can help firms retain leadership within a market across technological discontinuities

debt and communications technology diffusion retrospective evidence this study has evaluated the relationship between debt in the capital structure of firms and the dynamics of broadband and digital technology adoption in the united states based on a large dataset on local exchange carriers in the united states over a contemporary historical fourteen year period from 1988 to 2001 using treatment effects modeling the impact of debt in impacting the levels of firms broadband deployment has been found to be negative and significant the primary source of debt in the sector has been in the form of arm s length corporate bonds and the assumptions of the monitoring hypothesis associated with such debt that lenders in the face of information and collective actions problems might not be able to control managers and hence invest less in highly technology intensive situations are supported by the data additionally the data set has been split into separate sets for two periods one between 1988 and 1995 for the period before the telecommunications act of 1996 came into force and the other set between 1996 and 2001 and the results have stayed consistent a test of the coefficients between the two periods has shown that the negative impact of leverage on broadband deployment has become stronger after the introduction of competition in the sector and this has suggested that the change in the institutional logics between the two periods has been of material impact in influencing lenders perceptions

the influence of unrelated and related diversification on fraudulent reporting this study suggests that unrelated diversification has a positive influence on the probability of fraudulent reporting whereas related diversification has a negative influence on the probability of fraudulent reporting the strength of the influence of these corporate level strategies is contingent on the moral character of the firm unrelated diversification provides opportunity for financial innovation within the firm s internal capital market which can result in fraudulent reporting this is more likely when the moral character of the firm is driven by a conscienceless financial self interest motive as implied by the firm s contempt toward the larger community in terms of damage inflicted on the interests of people outside the firm in contrast related diversification where product divisions focus on mutual sharing and monitoring of operational activities can reduce the probability of fraudulent reporting this is more likely when constituents within the firm view themselves as moral citizens as implied by the firm s benevolence toward the larger community hence while unrelated diversification focuses the energies of managers within the firm on financial manipulation related diversification focuses these energies on productive purposes

the implications of debt heterogeneity for r d investment and firm performance an assumption in prior research is that debt is homogeneous and provides inappropriate governance for r d investments we argue that debt is heterogeneous although transactional debt does indeed impose strict contractual constraints that provide inappropriate governance for r d investments relational debt has very different characteristics that provide more appropriate governance using a sample of japanese firms we find that firms that align their debt structures with their r d investments perform better than those that are misaligned furthermore firms tend to align their debt structure with r d investments but only after deregulation permits relatively free access to various types of debt

how do firms choose their lenders an empirical investigation this article investigates which companies finance themselves through intermediaries and which borrow directly from arm s length investors our empirical results show that large companies with abundant cash and collateral tap credit markets directly these markets cater to safe and profitable industries and are most active when riskless rates or intermediary earnings are low we show that determinants of lender selection sharpen during investment downturns and that there are substantial asymmetries in the way firms enter and exit capital markets these results support a theoretical framework where intermediaries have better reorganizational skills but a higher opportunity cost of capital than bondholders

a capability based view of competitive heterogeneity the question of how firms differ is paramount to strategy scholars this question has motivated empirical research on the factors influencing performance differences among close competitors it also has motivated work on factors that increase or decrease the mean performance of firms in an industry theories about resources and capabilities tend to dominate discussions of heterogeneity in performance and superior performance yet the strategy field lacks a cumulative body of empirical work showing how firms differ this article derives conclusions and questions from empirical work on capabilities we then discuss work that complements but lies beyond the boundaries of traditional capabilities research we conclude by suggesting approaches to and areas of future work

are tradeoffs inherent in diversification moves a simultaneous model for type of diversification and mode of expansion decisions drawing on the premise that the diversification decisions are driven by antecedent factors such as a firm s existing resources teece 1982 and industry structural conditions this paper develops formal hypotheses for reciprocity between the type of diversification and mode of expansion decisions we consider the specificity of antecedent resources that affect these two decisions and conceptually demonstrate that there is a contradictory tension in trying to optimize the decisions jointly implying that one or both diversification decisions have to be sub optimized i e there has to be a trade off we make a conceptual argument that this sub optimization is likely to be in the form of subordination of the mode decision subject to constraints impo sed by resources that are highly specific to the mode decision following this we empirically investigate this contradictory tension by using a simultaneous equation model sem on a large sample of firms between 1981 and 1989 the results suggest that one antecedent factor internal funds act as the key mediating influence in the joint optimization and leads to a subordination of the mode decision in the joint optimization process however the existence of time compression economies and market power benefits are the exceptions to this subordination and trade off process

the validity of profits structure studies with particular reference to the ftc s line of business data the simple proposition that consumerdamaging collusion is more likely to occur when there are fewer competitors has given rise not only to legal restrictions of economic activity thought to restrict output but also to an enormous amount of empirical work attempting to relate market concentration to the exercise of monopoly power most such studies measured market structure by an index of concentration for example four firm concentration or herfindahl and performance by accounting profit for example net profit divided by assets or price cost margins sales less direct costs divided by sales from the positive statistically significant correlations often found between greater concentration and profit with other factors presumably accounted for some researchers conclude that increases in concentration are anticompetitive and that concentration therefore is bad the concentration profits studies have been criticized essentially on two grounds one is that the positive relationship is not indicative of collusive behavior in particular oliver williamson 1968 john mcgee 1971 harold demsetz 1973 1974 and sam peltzman 1977 point out that higher profits could result from efficiencies experienced by large firms which resulted both in greater market shares and high levels of concentration analytical arguments show that higher profits logically follow as much from lower costs that are associated with higher levels of concentration as from collusion determined higher prices some empirical evidence that supports this belief is presented by demsetz peltzman and bradley gale and ben branch 1982 however their findings have been contested on the grounds that the data used are biased or inadequate or that the researchers have not demonstrated that the observed higher profits greater concentration relationship was caused by lower costs 2 the second criticism is that available data provide an inadequate basis for such conclusions the concentration numbers are based usually on industries defined by the commerce department s standard industrial classifications sic the sic definitions tend to be supply production rather than demand determined include nonhomogeneous products and exclude sales of similar products that are included in different sic groups or are imported the profit data are taken from accounting reports that provide poor measures of economic values weiss 1974 describes many of these problems however he does not believe that these shortcomings invalidate the studies as weiss 1979 concludes

seasonality in surveys a comparison of belgian french and german business tests abstract seasonal effects appear in qualitative responses of monthly business surveys the seasonal effects can be extracted like in regression or time series models via dummy variables in surveys however there is another route to extract the seasonal effects by incorporating questions on the questionnaires which force respondents to make a distinction between seasonal and cyclical effects it is shown in the paper that a comparison of these two approaches on theoretical grounds is inconclusive evidence from belgian french and german surveys is used to make a comparison the approach with survey based seasonal measures is found more desirable moreover the responses to the request to separate seasonal from cyclical effects seem to be fairly consistent

ex ante rates of return for regulated utilitiest willard carleton 1974 recently demonstrated some subtle difficulties in the rate of return regulation of public utilities accounting rather than genuine opportunity costs influence the rates that are set and because there is no way to undo the consequences whenever regulatory lag prevents immediate adjustments to changes in the cost of capital there simply is no way to reflect genuine market effects on firms values the main cause of these difficulties demonstrated by carleton is the impossibility of continuously maintaining through administrative machinery an allowed rate of return in real terms but the regulatory task is also made more difficult by the fact that a mixture of nominal and real returns is supposed to determine the allowed rate of return according to the influential hope natural gas co decision 1 we shall illustrate the role of this latter provision by contrasting the effects of a change in bond interest rates on a regulated versus an unregulated firm and to avoid the consequent difficulties we suggest an alternative regulatory procedure similar to that proposed by justice brandeis in the southwestern bell telephone co case 2 he proposed reliance on nominal rather than real returns in public utility regulation we urge negotiation of returns on an ex ante rather than an ex post basis when a rate of return is established for a regulated utility today it typically has two main parts a return in real terms and one in nominal terms the nominal return is the return allowed to bondholders while the real return is the return allowed equity capital and the two are weighted together based on the proportions of debt and equity capital in the firm s capital structure 3 ordinarily we expect competitive markets to yield returns on assets in real terms but the returns allowed regulated firms under supreme court decisions gradually have shifted away from an entirely real return on assets wide ranging arguments over real returns followed the smyth v ames decision 1898 4 with its fair return on fair value guideline a nominal return was first urged in justice brandeis concurring minority opinion in the southwestern bell telephone co case which influenced the hope decision as grounds for dissenting from the opinion of the court in southwestern

determinants of venture capital firms preferences regarding the industry diversity and geographic scope of their investments abstract competition is intensifying in the venture capital industry in the u s the number of venture capital firms vcfs tripled from 1980 to 1989 supplier power in the form of institutional investors such as pension funds continues to grow foreign venture capital has grown to the extent that commitments to foreign vcfs exceeded domestic commitments in both 1988 and 1989 further alternative sources of financing for entrepreneurs such as individual investors angels corporations and strategic alliances are increasingly viable options vcfs face pressure to seek lower risk investments improve rates of return and provide value to new venture development surprisingly few scholarly studies have begun to investigate the strategies vcfs are aiming to implement in order to deal with this increasing pressure building on the premise that decisions regarding product market scope are a key component of firm strategy hofer and schendel 1978 this study examined 169 domestic vcfs in order to identify factors that might explain variations in preferences regarding the industry diversity and geographic scope of their investments the sample drawn from california massachusetts and texas represented about 27 of all u s based vcfs in 1987 the year in which the data were gathered in terms of the total size of investment portfolio the average for these 169 vcfs was 69 8 million which is statistically indistinguishable from the u s average of 65 million results indicate that 1 vcfs specializing in early stage ventures prefer less industry diversity and narrower geographic scope relative to other vcfs 2 corporate vcfs i e those owned by non financial corporations prefer less industry diversity but broader geographic scope relative to non corporate vcfs 3 larger vcfs prefer greater industry diversity and broader geographic scope than do smaller vcfs and 4 provision of small business investment companies sbic financing by the vcf has no impact on preferences regarding industry diversity but is associated with a preference for narrower geographic scope one implication of these results is that vcfs in the u s are not homogeneous as regards the intended product market scope of their portfolios this in turn holds implications not only for vcfs but also for their suppliers limited partners buyers entrepreneurs and policy makers vcfs can no longer rely on haphazard investment schemes they need to attract investors by virtue of the benefits offered by their portfolio strategy and they need to attract superior investments via offering valueadded services and know how potential investors in venture capital will want to examine for example the impact on risk and return of investing smaller amounts in several vcfs at one extreme versus making one large investment in a very diversified vcf at the other extreme the results of this and other studies suggest that outcomes timing magnitude and riskiness of returns of choosing such alternatives will vary widely and will depend in great part on the strategies of the vcfs involved it will not be possible for investors to make wise choices without a full examination of their own objectives and of the profiles of vcfs entrepreneurs with the most attractive ventures have alternative sources of financing to consider and should weigh the benefits of being financed and supported by various vcfs as part of the vcfs portfolios knowing a vcf s preferences regarding product market scope improves their chances of approaching and selecting the right fit and for those entrepreneurs with a narrower set of options such knowledge may make the difference between receiving and not receiving financing in a timely manner finally policy makers may be able to make use of knowledge of the forces that influence the investment strategies of vcfs presently concerns for policy makers may include the gap in seed capital increased foreign presence in the u s market and the export of promising innovative technology via alliances with foreign firms all of these factors are influenced by the strategies pursued by vcfs as they jockey for position in the increasingly competitive venture capital market

the failure of competition in the credit card market the bank credit card market containing 4 000 firms and lacking regulatory barriers casually appears to be a hospitable environment for the model of perfect competition nevertheless this article reports that credit card interest rates have been exceptionally sticky relative to the cost of funds moreover major credit card issuers have persistently earned from three to five times the ordinary rate of return in banking during the periods 1983 88 the failure of the competitive model appears to be partly attributable to consumers making credit card choices without taking account of the very high probability that they will pay interest on their outstanding balances copyright 1991 by american economic association

myopic solutions of markov decision processes and stochastic games sufficient conditions are presented for a markov decision process to have a myopic optimum and for a stochastic game to possess a myopic equilibrium point an optimum or an equilibrium point is said to be myopic if it can be deduced from an optimum or an equilibrium point of a static optimization problem or a static nash game the principal conditions are a each single period reward is the sum of terms due to the current state and action b each transition probability depends on the action taken but not on the state from which the transition occurs and c an appropriate static optimum or equilibrium point is ad infinitum repeatable these conditions are satisfied by several dynamic oligopoly models and numerous markov decision processes

agency and institutions national divergences in diversification behavior a fundamental theme in comparative crosscountry research is the convergence of organizational forms in diverse national settings in this paper we examine a special instance of this theme the pattern of diversification across industries a common argument is that technical and market forces compel firms to adopt coherent strategies of diversification this thesis implies that there should be a convergence in the patterns of interindustry diversification in all market based economies an institutional approach offers an alternative view from this perspective when diversification across industries is seen as subject to nation specific governance and resource constraints countries should vary widely in their interindustry diversification patterns to test these alternative views we analyze the diversification patterns of large corporations from five countries france germany japan the united kingdom and the united states our results do not support the hypothesis of a common pattern of diversification across countries and thus reject the technological thesis by comparing two case studies in which entrepreneurs attempted to diversify by acquisition in france and the united states we examine how institutions and agents interact to permit different diversification patterns to arise in diverse national environments the statistical results and case studies imply that given the fixity of certain institutions even if countries are subject to globalization convergence in diversification patterns is not necessary the results cast doubt upon the merits of stylizing the debate as a choice between technical and institutional theories of organizational choice rather the study points to the importance of two theoretical statements the first is to inquire under what conditions there is likely to be consensus on a given means end rationality for a specific managerial decision e g diversification the second is to understand the structural opportunities available to entrepreneurs for diversifying through acquisitions iterating between these cognitive and structural considerations shifts the focus from the false debate between technological and institutional arguments to the study of entrepreneurship situated in historically given national environments

dynamics of price regulation we study the dynamics of price regulation for an industry adjusting to exogenous technological progress first we characterize the optimal capacity path and replacement cycles in a neoclassical investment model second we show that naive rate ofreturn regulation which ignores components of economic depreciation eventually results in a deficient level of capacity due to excessively high retail prices burdened by the need to recover the underdepreciated costs of historical investments third we explain how price cap regulation leads to more efficient capital replacement decisions compared to naive rate of return regulation and we show how finite price cap horizons distort capital replacement finally we interpret recent regulatory reforms in telecommunications markets

global cities and multinational enterprise location strategy we combine the concept of location derived by economic geographers with theories of the multinational enterprise mne and the liability of foreignness developed by international business scholars to examine the factors that propel mnes toward or away from global cities we argue that three distinctive characteristics of global cities global interconnectedness cosmopolitanism and abundance of advanced producer services help mnes overcome the costs of doing business abroad and we identify the contingencies under which these characteristics combine with firm attributes to exert their strongest influence consistent with these arguments our analysis of a large sample of mne location decisions using a multilevel multinomial model suggests not only that mnes have a strong propensity to locate within global cities but also that these choices are associated with a nuanced interplay of firm and subsidiary level factors including investment motives proprietary capabilities and business strategy our study provides important insights for international business scholars by shedding new light on mne location choices and also contributes to our understanding of economic geography by examining the heterogeneous strategies and capabilities of mnes the primary agents of economic globalization that shape the nature of global cities

disequilibrium dynamics an empirical study despite the amount of attention devoted in economics to the study of equilibria the process by which an equilibrium can be attained is not well understood stephen smale 1977 called this the fundamental problem of economic theory this paper explores the microeconomics of the adjustment process by examining empirically the disequilibrium behavior of firms implications for the microeconomic foundations of macroeconomics are stressed the data from german industry describe the month by month price and output changes of individual firms as well as the firms own assessments of the levels of their inventories and unfilled orders because the data are qualitative use is made of the multivariate conditional logit model developed by marc nerlove and s james press 1973 1976 and extended by kawasaki and zimmermann section i discusses the underlying model of firm behavior and the significance of the inquiry for macroeconomics in section ii the econometric techniques are briefly described in section iii the empirical results are summarized and interpretations of the results are offered in section iv

the buffer stock notion in monetary economics not the least of harry johnson s contributions to our discipline was the series of survey papers on aspects of monetary economics which he produced during the 1960s and 1970s it is no exaggeration to say that the way in which the literature of monetary economics is organised even now follows the design which johnson first set out in 1962 and built on in the subsequent decade nevertheless the subject has not stood still and one of the more interesting developments of the last few years has involved the introduction of what has been variously described as the disequilibrium money shock absorber or as i prefer to call it the buffer stock notion into monetary economics the development of this line of thought was getting underway before johnson s untimely death much of it indeed under the auspices of his own research programme at the lse even so this did not happen early enough for the relevant ideas to be put in their proper niche by johnson himself and the buffer stock approach is not yet fully integrated into the mainstream of monetary economics much of the relevant literature is empirical concerned with modelling particular aspects of the monetary experience of specific countries hence it is fragmented and contains few papers which attempt a coherent account of just what this approach is and how it relates to other approaches to monetary analysis although essays by goodhart 1982a b and judd and scadding 1982a contain important discussions of these issues to the best of my knowledge only jonson 1976a and knoester 1979a have devoted entire papers solely to this central issue and these are relatively inaccessible and hence less widely known than they deserve to be in this lecture i shall attempt to give a brief account of the essentials of this approach first i shall sketch out its microeconomic background and then i shall discuss those theoretical characteristics which differentiate it from the neo austrian analysis of robert e lucas jr and his associates as well as from the conventional keynesian approach to monetary economics last but by no means least i shall argue that it yields simple theoretical insights into important empirical and policy related issues which are troublesome for alternative approaches in short my tribute to harry

capabilities transaction costs and firm boundaries although the literature on firm boundaries has been greatly influenced by transaction cost economics strategy scholars often emphasize the importance of capabilities considerations in these decisions this has led to a debate that we suggest has generated more heat than light we argue that the two sets of considerations are in fact so intertwined dynamically that treating them as independent competitive explanations is fundamentally misleading we offer a theoretical synthesis of transaction cost and capabilities approaches to firm boundaries that seeks to overcome each approach s limitations and provides a unified and logically consistent understanding of boundary decisions

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

subjective rationality self confirming equilibrium and corporate strategy this paper presents a formal theory of subjective rationality and demonstrates its application to corporate strategy an agent is said to be subjectively rational when decisions are consistent with the available facts and where these are lacking with the agent s own subjective assessments a self confirming equilibrium arises when agents subjectively rational actions generate events that are consistent with their own expectations equilibrium strategies may be suboptimal because certain counterfactual beliefs may be erroneous and yet fail to be contradicted by events observed in equilibrium this weakening of the stronger rationality assumptions inherent in many of the more familiar equilibrium ideas appears well suited to applications in strategy in particular performance advantage may be sustained by a firm when its subjectively rational competitors persistently employ suboptimal self confirming strategies

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

productivity effects of organizational change microeconometric evidence this paper analyzes the relationship between investment in information and communication technologies ict non ict investment labor productivity and workplace reorganization firms are assumed to reorganize workplaces if the productivity gains arising from workplace reorganization exceed the associated reorganization costs two different types of organizational change are considered enhancement group work and flattening of hierarchies empirical evidence is provided for a sample of 411 firms from the german business related services sector we develop and estimate a model for labor productivity and firms decision to reorganize workplaces that allows workplace reorganization to affect any parameter of the labor productivity equation our general and flexible methodology allows us to properly take account of strategic complementarities between the input factors and workplace reorganization the estimation results show that changes in human resources practices do not significantly affect firms output elasticities with respect to ict non ict capital and labor although most of the point estimates of the individual output elasticities and of the control variables for observable firm heterogeneity are larger if workplace reorganization is realized we therefore apply the kernel density estimation technique and demonstrate that for firms with organizational change theentire labor productivity distribution shifts significantly out to the right if workplace reorganization takes place indicating that workplace reorganization induces an increase in labor productivity that is attributable to complementarities between the various input factors and workplace reorganization by contrast firms without organizational change would not have realized significant productivity gains if they had reorganized workplaces

asset specificity and a firm s borrowing ability an empirical analysis of manufacturing firms abstract this paper investigates the importance of asset specificity in explaining differences in firms ability to borrow money with empirical research we investigated whether there is a relationship between asset specificity and the debt ratio of a slovene manufacturing firm the basic idea of the research was to link the sources of finance that define property rights and the attributes of the assets that are the objects of finance a firm s capital structure can be viewed as a description of the allocation of risk and control among investors

how does industry affect firm financial structure we examine the importance of industry to firm level financial and real decisions we find that in addition to standard industry fixed effects financial structure also depends on a firm s position within its industry in competitive industries a firm s financial leverage depends on its natural hedge its proximity to the median industry capital labor ratio the actions of other firms in the industry and its status as entrant incumbent or exiting firm financial leverage is higher and less dispersed in concentrated industries where strategic debt interactions are also stronger but a firm s natural hedge is not significant our results show that financial structure technology and risk are jointly determined within industries these findings are consistent with recent industry equilibrium models of financial structure copyright 2005 oxford university press