bluuebunny/crossref_metadata_2025 huggingface dataset:
The concept of stable strategic time periods in strategic group research
Authors: Fiegenbaum Avi , Sudharshan D. , Thomas Howard
Published: June 2007

This paper briefly reviews previous research on strategic groups and concludes that the concept needs further refinement. In particular, strategic grouping studies have typically ignored the influence of time on competitive strategy and have assumed homogeneity in strategic behavior over the time period researched. Therefore, a general analytical method is proposed in order to identify time periods of similarity in strategic behavior—so‐called stable strategic time periods. It is argued that following the identification of stable strategic time periods meaningful strategic groupings of companies within industries can be derived and further analysis of the dynamics of strategic group shifts can be performed.
The UK corporate tax reform and business investment decisions
Authors: Morgan Eleanor J.
Published: June 2007

The 1984 Finance Act made fundamental changes to the UK corporate tax system. Evidence from a detailed study of sixty past investment decisions is used to assess the likely effects of the shift from a high‐tax, high‐allowance system to a system of low taxes and allowances. This suggests that 100% allowances have had little impact on the scale of investment since 1979, reflecting limited taxable capacity and the importance of market considerations in investment decisions. Timing effects were more common, especially among small firms sampled. The post‐tax cost of capital will fall for some firms but few appeared to use strict cost of capital criteria in assessing investments.
Pricing behaviour in UK manufacturing and service industries
Authors: Jobber David , Hooley Graham
Published: June 2007

This paper reports the findings related to pricing behaviour of 1775 manufacturing and service firms. Its objectives were to examine the nature of pricing objectives at differing stages of market evolution and for companies of differing size and to examine the association between pricing objectives and performance. Princing objectives were found to vary with stages of market evolution and firm size. Both positive and negative relationships between pricing objectives and performance were revealed.
Determinants of premiums in acquisition transactions
Authors: Varaiya Nikhil P.
Published: June 2007

This paper presents a framework to identify the determinants of acquisition premiums so as to explain their cross‐section variability. Observed premiums are predicted to be positively related to (1) the magnitude of the acquiring firm's estimate of acquisition gains and (2) the acquired firm's relative bargaining strength. Increased acquisition gains are argued to result from two sources—underpricing and undermanagement. The variables representing these sources are constructed from pre‐acquisition data. A gains variable based on the post‐acquisition stock‐price reactions of the acquiring and acquired firm is also constructed. It is argued that acquired‐firm bargaining strength is enhanced by an increase in the degree of competition in the acquisitions market and by the inclusion of anti‐takeover amendments in the acquired firm's corporate charter. The predictions are tested on a sample of 77 completed cash‐for‐stock and stock‐for‐stock acquisitions over the time period 1975–80. The empirical results provide strong support for the predicted effects of the determinants of (2) and mixed support for the determinants of (1). This is the first study to document the predicted effects of anti‐takeover amendments on observed premiums.
Vertical quasi‐integration revisited: The role of power
Authors: Diamantopoulos Adamantios
Published: June 2007

Vertical quasi‐integration is differentiated from other forms of interfirm organization and the issue of power is examined drawing from the theoretical and empirical literature on interorganizational relations. The firm's power is described in terms of its dimensions and the various types of power which may be manifested under conditions of vertical quasi‐integration are discussed. The nature of the link between power and dependence is considered and a number of influences are identified which may inhibit the effectiveness of power attempts in interfirm relationships.
Learning curves—an axiomatic approach
Authors: Lowenthal F.
Published: June 2007

A systematic mathematical analysis of learning curves is presented. It is shown that while a learning curve with learning factor k does necessarily satisfy the functional equation f(2x) = kf(x), this equation admits numerous other analytic, convex solutions as well so that it cannot be used to uniquely characterize learning curves. Rather, it is shown that a pair of functional equations f(rx) = kf(x) and f(sx) = jf(x) where rn ≠ sm for any positive integers n and m suffice to uniquely determine the learning curve; compatibility of the two equations requires that logrk = logsj or there will be no learning curve satisfying the pair of equations. Two classes of almost learning curves are generated and studied by means of suitable perturbation terms in the differential equation y = by/x of the true or standard learning curve and these curves are applied to describe data not exhibiting exact learning‐curve behavior. Finally the concept of average marginal hours or cost is introduced and its behavior is found to also exhibit the learning‐curve phenomenon except for an initial deviation.
The role of property rights in the positive theory of monopoly
Authors: Hazlett Thomas W.
Published: June 2007

The traditional approach to monopoly posits a dead‐weight loss, a classic inefficiency, wherever market power is discovered. Critics such as Joseph Schumpeter argue that such dead‐weight losses are inconsequential in a dynamic setting, where long‐run trade‐offs are said to dominate them with postive sum gains, which are also claimed to flow from market power. Yet further examination reveals that even the static monopoly argument showing Pareto inefficiency is not due to a positive analysis but is an outcome determined by the normative interpretation of the monopolist's property rights. The costs which a firm possessing market power has in expanding its output are not considered as legitimate for inclusion in our analysis. (In other markets, traders are sometimes allowed to collect such rents without being labeled as inefficient—for instance, in the labor market.) The interesting questions become: Why have economists adopted this particular normative view of property rights? Is public policy thereby well served?
An empirical investigation of owner–manager labor‐supply behavior
Authors: Feinberg Robert M.
Published: June 2007

This paper uses data from the University of Michigan's Panel Study of Income Dynamics to examine an owner–manager's labor‐supply decision. Graphical analysis is used to motivate the central hypothesis tested, which is that the hourly wage paid to comparable hired managers is the marginal price of leisure to the owner–manager and will help determine his hours worked. The results suggest that this is an appropriate interpretation, with the average elasticity of hours‐worked with respect to cost of comparable hired managerial services equal to + 0.23.
Valuing unlisted shares: A dual approach to the major information determinants
Authors: Kantor Jeffrey , Pike Richard
Published: June 2007

Little is known about how professional valuation experts actually form judgements on the value of unlisted shares. This study examines the valuation process among Canadian valuators and the relative importance of each of the main information variables used in that process. A dual approach to the problem is adopted: (1) a major survey of 231 valuation experts and (2) a conjoint analysis experiment on 82 valuators using fabricated cases representative of realistic relationships. Both approaches conclude that while earnings prospects is the single most important factor in determining unlisted share values, the determination of value in the absence of a capital market is a highly complex process involving a host of information variables, many of which do not easily lend themselves to objective judgement.
Optimal bond refunding strategies
Authors: Lewellen Wilbur G. , Rosenfeld Ahron
Published: June 2007

An extension of the conceptual framework for assessing the desirability of a bond refunding operation is presented. The analysis indicates an expanded set of opportunities for enhancing shareholder wealth that may involve actions other than an immediate call of existing debt, even though the latter appears worthwhile. Conditions that specify the optimal timing of a call are derived.
Consumers' sovereignty revisited
Authors: Reekie W. Duncan
Published: June 2007

It is not widely known that “consumers' sovereignty” was first coined by Hutt in 1936. Writing against a background of restrictive practices in labour and capital markets Hutt wished to weaken underlying sectional interests who could plead no economic rationale. But the sovereign consumer shifts resources from less to more socially valued uses. Vested interests are hurt (and should be bought out). Popular justification for the market's operations rests ultimately, Hutt argues, on the impersonality and impartiality with which it guarantees freedom of the individual.
Professor Hutt on monopoly policy (1934‐43)
Authors: Yamey Basil S.
Published: June 2007

This paper outlines and discusses Professor Hutt's Plan for Reconstruction published in 1943. His detailed proposals for removing constraints on competition marked the culmination of his work, over a decade, on the analysis of impediments obstructing the exercise of consumers' sovereignty, and of the reasons why the relevant teachings of economists had been so ineffectual in terms of public policy. This paper concentrates on Hutt's proposals for dealing with restrictive practices, cartels and mergers in product markets, whilst noting that his reforms included labour markets as well as income guarentees in the transitional period to those persons hurt by the release of the economy's productive powers.
The varieties of ‘right to work’. An essay in honor of W. H. Hutt
Authors: Baird Charles W.
Published: June 2007

There are at least three commonly asserted versions of the “right to work”: guaranteed employment, absence of union security in collective bargaining, and voluntary exchange. The first two versions are explained and critically evaluated. The third version is exposited and examined in depth beginning with a discussion of the criteria for voluntary exchange. The labor economics of W. H. Hutt, except possibly his views on the right to strike, is found to be based, both implicitly and explicitly, on the voluntary exchange version. Although American right to work laws seem to deny the right to enter some voluntary exchange contracts, Hutt supports them. His support is rationalized as an acceptable second best solution made necessary by the existence of the principle of exclusive representation in American labor law.
The wage – work bargain
Authors: Behrend Hilde
Published: June 2007

This paper examines problems which arise on the work‐side of the wage‐work bargain because the input of effort, time and necessary qualifications for jobs are not clearly defined in employment contracts. The paper looks at bargaining processes and the problems which are connected with these aspects, for instance, the existence of poor output and attendance standards but also those of overload in the expected input of effort, time and efficient performance.
W. H. Hutt's the economics of the colour bar
Authors: Roback Jennifer
Published: June 2007

[The] purpose [of The Economics of the Colour Bar] is not to provide an up‐to‐date account of the racial situation in South Africa. It simply uses the experience of that country in an attempt to expose the ultimate origins of colour injustices generally. Similar origins can, I suggest, be discerned for all colour, racial, caste, class or similar injustices wherever they may exist

From the Foreword, p. 5. All quotations are from W. H. Hutt (1964). The Economics of the Colour Bar: A study of the economic orgins and consequences of racial segregation in South Africa, London: André Deutsch, unless otherwise noted.

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Hutt's views on money
Authors: Kantor Brian
Published: June 2007

W. H. Hutt did not accept Keynesian assumptions of rigid prices. Nor did he concur that the level of demand for money and credit could impact on the role of prices as a co‐ordinating mechanism. He did, however, distinguish between real money and money units (nominal money) and what he called ‘moneyed demand’, the rate of expenditure of money units similiar to Keynes's ‘effective demand’. Banks were dealers in money who could dilute or condense it, thus impacting on the general price level. Banks sacrifice yield if they are not fully loaned‐up, but this does not imply that fractional reserve banking leads to inflation. Absent convertability into a commodity standard, however, that is given government suspension of convertability inflation is then inevitable unless a strict policy of money neutrality is followed by the authorities. The implementation of such a rule is difficult, and while price flexibility would have accomplished the necessary adjustments, Hutt had not progressed towards today's theories of expectations, which might have made his views more tenable at the time of writing.
The end of central planning and self‐management?
Authors: Sirc Ljubo
Published: June 2007

In real life, planning turns out to be impossible not just because a planning authority cannot handle the enormous number of relevant items, but also–and even more importantly–because the consequences of economic decisions stretch into the future and the planners are badly equipped to judge the future developments impinging on individual enterprises. It becomes imperative that enterprises be autonomous and their activity co‐ordinated by markets. Collectivists therefore switch to the idea that such enterprises should be run by the collectives of their workers. But it is well nigh impossible to give the workers the right motivation and to impose on them the responsibility for the results of their enterprises.
Economists and the politician
Authors: Seldon Arthur
Published: June 2007

One of Bill Hutt's lesser‐known books instinctively reflected the rapidly growing development of what was originally labelled ‘non‐market decision‐making’, now established as ‘public choice’, but better described as the economics of politics.

His 1971 Politically Impossible ⃛ ? (IEA, London) confronted head‐on the frequent objections of politicians that economists' proposals could be both desirable and yet impossible to implement. ‘Politically impossible’ was the objection that had made economic proposals still‐born and inhibited economists from searching for truth.

Politicians exhibit the occupational failing of wanting policies that are easy to sell to the electorate more than policies that are generally desirable. Hutt argued that proposals are resisted or rejected not because they are unacceptable by the public but because politicians fail in the power they claim to persuade the public of their advantages.

Proposals for political reform are opposed by prospective losers but not supported by prospective winners. Economists interested in advising government therefore have to propose reforms that embrace a wide range of interest, so that the winners and losers cannot readily assess their gains and losses and organise to influence legislatures. But the best hope lies outside the political process in the market process by social advance that enable citizens as consumers to escape from vested interests to competitors in open markets and in technological change that weakens the ability of the interests to inhibit competition from new suppliers.

Ultimately the political obstruction lies not with politicians, who must be expected to pursue personal interests, but with the political process that enables them to do so at the expense of the public interest.

How far the remedy in different countries lies in constitutional reform to discipline politicians and in opening markets to weaken obstructive interests remains the question for economists and political scientists.
Product diffusion, product differentiation and the timing of new product introduction the television and VCR market 1964‐85
Authors: Putsis Jr William P. ,
Published: June 2007

An econometric model of the demand and supply of color televisions, black and white televisions and video cassette recorders in the United States from 1964 to 1985 is developed and estimated. Supply and demand parameter estimates are obtained using a simultaneous equation system estimated by three‐stage least squares. The model employed integrates theories of product diffusion from the marketing literature with those of the economic literature on discrete choice. Particular attention is paid to the relationship between product saturation and demand, as well as to supply decisions pertaining to product differentiation and the timing of new product introduction. The central hypothesis that product differentiation and new product introduction are more likely to occur as demands for established products slow at critical saturation levels is supported by the empirical results and actual market occurrences.
Implications of quality standard regulation for multiproduct monopoly pricing
Authors: Kluger Brian D.
Published: June 2007

An important concern of regulatory agencies is the quality and variety of products offered for sale. This paper considers the effects of introducing quality standards in a monopolized market where the monopoly sells a range of qualities of a product to consumers with varying taste for quality. The introduction of a minimum acceptable quality can alter the entire price and quality schedule offered by the monopolist. Both a uniform and a more general distribution of consumers are studied to examine these changes and their implications for general welfare.
Interim audit scope, client size and client familiarity: An empirical analysis
Authors: Livnat Joshua , Melnik Arie
Published: June 2007

This study investigates the scope of an audit conducted during the first part of the annual auditing cycle. It measures empirically the probability of auditing various balance sheet and income statement accounts. The results indicate that current assets and liabilities have a higher probability for an interim audit than fixed assets, long‐term debt and equity accounts. Furthermore, the likelihood of including each account in an interim audit increases with client size, so the larger an auditee, the wider the audit scope during the beginning of the audit cycle. Also, the empirical results indicate that the lower the familiarity of the auditor with the auditee, the wider the scope of an interim audit. These results seem to be consistent with auditing theory and intuition.
A note on the role of the average cost curve in the neoclassical theory of the firm
Authors: Ashton R. K.
Published: June 2007

A number of influential authors have argued that the long‐run average cost curve has only a limited role in the theory of the firm. This note examines this claim in more detail. It argues that the curve has an important role in determining long‐run equilibrium as it provides an important ‘signal’ to agents in the capital and product market about the extent to which an industry is in disequilibrium. The effect of removing the certainty assumption is then examined and it is argued that the average cost curve is an important input in the assessment of operating risk.
Responsibility accounting and asymmetry of information
Authors: Callen Jeffrey L. , Livnat Joshua
Published: June 2007

This paper uses the principal‐agent model to show that a manager's optimal compensation should generally include non‐controllable factors of production such as the firm's investment in capital. This implies that the managerial accounting distinction between profit and investment centres is artificial. Examples are shown in which the ROI or RI criteria could be optimal for compensating managers implying that the optimal compensation criterion is very much specific to the firm's production and risk parameters. Thus, the debate about which criterion is more appropriate is vacuous.
A generalization that makes useful the dorfman–steiner theorem with respect to advertising
Authors: Levy Haim , Simon Julian L.
Published: June 2007

Dorfman and Steiner's theorem is trivial with respect to advertising because it deals with only one period. It simply says that a firm should stop with that volume of advertising at which an additional dollar of advertising just produces an additional dollar of net revenue. This note generalizes the theorem to the meaningful multi‐period situation in which the effect of advertising is lagged. The optimizing decision rule is to advertise up to the point at which f′(At) = 1 ‐ bd, where A stands for advertising, b for the customer‐rentention factor, and d for the cost‐of capital discount factor.
The mode of corporate diversification: Internal ventures versus acquisitions
Authors: Amit Raphael , Livnat Joshua , Zarowin Paul
Published: June 2007

This study investigates empirically the underlying motives for selecting the mode of corporate diversification and attempts to match the form of capital investments with a corresponding theoretical rationale for diversification. The empirical results seem to support both the transaction‐costs rationale for diversification and the motive that arises from a firm's prior experience with each form of capital investment. However, the empirical findings are inconsistent with the explanation that is based on the owner‐manager conflict of interest.
Optimality and the government's risk management programs
Authors: Willett Keith
Published: June 2007

This paper examines the optimality of the government's risk management programs in the area of environmental policy. A model of risk management for the government is developed under the presumption that the objective of risk management is avoidance of damages from two general classes of pollutants. This model is then used to make direct comparisons between solutions to the government's social welfare maximization problem and Pareto‐optimal outcomes. The underlying economic rationale for each of the different outcomes is also discussed.
Forces tending to reduce concentration levels in US industries
Authors: Gold Bela
Published: June 2007

This paper reviews and illustrates a variety of growing counterpressures to the long‐prevailing trend towards increasing concentration in US industries. Particular attention is given to changes in purchased inputs, in technologies and in market characteristics before discussing some responsive measures.
Trends in the use of management science techniques in capital budgeting
Authors: Pike Richard , Sharp John
Published: June 2007

This paper examines trends in the use of management science techniques for capital investment decisions based on three surveys conducted on the same 100 large UK firms between 1975 and 1986. A strong increase in the uptake of these techniques is reported, which may partly be explained by the recent developments in end‐user computing and investment software. The logistic forecasting model is employed to examine the trend and to forecast usage in the 1990s.
The omega matrix
Authors: Langsen Arnold L. , Lowenthal Franklin
Published: June 2007

This paper uses certain fundamental theorems of matrix algebra to describe a square upper triangular matrix with special properties that make it useful in applications to financial economics. We call this the Omega Matrix.
A quantitative approach to corporate social responsibility programme formulation
Authors: Brice Helene , Wegner Trevor
Published: June 2007

This paper proposes a quantitative methodology to support executive decision making in the allocation of scarce resources to competing demands in the area of Corporate Social Responsibility (CSR). The Analytical Hierarchy Process is used to translate subjective value judgements such as preferences and perceptions into quantitative measures. These utility values are then used to isolate the factors which determine the choice among the competing CSR programmes. The approach is illustrated with two case studies of South African organizations.
Artificial intelligence, heuristic frameworks and tabu search
Authors: Glover Fred
Published: June 2007

This paper examines some of the characteristics of AI‐based heuristic procedures that have emerged as frameworks for solving difficult optimization problems. Consideration of attributes shared to some degree by human problem solvers leads to focusing in greater detail on one of the more successful procedures, tabu search, which employs a flexible memory system (in contrast to “memoryless” systems, as in simulated annealing and genetic algorithms, and rigid memory systems as in branch and bound and A* search). Specific attention is given to the short‐term memory component of tabu search, which has provided solutions superior to the best obtained by other methods for a variety of problems. Our development emphasizes the principles underlying the interplay between restricting the search to avoid unproductive retracing of paths (by means of tabu conditions) and freeing the search to explore otherwise forbidden avenues (by aspiration criteria). Finally, we discuss briefly the relevance of a supplementary framework, called target analysis, which is a method for determining good decision rules to enable heuristics to perform more effectively.
Designing a preferred bidding procedure for securing electric generating capacity
Authors: Duann Daniel J.
Published: June 2007

The use of competitive bidding by electric utilities to solicit new generating capacity from nonutility power producers is increasingly viewed as a promising alternative to traditional cost‐based regulation. If economic efficiency is the criterion in setting up a bidding procedure and existing characteristics of competitive and diversified bidders remain, a second‐price sealed bidding procedure with a fixed‐price power purchase contract containing energy cost‐sharing provisions appears to work best.
On the unavoidability of ‘unscientific’ judgment in estimating the cost of capital
Authors: Thompson Howard E. , Wong Wing K.
Published: June 2007

Estimating the cost of capital using DCF methods requires forecasting dividends. This paper shows that past dividend behavior may support more than one reasonable forecasting model and that reasonable forecasting models can lead to divergent estimates of the cost of capital. We find no way of selecting the best cost of capital estimate. Any choice must ultimately be based on ‘judgment’ of the analyst.
Market response to changes in attributes of a long‐distance passenger rail service
Authors: Johnson Lester W. , Nelson C. J.
Published: June 2007

This paper reports on the development of a model designed to predict market response to a range of service alternatives that could be offered by an Australian long‐distance passenger rail service known as the Indian Pacific. The approach is based on an aggregate version of the multinomial logit choice model using stated‐preference data. Details of the model's specification and estimation are presented and the predictive ability and implications of the model are discussed.
A study on the wealth effects of irish takeovers and mergers
Authors: Murray Louis C.
Published: June 2007

This paper presents the findings of an empirical study on the share‐price effects of takeovers and mergers on the Dublin Stock Exchange. The population under study consists of all acquisitions during the period 1965–83, and it is limited to those instances in which both partners were quoted and traded on the exchange. The Market Model has been adapted to take account of market inefficiencies. Any findings are evaluated in the light of other reported research.
An explanation for recapitalization in corporate control contests
Authors: Lewis Craig M.
Published: June 2007

This paper examines the role of corporate financial policy in determining the equilibrium allocation of takeover gains in corporate control contests. The model justifies capital‐structure changes in response to a takeover bid, and shows how recapitalization can be used as a strategic device to alter the price a bidding firm pays to acquire the target firm.
Premiums paid in block transactions
Authors: Mikkelson Wayne H. , Regassa Hailu
Published: June 2007

We document the premiums over market price paid in negotiated third‐party purchases and negotiated repurchases of blocks of common stock. The blocks range from 1.5% to 44% of outstanding shares and the average premium is approximately 10%. There is no significant difference between the premiums paid by managers in block repurchases and the premiums paid by outsiders in block purchases. Repurchasing managers pay a premium that corresponds to the market value of control associated with the block.
Shark repellents and the role of institutional investors in corporate governance
Authors: Agrawal Anup , Mandelker Gershon N.
Published: June 2007

This paper examines the role of institutional shareholders in monitoring managers when they propose antitakeover charter amendments (shark repellents). These proposals provide a rare opportunity to examine this issue since they can be adopted only by shareholder approval. We document a positive relationship between the ownership of institutional shareholders and the stock market reaction to the announcement of antitakeover amendments. This finding is consistent with the Demsetz (1983) and Shleifer and Vishny (1986) proposition that large blockholders reduce the free‐rider problem associated with monitoring managers.
Is economic efficiency the driving force behind mergers?
Authors: de Bondt Werner F. M. , Thompson Howard E.
Published: June 2007

Some economists routinely argue against government regulation that limits the number of mergers and acquisitions. They believe that, as a matter of empirical fact, almost all mergers enhance economic efficiency. The possibility that some mergers do not create wealth but merely redistribute it is ignored. We study all companies delisted from the New York Stock Exchange for reason of merger since 1926. We find that economic efficiency cannot easily explain merger waves. Contrary to the disciplinary hypothesis, acquisition targets are not, in large majority, poor stock market performers. We also report evidence consistent with stock market undervaluation as a merger motive.
Cross‐ownership as a hostage exchange to support collaboration
Authors: Perotti Enrico
Published: June 2007

The impossibility of writing complete contracts causes loss of profitable transactions among firms, since their managers cannot ex ante bind themselves to future actions. We show how a reallocation of ownership rights into a network of mutual shareholdings among a coalition of firms produces an efficient enforcement mechanism. Co‐operation is achieved by exchanging control rights until a mutual threat of capture of control is established. By making control over their firms vulnerable to a takeover by the other members of the coalition, each firm is able to make a credible commitment to future efficient actions. In equilibrium no punishment is administered, so that the arrangement achieves the outcome under complete contracts. More generally, it is proved that a mutual hostage exchange may dominate the threat of loss of reputation as an enforcement mechanism.
Executive compensation and the performance of the firm
Authors: Lewellen Wilbur , Loderer Claudio , Martin Kenneth , Blum Gerald
Published: June 2007

A sample of large industrial corporations is examined to determine whether there is a relationship between the levels of compensation received by the senior executives of those firms and the firms' economic performances. We find consistent evidence of such a relationship, with differences across firms in the total compensation of their three highest‐paid officers being positively related to differences in both the common stock returns and operating profitability of the firms. The implication is that compensation packages are designed to reduce agency costs.
Horizontal shareholding interlocks
Authors: Flath David
Published: June 2007

Horizontal shareholding interlocks induce Cournot industries to restrict production. The cartelizing effects of horizontal shareholding interlocks are greater if firms are mindful of indirect shareholding links than if only attentive to direct links. Indirect shareholding exists when a firm A holds stock in B and B holds stock in C. Several algebraic examples of Cournot industries with shareholding interlocks are explored.
Decision making in mergers: An application of the analytic hierarchy process
Authors: Bagchi Prabir , Rao Ramesh P.
Published: June 2007

A critical element in the success or failure of an acquisition outcome is the ability to identify compatible acquisitions. This study focuses on the operational problem of effectively ranking a set of potential acquisition candidates against a multivariate set of attributes. The paper illustrates the usefulness of the Analytic Hierarchy Process methodology in this regard. The model is fairly easy to use and is flexible enough to permit the decision maker to consider multiple viewpoints and multiple attributes that may be qualitative or quantitative in nature. The suitability of the model is illustrated by applying it to a hypothetical example.
Accounting methods and managerial discretion: The case of dollar‐value LIFO
Authors: Shaftel Timothy L.
Published: June 2007

This paper focuses on inconsistencies in cost‐flow behavior associated with the use of dollarvalue LIFO. These inconsistencies can lead to confusing inventory valuations, potentially misleading accounting reports, incorrect purchasing decisions, and unanticipated tax results. Understanding these effects will enhance the use of dollar‐value LIFO as a management tool and will improve the interpretation of financial accounting information. With dollar‐value LIFO for multiple items, much of the conventional wisdom about LIFO vanishes. The relationships among inventory purchases, inventory liquidations, and gross margin are derived.
Competition under continuous technological change
Authors: Tang Ming‐Je , Zannetos Zenon S.
Published: June 2007

This paper examines competition patterns and competitive strategies when technology changes continually. It first discusses optimal behavior for investment in technology. It is argued that although technological innovations supersede existing technologies, there are economically justifiable barriers to investing in the new technologies. These economic barriers, coupled with continuous technological change, have implications for certain aspects of strategy, such as entry by means of new technologies, timing of entry, leapfrog‐type competition, vertical integration, the productivity dilemma, and escalating commitment. Finally, the industrial transformation of the steel industry is used as an example to illustrate these implications.
Investment in salvage equipment
Authors: Mangiameli Paul M. , Rhee S. Ghon , Tannous George F.
Published: June 2007

Manufacturers are faced with three options for disposing of excess finished items: they can (1) continue to mark down the item until it sells; (2) dispose of or scrap it; or (3) salvage it in order to reclaim valuable raw materials and components. In many situations the option of a markdown is not viable, thus the choice is to either scrap or salvage. Although many manufacturers have invested in salvage equipment, they have not deduced the impact of this investment as it affects not only the risk‐adjusted value of the project but also the production run size and the selling price. Hence, their decisions frequently turn out to be suboptimal. This paper develops a project‐valuation model that adds a new dimension to traditional capital budgeting decisions by incorporating salvage capacity.
Technical efficiency of for‐profit and non‐profit nursing homes
Authors: Fizel John L. , Nunnikhoven Thomas S.
Published: June 2007

This paper employs data envelopment analysis to generate efficiency indices for individual nursing homes relative to a best‐practice frontier. Further analysis then shows that these ‘unadjusted’ indices represent factors other than efficiency. Regression analysis purges the indices of these confounding influences. The resulting ‘adjusted’ efficiency indices demonstrate that for‐profit homes have higher mean levels of efficiency and a more efficient production frontier than non‐profit homes. These results support the property rights hypothesis that forprofit homes are inherently more efficient than non‐profit ones.
Effective patent life of drugs in Sweden—a comparison with international studies
Authors: Andersson F. , Hertzmant P.
Published: June 2007

The effective patent life of all pharmaceutical New Chemical Entities registered in Sweden was investigated for the period 1965‐88. Three‐year moving average effective patent life was 12.3 years in the beginning of the period, while by the end of the period it had decreased to 8.3 years. If we exclude the increase in the nominal patent term which accompanied Sweden's entry into the European Patent Convention, the effective patent life decreases over the period by over 3 months per year. This coincides with the results of similar studies in other countries. If European research‐oriented Pharmaceuticals companies are to maintain their international long‐term competitiveness, patent term restoration measures appear to be urgently needed.
Quasi‐cournot behavior in a multimarket, multiplant setting
Authors: Zappe Christopher , Horowitz Ira
Published: June 2007

This paper introduces multimarket selling options, capacity constraints and quasi‐Cournot conjectures into oligopolistic rivalry. It is shown that increased output responses between rivals that are producing below capacity will effect output reductions for all markets, but that increased output responses between rivals that are producing at capacity will effect an output increase in at least one market and might even result in a capacity extension and output increases in all markets.
The use of initial fees and royalties in business‐format franchising
Authors: Sen Kabir C.
Published: June 2007

This paper provides an explanation of franchising's fee structure, drawing on principal agency and labor economics theory. The predictive framework includes constructs such as channel control, franchisor services, franchisee risk and the franchisor's capital constraints. The empirical investigation of a representative sample of franchise chains indicates that channel control is the major factor influencing the payment design. The results are used to test managerial implications about the use of an optimal fee structure in the growth of chains.
Strategic pricing of differentiated consumer durables in a dynamic duopoly: A numerical analysis
Authors: Nascimento Fernando , Vanhonacker Wilfried R.
Published: June 2007

Under different modes of competitive pricing behavior, profit‐maximizing price trajectories are derived for durable products in a dynamic duopoly. Open‐loop co‐operative and non‐cooperative pricing behavior is analyzed within a comprehensive model where sales of differentiated products are described by interlocked diffusion processes with realistic demand characteristics. Because of analytic complexity, the optimal trajectories implied by the control and differential‐game problems are derived numerically across an extensive set of plausible market scenarios. Manipulation of initial market conditions enables derivation of optimal competitive pricing as a function of timing of entry.
Customer perception and competitive quality strategy
Authors: Ali Abdul , Seshadri Sudhindra
Published: June 2007

The objective of this paper is to determine the optimum level of quality a firm should choose in a product/service, given the customers‘ perceptions of quality and the reference standard in a competitive market. Our work on this quality selection problem differs from those of past researchers in that we model explicitly customer's perceptions and the reference standard. We develop a game‐theoretic model to obtain insights into the firms’ quality selection problem. The model results suggest that the market differentially provides rewards or penalties to firms depending upon customers' perceptions as well as other market and product‐specific parameters. We contrast our findings for an oligopolist with that for a monopolist and observe that although an oligopolist often provides a better quality product, he does not do so always; especially when perceptions are sufficiently weak and the reference standard is endogenous.
Three‐parameter asset pricing
Authors: Diacogiannis George P.
Published: June 2007

This paper expands the two‐parameter (that is, mean‐variance) linear model for the behaviour of returns on securities or portfolios into a model that takes into consideration the skewness of return distributions. As in the case of previous two‐parameter relationships, the three‐parameter risk‐return relationship is valid if and only if the reference portfolio is a three‐parameter boundary portfolio.
Operational competitiveness ratings of production units
Authors: Parkan Celik
Published: June 2007

The operational competitiveness of a production unit (PU) where resources are transformed into outputs of goods and services is a very important component of its overall competitiveness. A PU's operations are comprised of a number of purposeful activities that consume resources and generate rewards. The efficiency with which these activities are carried out determines the PU's operational competitiveness. A reliable rating system is prerequisite in order to control and improve operational competitiveness. In the present paper we adopt a multi‐activity view of the concept of operational competitiveness and develop a procedure to calculate ratings to help gauge the relative operational competitiveness of a set of PUs. The procedure is based on a nonparametric model but its implementation involves simple ratio‐type computations. The principal criteria for the procedure and the ratings resulting from its application are intuitive appeal, transparency, ease of computation, robustness and ability to reflect the prevailing managerial perspectives and competitive priorities. We demonstrate the application of the procedure to gauge the relative operational competitiveness of a major chartered bank's branch personnel.
Consumers' surplus and the demand for cigarettes
Authors: Reekie W. Duncan
Published: June 2007

This paper examines the demand for cigarettes in South Africa over a 20‐year period from 1970 to 1989. Consumption per capita was found to be significantly determined by price and disposable income per capita; but not by advertising. Price and income elasticities and consumers' surplus were computed from the demand model. The question was raised as to whether or not consumers' surplus should be regarded as having been inferred from a health‐hazard‐discounted demand schedule. The answer depends on the degree to which smoking decisions are taken with full information or, conversely, are influenced by habit. Given the latter assumption, the consumers' surplus measured for cigarette consumption is nevertheless substantially higher than the estimated health costs of smoking as computed by the Medical Research Council.
The impact of corporate strategy on the capital structure of Australian companies
Authors: Lowe Julian , Naughton Tony , Taylor Peter
Published: June 2007

Research into the capital structure of firms has been the subject of extensive empirical investigation but further progress may be constrained by the conventional paradigm underlying most of this work. This paper seeks to extend the debate by examining the endogenous influence of corporate strategy on financing decisions made by firms. While the theoretical specification of the possible relationship has to be developed further, various models were constructed and company data from Australia, an economy with some notoriety for fairly loose corporate debt management, was used to examine various hypothesized relationships. Our analysis suggests that corporate strategy influences capital structure, particularly for the most diversified firms, and that the emerging relationship is complex. Profit, cash flow, the rate of growth and the level of earnings risk are important additional internal influences on capital structure. The results are reasonably robust and indicate that this focus of enquiry has considerable potential for further resolution of the capital structure puzzle, as well as contributing to the debate on the impact of institutional shareholders on the corporate strategy of the firms in which they invest.
Firm‐diversification effects on performance as measured by tobin's q
Authors: Lloyd William P. , Jahera John S.
Published: June 2007

The performance effects of firm diversification remain unclear despite a large body of prior research that has yielded mixed results due to differing performance measures, diversification measures, samples and time periods. The objective of this research is to offer further information by using Tobin's q to capture performance effects and Rumelt's related ratio as the diversification measure. The empirical results reveal no significant findings to relate diversification and performance. Given that the sample is composed of very large firms, the implication is that, at least for such large firms whose stock is likely held in well‐diversified portfolios, firm‐diversification strategies are unlikely to yield superior performance.
Multidivisional structure and capital structure: The contingency of diversification strategy
Authors: Riahi‐Belkaoui Ahmed , Bannister James W.
Published: June 2007

This study examines the relationship between the implementation of the multidivisional (M‐form) organizational structure, capital structure and diversification strategy. Findings indicate that implementation of the M‐form structure from a hierarchical (U‐form) structure is associated with a general increase in the long‐term debt‐to‐equity ratio for all firms, a result that supports a free‐cash‐flow argument for the use of debt in restructuring to reduce the opportunism of management. Further, as implied by arguments from transaction cost economics, the debt‐to‐equity ration differs for different types of diversification strategy.
How do large minority shareholders wield control?
Authors: Butz David A.
Published: June 2007

While high ownership concentrations in even the largest American corporations provide prima facie evidence that large minority shareholders wield control, the economics and finance literatures have mostly overlooked the question of how they do so. Using a simple framework adapted from work by Shleifer and Vishny (1986), this paper shows how minority shareholders can use takeover threats to discipline management. It then shows how they can bolster their threats, and hence their influence, simply by threatening to increase these minority stakes. When inside information is not too problematic, a relatively small stake can endow minority shareholders with considerable ongoing control.
An empirical analysis of the corporate control, tax and incentive motivations for adopting leveraged employee stock ownership plans
Authors: Beatty Anne
Published: June 2007

This paper examines three motivations for leveraged ESOP adoption: as a takeover defense, as a mechanism for providing incentives to employees and as a vehicle for tax savings. ESOP adoption is more likely for companies with a higher predicted probability of takeover, but ESOP adopters have many characteristics that are different from takeover targets. Companies that adopt ESOPs can be distinguished from non‐adopting companies based on characteristics associated with the tax and incentive effects of these plans. The size of the ESOP is shown to depend primarily on the tax and incentive characteristics.