bluuebunny/crossref_metadata_2025 huggingface dataset:
Environmental management costs using a best available control technology bact in the electrical generating industry
Authors: Willett Keith
Published: June 2007

As pollution control programs become an increasingly important part of government regulatory activities there also arises the question of the economic impacts of these activites. The purpose of this paper is to illustrate the use of a computable general equilibrium model for measuring the economic impacts of imposing a Best Available Control Technology (BACT) on the Electric Utilities industry. This application is intended only to demonstrate the feasibility of the approach—and is not designed for immediate policy purposes. The particular model used in this study is structured after a recently developed mathematical programming system which is designed to compute a general equilibrium solution. This system combines activity analysis with downward‐sloping demand curves, and solutions are obtained with a ‘single‐pass’ linear programming algorithm. The model's objective function plays the central role of driving the model to market‐clearing values.
Tender‐offer premia as a management signal
Authors: Polonchek John A. , Slovin Myron B. , Sushka Marie E.
Published: June 2007

In this paper we test whether tender‐offer premia for share repurchases can be viewed as an outgrowth of optimizing behavior by managers in a signalling environment. This is in contrast to previous work on the signalling hypothesis which focuses on the stock market's reaction to the announcement of tender offers. Our empirical results indicate that premia are systematically related to the price of the firm's stock and the level of the stock market but are not related to either management compensation, inside holdings of stock or the ratio of shares sought to total shares.
Spillovers and the cost of multiproject R&D
Authors: Van Cayseele Patrick
Published: June 2007

The paper presents the cost of sequential and parallel research strategies in multiproject R&D characterized by spillovers between the projects. Larger spillovers associated with a sequential strategy prove to be insufficient to guarantee a cost advantage for this option. This provides a rationale for a parallel research strategy with some duplication of effort, as observed in some real‐world R&D environments.
Sales‐optimization under an unstable profit‐constraint
Authors: Paroush Jacob
Published: June 2007

This paper considers a firm's manager who maximizes total sales under unstable profit‐constraint. It is proved that, even if being risk‐neutral, the manager is worse off than in the stable equivalent case and that his best policy is to produce less than in the stable case.
The design of capital budgeting processes and the corporate context
Authors: Pike Richard H.
Published: June 2007

This study investigates how differences in the degree of capital budgeting sophistication and formalization are related to the corporate context. A model was developed and the expectations in the model were explored with data gathered from 146 major UK firms. The results generally support the model and show that the investment procedures and techniques adopted by firms may be partly explained in terms of the corporate context.
Research and development expenditure in regulated and unregulated markets
Authors: De Villiers J. U. , Scott D. R.
Published: June 2007

This paper examines research and development (R and D) expenditure by firms supplying a product to both a regulated and an unregulated market. An expression for the profit‐maximizing R and D expenditure of firms operating in a dualistic market is derived from theory. This relationship is empirically tested with data from the South African pharmaceutical industry, which did not disprove the theory. The study finds the retention of the unregulated market for pharmaceuticals to be essential to provide R and D funds for the pharmaceutical industry.
Dominant stockownership and profitability
Authors: Neun Stephen P. , Santerre Rexford E.
Published: June 2007

Dominant stockholders can acquire variable amounts of control over a firm's performance. The amount of control depends largely on both the incentive and power to dominate the firm's decision‐making process. Ceteris paribus, a dominant stockholder has more incentive and power to influence firm behavior when he owns larger amounts of the firm's stock. To capture properly the effects of the separation of ownership and control this study considers a continuous relation between stockownership and control. This formulation allows for variable degrees of stockholder control, and suggests a critical minimum percentage of stockownership necessary for constraining managerial behavior.
Restrictions on outward portfolio investment and domestic equity markets
Authors: Hirst Ian
Published: June 2007

Governments sometimes impose restrictions on local investors which effectively prevent them from purchasing overseas equities. Reasons for doing this, from the government's point of view, would include increasing the availability of risk capital to local companies and lowering its costs. The paper analyses this argument in terms of modern portfolio theory. It is shown that, under certain circumstances, domestic equities and overseas equities may be complements rather than substitutes. In this case the effect of the restrictions would be to lower prices on the domestic stock exchange and to raise the cost of risk capital to local companies. Indications are given of the circumstances in which this effect is likely to occur. Policy makers who are not aware of the risk‐spreading motives which underly much international portfolio investment in equities are likely to overstimate the benefits to local industry from forcing local equity investors to keep their funds at home.
An optimal‐incentive contract for managers with exponential utility
Authors: Haugen Robert A. , Taylor William M.
Published: June 2007

This paper examines the manager–investor relationship in the case of exponential utility when the manager of investments in real or financial assets has an endowment which can be invested in the risky assets for which he has private information. We obtain a relationship showing trade‐offs or hedging behavior among the investments the manager can choose for himself and the principal. Even with the hedging ability of the manager, the well‐known first‐best solution with ‘no moral hazard’ risk‐sharing is obtained among these possible solutions to the manager's problem by specifying a ‘no conflict of interest’, zero investment by the manager of his own endowment in those risky assets for which he has private information. Thus, the agent imputes no disutility to the assignment of the principal's investments and the investor is assured of an investment strategy that he would make if he had access to the manager's private information.
Production frontier estimation to measure efficiency: A critical evaluation in light of data envelopment analysis
Authors: Sengupta Jati K.
Published: June 2007

The ranking and measurement of efficiency of decision‐making units by two methods—data envelopment analysis and frontier production function—may not always lead to identical results. In this framework we attempt here a critical evaluation of the frontier production function theory in terms of theoretical and empirical implications. It is shown that under certain conditions the two approaches to effciency measurement may lead to identical results.
Market size and seasonalities: The case of the UK investment trust industry
Authors: Levis Mario
Published: June 2007

The particular characteristics of the UK mutual funds industry provide ideal ground for examining the pertinence of the ‘Small‐size effect’ and the ‘tax‐loss‐selling’ hypothesis. The evidence indicates the presence of a modest‐size premium for smaller investment trusts, but, rather surprisingly, size in general does not appear to be a determining factor of market performance. Moreover, in spite of some variation in the rates of return around the turn of the tax year, the evidence as a whole does not unambiguously support the tax‐loss‐selling hypothesis. However, there is ground to believe that the overall poor performance of the UK investment trust industry could be due to the tax regimen governing the industry's operations during the period 1965–80.
The impact of financial and economic conditions on aggregate merger activity
Authors: Polonchek John A. , Sushka Marie E.
Published: June 2007

A model of aggregate merger activity is developed by integrating the literature on aggregate investment in fixed capital into a microfinance framework. Mergers are viewed as the result of firms capital budgeting processes, and two major categories of explanatory variables emerge: (1) cost of capital and related financial effects, and (2) output effects. Regressions, estimated to explain the number of large mining and manufacturing mergers over the sample period 1956–1978, provide evidence consistent with this view. In addition, the model explains the high level of merger activity during the conglomerate boom of 1967–9.
Uncertainty and synergy: Towards a formal model of corporate strategy
Authors: Kay N. M. , Diamantopoulos A.
Published: June 2007

In this paper an attempt is made to integrate the twin concepts of synergy and environmental uncertainty in a unifying framework for the analysis of corporate strategy in the large corporation. Environmental uncertainty and synergy considerations are considered to be the fundamental determinants in strategy formulation, the firm's strategy reflecting a choice between potential synergistic gains and increased vulnerability to environmental threats. A formal model of corporate strategy is developed explaining strategic behaviour as a function of opportunities for synergistic gains and level of environmental uncertainty. The empirical relevance of the model is demonstrated by utilizing data from four major studies of corporate strategy in the USA, the UK, France and West Germany.
On the value of free foreign‐exchange forecasts
Authors: Ursprung Heinrich W.
Published: June 2007

The objective of this paper is to assess the value of free foreign‐exchange forecasts. Taking the exchange‐rate projections published by Lloyds Bank as an example, it is shown that there is no reason to assume that these projections consistently outperform the most easily available benchmark, the current spot exchange rate. Moreover, the returns to speculative investment based on these projections seem to be, at best, insignificant. The value of such forecasts must, therefore, be regarded as negligible.
The mean‐standard deviation efficient set theorem: A note
Authors: Diacogiannis George P.
Published: June 2007

This note is concerned with the proof of a revised version of the mean‐standard deviation efficient set theorem. Given only risky securities, it is irrational to hold the global boundary portfolio, whereas when a riskless security exists a finitely risk‐averse investor does not invest exclusively in such a security.
Valuation under imperfect information: Bayesian learning from the performance of the firm and the market
Authors: Harpaz Giora , Thomadakis Stavros B.
Published: June 2007

This paper develops a valuation model for a project or firm in the presence of uncertainty about the mean of the probability distribution of the cash flows generated by the project. Its major point is that in the presence of parameter uncertainty the value of the project is smaller than in the case where the mean cash flows is perfectly known. The second point is that when there is a known covariance between project cash flows and aggregate market cash flows investors can learn about the unknown mean cash flows by observing the market. This is referred to as ‘learning from the market’.
The relationship between mixed strategies and strategic groups
Authors: Kumar K. Ravi
Published: June 2007

This paper identifies a theoretical basis for the existence of strategic groups. We represent the competitive marketplace by means of a game‐theoretic model and motivate the existence of markets wherein the only Nash solution may be in mixed strategies. Given deterministic behavior on the part of the firms, we interpret this solution in terms of a strategic groups equilibrium. The major implication of this analysis is that strategic groups can exist even if there is no inherent asymmetry (in terms of skills) between firms.
Economists and the gains from trade
Authors: Buchanan J. M.
Published: June 2007

This paper examines William H. Hutt's work in terms of two early books, Economists and the Public (1936) and A Plan for Reconstruction (1944). Hutt is presented as a consistent reductionist, who concentrated attention on the elementary principle of mutuality of gains from trade. This concentrated attention led him to reject any and all observed restrictions on voluntary exchange as inefficient and, hence, damaging to welfare.
The huttian philosophy
Authors: Lachmann L. M.
Published: June 2007

Hutt's economic view is best encapsulated in his policy‐oriented Plan for Reconstruction. Antedating the Beveridge Report on full employment, Hutt argued not for a Keynesian management of aggregate demand but rather for legislation which would render unemployment (caused by the withholding of labour or other resources) illegal. Removal of restrictions on supply would unleash ‘colossal’ productive capacity. It would require, as a prerequisite, a legislative and regulatory framework embedded in sound ‘institutional planning’. Hutt is no corporatist or interest group planner, but neither can he be bracketed with late twentieth‐century libertarians. He is his own man.
Gender, pay equity and equal value: A solution in search of a rationale?
Authors: Sloane P. J.
Published: June 2007

In many countries equal pay legislation has been extended to embrace the concept of equal value. This paper addresses the question of equity in the labour market and argues that much of recent policy is misconceived. Occupational crowding is not the major cause of differences in pay between men and women. As a consequence it is doubtful if equal value policies are appropriate for eliminating such pay differences and they are also likely to have undesirable side effects.
Competition, regulation and bribery
Authors: Beck Paul J. , Maher Michael W.
Published: June 2007

Bribery of government officials is commonly used to obtain contracts in many foreign countries. The Foreign Corrupt Practices Act of 1977 (FCPA) made it illegal for US firms to pay bribes, even in the absence of regulation on the bribe‐taking side of the transaction. Opponents of the law claimed it would put US firms at a competitive disadvantage relative to foreign suppliers who were not subject to the same regulation. This paper models the effects of two types of anti‐bribery regulation. In general, regulation of bribe takers reduces the disciplinary effect of competition and is ineffective in deterring bribery unless the penalties exceed the gains. The impact of regulation of bribe payers (i.e. suppliers) depends on whether the law is applicable to all bribe payers, firms' costs and the existence of contract price constraints on the purchasing side of the transaction. The results lead to empirically testable hypotheses about US exports to bribery‐prone countries.
Individual versus group spot price forecasting in the international petroleum market: A case study
Authors: Brocato Joe , Kumar Akhil , Smith Kenneth L.
Published: June 2007

This paper utilizes the conventional statistical tests associated with the rational expectations hypothesis so as to compare the relative accuracy of individual versus group forecasting within the organization. In order to maintain comparability between forecasting regimens the study employs like information sets for the two prediction methods. Using the rational expectations tests as criteria, the statistical results show group forecasts inferior to individually produced predictions These findings imply that group‐produced forecasting accuracy may be hampered by the psychological interaction associated with consensus behavior. Conversely, we find forecasting accuracy improves when predictions are elicited from individuals in an isolated laboratory‐like setting.
Stock‐market reaction to growth‐induced dividend cuts: Are investors myopic?
Authors: Ghosh C. , Woolridge J. R.
Published: June 2007

This paper focuses on shareholder reaction to growth‐motivated dividend cuts and omissions. The results reveal that although growth announcements mitigate the capital loss induced by dividend decreases, the stockmarket response to growth‐oriented dividend cuts is still strongly negative. However, the capital loss suffered by investors is significantly reduced when dividend cuts are accompanied with stock dividends. Two potential explanations of the results are explored: (1) shareholders find the immediate benefits of stock dividends more attractive than the potentially higher future rewards of investment opportunities; and (2) shareholders overreact to dividend announcements. Analysis of the performance of the firms for two years following the dividend cut indicates weak support for the overreaction hypothesis.
Factors affecting the nature and effectiveness of subjective revision in sales forecasting: An empirical study
Authors: Diamantopoulos Adamantios , Mathews Brian
Published: June 2007

Recent empirical results have indicated that sales forecasts obtained from a quantitative model can be improved through subjective revision undertaken by management. This study seeks to determine the extent to which the improvement in forecast performance is dependent upon the individual revising the forecast rather than the specific product under consideration. As any improvement in the forecast is a direct consequence of the adjustment effected, differences in the nature of revision among the individuals concerned and between different types of product are also examined. The results reveal no statistically significant differences between the managers involved in revision activity in terms of their ability to improve the forecast; on the other hand, significant differences in the number of forecasts improved were found between different types of product. As far as the nature of subjective revision is concerned, the results show a significant variation both between different types of product and between managers. Further, the improvement in forecast performance obtained through revision was found to be positively related to the relative size of the adjustment applied.
R&D, concentration and advertising: A simultaneous equations model
Authors: Lunn John
Published: June 2007

This study employs a simultaneous equations model to test the relationships among industrial R&D spending, market structure and advertising. The R&D data employed are the Line of Business data collected by the FTC and published at the three‐ and fourdigit SIC level. The results are, in general, complementary to several other recent studies that used data sets involving different degrees of aggregation as well as different measures of research activity.
Macroeconomic policy and the pricing behavior of imperfectly competitive firms
Authors: Hula David G.
Published: June 2007

This paper develops theoretical models of the effect of expansionary macroeconomic policy on the pricing behavior of pure monopolist and oligopolist firms. A number of factors are identified which affect the magnitude of the price change chosen by an imperfectly competitive firm in response to macro policy action. The behavior of oligopolistic firms in response to macro policy changes is found to be influenced by the fact that expansionary macro policy initially impacts on industry demand rather than firm demand, and that the oligopolist's consequent pricing behavior will affect the share of the industry demand increase which it is able to appropriate.
The scope for market segmentation within the charity market: An empirical analysis
Authors: Schlegelmilch B. B. , Tynan A. C.
Published: June 2007

Based on the analysis of 384 questionnaires, this paper investigates the scope for market segmentation for a variety of UK charities. The results call into question the idea that donor preferences expressed for a particular type of charity are associated with particular demographic, lifestyle or opinion and attitude segments. The managerial implications of the findings are discussed and suggestions for future research are made.
Agency, corporate control and accounting methods–the lifo‐fifo choice
Authors: Dyl Edward A.
Published: June 2007

The study examines the effect of the firm's ownership structure on its management's choice of LIFO or FIFO inventory valuation methods. Managers of widely held firms are found to select the accounting method that furthers their own interests, thus causing the firms' owners to bear agency costs that appear to be substantial.
Classification transitions under expansion of inputs and outputs in data envelopment analysis
Authors: Thrall Robert M.
Published: June 2007

An exchange between Thomas R. Nunamaker and T. Ahn, A. Charnes and W. W. Cooper which revolves around possible behavior of the DEA efficiency measure. In particular, Ahn, Charnes and Cooper provide a counterexample to Nunamaker's assertion that adding inputs to a DMU (Decision Making Unit) which had previously attained an efficiency of 0* = 1 with fewer inputs would never alter this value, no matter how inefficient the use of the additional inputs. Here we want to add additional insight by showing the condition under which Nunamaker's proposition is true. Using the notation and concepts from Charnes, Cooper and Thrall, we shall see that this proposition is true if and only if the previously attained 0* = 1 is uniquely optimal.
Ensuring creative approaches in information system design
Authors: Couger J. Daniel
Published: June 2007

Improvement in computing capability is one way to aid US companies in recapturing competitive edge. The easy applications have been computerized; the difficult ones lie ahead. Creative approaches are needed to computerize those difficult applications. Yet IS has apparently little interest in the subject of creativity; less than a half‐dozen articles on the subject have been published in the 35‐year history of the discipline. The author reviewed the literature in other disciplines of art, science, engineering, psychology and education, to determine how creativity techniques had been utilized in those disciplines. The research revealed that many of those techniques are useful for the IS field. Definitions of creativity are provided, then three classifications of creativity research are reviewed: Rothenberg, Ackoff/Vergara, and Rosner/Abt. Creativity techniques are illustrated for general problem solving. The author advocates the use of creativity techniques in the information system development process at four points: near the conclusion of requirements definition, logical design, physical design and program design. Use of creativity techniques at each of these points is illustrated. By delaying convergence on a solution, new approaches and new alternatives can be generated and evaluated. These approaches can produce the systems needed to assist US companies in international competition.
The behavioral study of accountants: A new school of behavioral research in accounting
Authors: Sorensen James E.
Published: June 2007

Through a series of related studies the behavioral study of accountants has evolved as a body of knowledge focused on the practice of public accounting as a professionalized bureaucracy with special behavioral conditions surrounding the employment accessions (hiring) and separations (turnover). These studies have developed a common core of research findings over the past 25 years and now form the foundation of a new school of behavioral research in accounting.
Bimodality in diversification: An efficiency and effectiveness rationale
Authors: Reed Richard
Published: June 2007

Various researchers have observed that the frequency distribution of firm diversification is bimodal. The two modes are created by a majority of firms employing either very little or substantial amounts of diversification. Only a minority of firms opt for medium amounts of diversification. From theoretical discussion of the forces of efficiency and effectiveness in diversification, this work provides a rationale for the bimodality phenomenon. In turn, research implications arise regarding optimum degrees of diversification, what the impact of optimization is upon firm performance, and why the measurement of both type and degree of diversification is important.
Takeover threats, antitakeover amendments and stock price reaction
Authors: Lauterbach Beni , Malitz Ileen B. , Vu Joseph
Published: June 2007

We examine the influence of takeover threats on the stock price of firms proposing antitakeover amendments. Stock prices of the majority of firms, which are not takeover targets during the four years surrounding the amendments, are unaffected, while prices of firms that become takeover targets within two years increase significantly. We document weak evidence of wealth losses only for a sample of prior targets. Our findings suggest that shareholders of the average firm are not harmed by antitakeover amendments because they provide either a better bargaining position or an information signal to the market.
Diversification patterns and long‐term corporate performance
Authors: De Sankar
Published: June 2007

This study examines the relationship between diversification patterns of corporations and their long‐term performance. It is seen that the standard performance measures suggested in corporate finance literature rate all corporations equally in the long run regardless of their diversification strategies. This is because all corporations tend to earn a normal rate of return, given risk, for their shareholders in generally efficient capital markets. Since finance performance measures are not helpful in analyzing corporate performance, use of other measures is suggested for the purpose.
Monitoring costs as a basis for the dispersion of firm ownership
Authors: Jaditz Ted
Published: June 2007

This paper proposes a model of endogenous shareholder dispersion. We find ownership structure causes variance in firm value, not vice versa, and contra to Demsetz and Lehn (1985). Conditions are also identified where increases in ownership dispersion maximize firm value, contra to Shleifer and Vishny (1986). The model suggests that ownership dispersion is a dynamic phenomenon that may change with interest rates or the set of alternative uses of firm resources. The conclusion is that there is not likely to be one ‘best’ structure of firm ownership, either for an individual firm over time or for all firms at a single point in time.
Managerial compensation and the agency costs of debt finance
Authors: Brander James A. , Poitevin Michel
Published: June 2007

This paper presents a model of the agency costs of debt finance, based on the conflict of interest between shareholders and bondholders. We show how the terms of the compensation contract offered to management by shareholders can reduce these agency costs. We derive a managerial compensation contract that restores the first‐best outcome and leads to a local irrelevance result for financial structure. More generally, the model points out that the nature of managerial compensation contracts will affect the firm's optimal financial structure, and offers a reason why managerial compensation is typically not closely correlated with shareholder returns.
Ramsey pricing in the presence of risk
Authors: Berry S. Keith
Published: June 2007

This article examines Ramsey (second‐best) pricing for a multi‐product regulated monopolist when marginal costs fluctuate with a known probability function. When all marginal‐cost risk is absorbed by consumers, the degrees of Pratt‐Arrow absolute risk aversion and the marginal cost variances in the various markets have an affect on the appropriate Ramsey prices. An analogous result is obtained when investors absorb all of the cost risk. When the cost risk is optimally shared by consumers and investors, the deterministic Ramsey prices are obtained.
The dynamics of cost‐plus pricing
Authors: Hanson Ward
Published: June 2007

Researchers report a sizable number of companies that use cost‐plus pricing. While such a policy is normatively suspect, it is simple, conventional, and occasionally mandated by regulation. This paper investigates cost‐plus pricing as a dynamic adjustment process. As a dynamic policy, cost‐plus pricing is more flexible than has commonly been realized. When firms have constant or decreasing average costs, dynamic cost‐plus pricing typically exhibits rapid convergence to the attracting member of a pair of fixed points. If the average cost function is sufficiently U‐shaped, complicated and chaotic dynamics can emerge.
Analysis and modeling of recent business failures in Greece
Authors: Papoulias Costas , Theodossiou Panayiotis
Published: June 2007

This paper provides an analysis of recent business failures in Greece and presents models for detecting financially distressed firms. Logit, probit, linear probability model, and linear discriminant analysis are used for developing these models. Potential users of the models include the banking system, corporate creditors, regulatory agencies, and investors in Greece, the European Economic Community, the USA, and other countries. These models expand the tools used by international and domestic investors to measure Greek firms' risk of insolvency.
Price uncertainty and the effect of capital costs in a point in‐point out inventory investment
Authors: Thorstenson Anders , Hultman Peter
Published: June 2007

This paper analyzes a point in‐point out inventory investment under price uncertainty. The optimal quantity is determined by maximizing the expected value of the investor's risk preference function, which is a function of profit. Using an exponential risk preference function, the adjustment in the optimal quantity stemming from a change in the interest rate is investigated. The main conclusion is that the sign of the adjustment depends both on how profit is expressed and on the type of price distribution applied. Contrary to what is assumed in conventional managerial control practices, a rise in the interest rate might lead to an increase in the optimal quantity when present value serves as a measure of profit.
The measurement of the gains or losses to an enterprise through relative price changes: The terms‐of‐trade effect and real income
Authors: Silver Mick
Published: June 2007

This paper provides a framework for measuring the terms‐of‐trade effect for an enterprise. This effect is the impact on the organization of changes in input to output prices as well as in the prices of goods and service upon which the income is utilized. The measurement of the effect is outlined with illustrative data and applied to the German Telecom sector, which has suffered particularly badly through adverse relative price changes. The case study of the German Telecom sector is also used to introduce the concept of real income. The framework advocated is argued to be particularly useful, since it allows not only the effects ex post of relative price movements to be evaluated, but also the effects ex ante of particular spending scenarios to be simulated (for example, investment). As such, it should be a useful addition to the ‘toolbag’ of managerial economists.
Capital budgeting with technology choice and demand fluctuations in a simple manufacturing model: Sample calculations and observations on output flexibility
Authors: Aranoff Gerald
Published: June 2007

In capital budgeting with technology choice and demand fluctuations errors can arise if managers unitize fixed costs and do not make proper allowance for expected idle capacity. In a standard‐cost system, managers and accountants should use as the standard cost E(AC), the expected average cost, employing a procedure shown in the paper. Managers should compare E(AC) and the short‐run‐average‐cost minimum, an output‐flexibility indicator proposed by the author. The more output flexible is the equipment, the less of an increase in costs to a firm if there are wider fluctuations in output rates than planned.
Information and decision making: A search for method and understanding
Authors: Moon Philip , Keasey Kevin
Published: June 2007

Despite the emphasis during the 1980s on value for money and the need to increase business efficiency in order to face competitive world markets, exactly how managers search for information for business decisions remains a neglected topic of academic inquiry. In response to this situation, the paper has two purposes. The first is to develop an initial understanding of how information is searched and used in business contexts; the paper describes how participants searched and used accounting information in a relatively unstructured competitive tendering task. Second, it shares the experiences gained from trying to research the topic. A number of experimental design and analysis issues are raised and discussed.
Extent of diversification and company performance: The New Zealand evidence
Authors: Hamilton R. T. , Shergill G. S.
Published: June 2007

This paper confirms the relative superiority of related‐diversification in terms of the financial performance of New Zealand companies, companies which are much smaller and less diverse than those which normally feature in this literature. To facilitate comparisons with other studies, financial performance is measured in three ways: return on equity; return on assets; and sales growth. Other independent variables controlled for are company size; risk; leverage; technological opportunity; and industry concentration. The effective rates of protection afforded manufacturing industries (export subsidies and import tariffs) are also confirmed as having had some positive bearing on company performance.
An impulse‐control method for investment decisions in dynamic technology
Authors: Bar‐Han Avner , Maimon Oded
Published: June 2007

This paper presents a new framework to augment standard methods in evaluating profitability of investments, especially those involved in dynamic technology. In this case there is a possibility that although a certain investment is profitable using standard methods, it should not be undertaken because it precludes a more profitable investment later on, when more advanced equipment will be available. The investment decision faced by a firm is presented here as an impulse‐control problem, where the process of technological progress is modelled explicitly. The outcome of the optimization yields, in addition to investment expenditures, the expected time period between consecutive investments. A simple example demonstrates the use of the technique in actual investment decisions.
Risk‐return measures of hedging effectiveness: The case of multiple cash and futures markets
Authors: Lien Da‐Hsiang Donald
Published: June 2007

In this article we consider the measure of hedging effectiveness proposed by Howard and D' Antonio (HD) when there are multiple cash and futures markets. It is found that the HD measure can be decomposed into two components: one solely determined by the futures market conditions, the other affected by both cash and futures markets as well as the hedger's cash portfolio. We then analyze the impacts of optimal cash portfolios on the HD measure. Although the Ederington hedging effectiveness is bounded over all cash portfolios, the conclusion does not apply to the HD measure.
Horizontal mergers and the balance of trade
Authors: Kaserman David L. , Melese Francois
Published: June 2007

This paper explores the relationship between market structure and the balance of trade in a dominant firm/competitive fringe model. It is shown that, absent efficiency effects, a horizontal merger between the dominant producer and a domestic fringe firm leads to a deterioration in the balance of trade, but, where efficiencies arise, this effect may be reversed. A sufficient condition for such reversal to occur is derived.
Equilibrium pricing and advertising strategies for nondurable experience products in a dynamic duopoly
Authors: Chintagunta Pradeep K. , Rao Vithala R. , Vilcassim Naufel J.
Published: June 2007

The quality of many consumer nondurable goods or services is sufficiently complex or obscure that consumers cannot completely verify the true quality in a single usage. For such ‘experience’ products or services, the accumulated consumer consumption experience of a brand is an important determinant of its sales or market share. The market share of a brand is in turn directly influenced by its own and the competitive price and advertising strategies, given the different levels of quality (among other factors). In this paper, we investigate the impact of the aggregate consumption experience on the firm's dynamic pricing and advertising strategies by developing a formal game‐theoretic model of a dynamic duopoly. The model of competition does not yield explicit closed‐form expressions for the dynamic price and advertising paths of the two firms. Hence, we simulate the equilibrium paths using a discrete‐time algorithm. Our simulation results provide interesting insights into the dynamic equilibrium price and advertising paths, under a variety of realistic competitive scenarios.
The stock market response to changing drug patent legislation: The case of compulsory licensing in Canada
Authors: Shapiro Daniel M. , Switzer Lorne N.
Published: June 2007

Between 1969 and 1987 pharmaceutical companies holding patents in Canada were subject to immediate compulsory licensing. This study evaluates the stock market response to both the imposition of immediate compulsory licensing in 1969 as well as its subsequent revocation in 1987. Since the affected companies were multinational enterprises, we analyse the movement of share prices on the New York Stock Exchange. The results indicate that patent protection is viewed positively by the stock market, but only when measured with hindsight (in 1987). Our results are consistent with other studies that suggest that patent protection does allow the appropriation of gains from knowledge by firms in the pharmaceutical industry. Thus, pharmaceutical companies would benefit from international agreements to provide more stringent levels of patent protection.
A sequential selectivity model of the decisions of arbitrators
Authors: Caudill Steven B. , Oswald Sharon L.
Published: June 2007

The study investigates arbitrator gender and grievant gender effects on the decisions of 146 arbitrators rendered on a hypothetical drug‐testing case. The effects are estimated using a sequential selectivity model. This approach takes into account the sequential and conditional nature of arbitrators' decisions. The results indicate that arbitrators are more likely to overturn terminations when the grievant is female, and that female arbitrators are less likely to fully reinstate grievants when the termination is overturned. Other results include the finding that older arbitrators treated grievants more harshly by more often awarding only partial reinstatements. When suspensions are given, however, we find that older arbitrators award shorter suspensions than do younger arbitrators. It is also found that more experienced arbitrators awarded longer suspensions than less experienced arbitrators.
More on knight and the theory of the firm
Authors: Foss Nicolai Juul
Published: June 2007

This article argues that Boudreaux and Holcombe (1989) misrepresented at least some contemporary theories of the firm when they claimed that these theories were constructed on a rigid general equilibrium basis, and contrasted them unfavorably with Frank Knight's theory of the firm. While nexus of contract theories may partially fit this description, this is not the case with the theorizing represented by the work of Oliver Williamson. Boudreaux and Holcombe are also criticized for failing to see that Knight's theory of the firm is in fact consistent with much contemporary theorizing on the firm.
On the determinants of foreign ownership shares: Evidence from US firms' joint ventures in Japan
Authors: Nakamura Masao , Yeung Bernard
Published: June 2007

It is often argued that firms' foreign expansion is motivated by economies of scale in information‐based intangible assets. Since these assets are combined with local factors in real production, their owner often has to deal with local factor owners' opportunistic behavior such as siphoning of skills which reduces the return on intangibles to the original owner. Local factor owners' agency behavior can also reduce a subsidiary's profit. Maintaining ownership mitigates the former type of opportunistic behavior, while ceding ownership reduces the latter type. Hence there is a non‐linear relationship between ownership and the cost of control. In this paper we present a model that incorporates these aspects of a joint venture ownership. In our model the share in a joint venture of a foreign parent firm with a superior technology is determined such that its marginal cost of control is set equal to the marginal benefit it derives from a joint venture. We assume that, because of the uniqueness and mobility of its intangible factor, the foreign partner has more bargaining power than its local counterpart regarding the ownership of their joint venture and that the local partner is less concerned than its foreign counterpart about the problems of agency and property rights protection because of its geographic and cultural proximity to the joint venture. As a consequence, the foreign partner is able to exert its preference for its ownership share in the joint venture. Our theoretical results allow a decomposition of ownership share into components explained by the cost of control and by the profitability of a joint venture. Our empirical results using data on technology‐based US firms' subsidiaries in Japan are consistent with our model predictions. In particular, the fraction of ownership share explained by the cost of control relative to the fraction explained by intrinsic profitability is higher for industries that rely more heavily on intangible assets, as expected from the model.
Time‐series properties and predictability of Greek exchange rates
Authors: Koutmos Gregory , Theodossiou Panayiotis
Published: June 2007

This paper explores the time‐series properties and predictability of weekly percentage changes in the Greek drachma exchange rates with respect to the currencies of major trading‐partner countries, such as the USA, Germany, the UK, France, Italy and Japan. The analysis is carried out using the EGARCH‐M model along with the power exponential distribution. Percentage changes in the Greek drachma with respect to the German mark, the French franc, the Italian lira and Japanese yen are predictable using past information. The volatility of Greek exchange rates is best represented by an EGARCH process and as such is predictable using past volatility measures. Moreover, volatility of the Greek drachma with respect to the German mark and Italian lira positively influences future movements in these exchange rates. The hypothesis that volatility is an asymmetric function of past innovations is rejected in all cases. Following the inclusion of the Greek drachma in the ECU currency basket, its value has been depreciating at a higher rate with respect to the German mark and Italian lira and at a lower rate with respect to the US dollar. Also, its volatility with respect to the German mark, the French franc, and the Italian lira has decreased, whereas its volatility with respect to the US dollar has increased.
Case study: Targeting demand‐side management for electricity transmission and distribution benefits
Authors: Orans Ren , Woo Chi‐Keung , Horii Brian K.
Published: June 2007

This paper shows how a vertically integrated utility develops a least‐cost transmission and distribution (T&D) plan that considers demand‐side management (DSM) to defer capacity expansion necessary for serving growing demand. The plan is the result of applying dynamic optimization techniques to a T&D planning area in the service territory of Pacific Gas and Electric Company (PG&E), the largest privately owned utility in the USA. In the case study area alone, DSM enables PG&E to reduce the present value of its planned investment in local T&D from $112.3 million to $77.3 million over a 20‐year period.
Evidence on the motivation for management forecasts of corporate earnings
Authors: Kross William J. , Lewellen Wilbur G. , Ro Byung T.
Published: June 2007

A multivariate model of the process by which managers decide to release public forecasts of their firms' earnings is developed, based on factors that are hypothesized to affect the demand for and the willingness to supply such forecasts. We test the model on data from a comprehensive sample of earnings forecasts, and find support for our hypotheses about the likely joint influence of those factors. Larger firm size, greater leverage, higher and more stable earnings rates and less rapid growth rates are found to be associated with an increased propensity for management to provide earnings forecasts for their firms.
Ownership effects on operating strategies: Evidence of expense‐preference behavior in the hospital industry
Authors: Oswald Sharon L. , Gardiner Lorraine R. , Jahera John S.
Published: June 2007

Expense preference offers an alternative to profit‐maximization theory in explaining firms' operating strategies (Williamson, 1963; Rees, 1974). Expense‐preference theory suggests that when disctretionary behavior is allowed, corporate managers may choose to maximize individual utility instead of corporate profit. Expense‐preference behavior tends to be evidenced by higher expenditures on items for which managers have a positive personal preference than would be justified by profit maximization. Conditions under which significant managerial discretion can emerge include weak competition, strictly controlled entry, a high degree of regulation, separation of ownership and control, and existence of a strong public interest character for the firm or industry (Awh and Primeaux, 1985; Edwards, 1977). The hospital industry may be characterized as operating under all the above conditions. Hospital ownership can be classified as being either not‐for‐profit or proprietary. Profit‐maximization influences are generally not present in not‐for‐profit hospitals, thus further increasing managerial discretion with respect to operating expenses. This study provides support for the contention that expense‐preference behavior exists in not‐for‐profit hospitals as compared to proprietary hospitals. Specifically, we present evidence of considerable managerial discretion in the allocation of resources in not‐for‐profit hospitals.
Paying for performance: Efficiency wages and mutuality
Authors: Ingham Hilary , Thompson Steve
Published: June 2007

The motivation of individuals lies at the core of corporate governance. For CEOs much research has been directed at the linkage between pay and enterprise performance. The results, however, provide only weak support for the efficacy of profit‐related pay. Herein we adopt a different perspective and test for the existence of efficiency wages in a mutual sector wherein the use of traditional control mechanisms is particularly problematic. Our empirical results support the hypothesis that efficiency wages do yield superior performance. We therefore conclude that efficiency wages are a much‐needed tool of corporate governance in the mutual sector. Furthermore, as an incentive mechanism, efficiency wages do not require the observability of individual effort, thus they potentially provide an equitable incentive mechanism for all organizations.