bluuebunny/crossref_metadata_2025 huggingface dataset:
Two managerial economics approaches to the R&D decision process
Authors: Mehrez Abraham
Published: May 2007

In this paper we present two different approaches that analyze the effects of rivals on the R&D decision process. The first approach assumes that the introduction time of the new product is uncertain to the manager. Given this assumption, the problem is analyzed in a framework similar to the one suggested by Kamien and Schwartz (1972). The second approch assumes technical certainty to study a set of models that extends and supports different views in the managerial economics literature regarding the properties of the R&D decision process from both private and social points of view.
Diversification versus co‐operation in R&D investment
Authors: Scott John T.
Published: May 2007

Comparison of the diversification of R&D in the mid‐1970s with the mid‐1980s co‐operative R&D that is protected by the National Co‐operative Research Act of 1984 (NCRA) shows that multi‐industry research coalitions seem to substitute for multi‐industry firms exploiting R&D spillovers. Diversification by individual firms and co‐operation among them can both increase appropriability, but the co‐operative R&D sacrifices competition that is present with diversification alone. The evidence suggests that diversification in the absence of the NCRA may have carried innovative investment toward the social optimum, while the effect of the law may well be to reduce investment and take us away from the social optimum.
The role of demographic factors in interest rate forecasting
Authors: McMillan Henry , Baesel Jerome B.
Published: May 2007

Slowly moving fundamental time series can be mistaken for time trends. Use of this series can increase credibility of medium‐term and long‐term forecasts. This paper introduces a new slowly moving fundamental time series—the age distribution of the US population—to explain trends in real US interest rates over the past 35 years. We argue that lifecycle consumption patterns at the individual level can influence aggregate saving and real interest rates. Empirical evidence is presented that supports the relationship between age distribution and expected real interest rates. Simulations of future interest rates are developed.
A note on the output effect of price discrimination on a sales maximizer
Authors: Deutsch Joseph , Kahana Nava
Published: May 2007

This note analyses the behaviour of a profit‐constrained sales‐maximizing firm under price discrimination. It is shown that tightening the price discriminatory constraint will cause a decrease in output regardless of the shape of the relevant demand curves.
Optimal production and portfolio investment decisions
Authors: Landskroner Yoram
Published: May 2007

This paper takes a further step towards the integration of the theories of production and finance under uncertainty. It sets up a continuous time‐diffusion process model of production by firms and portfolio investment by individuals and provides a simultaneous solution to these two decisions. The derived equilibrium conditions, being in the stockholders' interest, are specific in form, and are determined by two factors: attitudes of investors towards risk and the systematic risks of the firm.
The structure of british industry's sales in foreign markets
Authors: Buckley Peter J. , Prescott Kate
Published: May 2007

The structure of British industry's foreign sales is analysed by its principal components: exports, sales arising from licenses issued abroad and the output from facilities financed by British foreign direct investment. Total foreign sales are analysed by industry and by foreign market and differences in structure on both these dimensions are considerable. The literature is analysed in order to determine a preliminary set of variables which explain the structure at this highly aggregated level. Examination of the data allows us to focus on the most important explanatory variables, which include exchange rates, government policies and supply and demand factors.
The liquidation/merger alternative some results for the UK corporate sector
Authors: Peel M. J. , Wilson N.
Published: May 2007

Previous researchers have explicitly extended the definition of corporate failure to include distressed acquired firms when they are (mis) classified by statistical models as failing. We argue that this approach is erroneous, since the acquisition of a financially distressed firm is an entirely separate economic outcome from corporate failure. This paper reports some new evidence for the UK corporate sector where the acquisition of a distressed firm is modelled as a distinct alternative to corporate failure. Our empirical results suggest that it is feasible to develop statistical models which are able to discriminate, with a reasonably high degree of accuracy, between those distressed firms which fail and those where a timely merger appears to serve as a viable alternative to corporate bankruptcy.
The determinants of wagering behavior
Authors: Degennaro Ramon P.
Published: May 2007

The total volume of wagering at a racetrack is important since it affects both racetrack and state revenues. This paper studies the factors that determine the volume of wagering. One of these factors is the sire stakes, a major form of government subsidy. We conclude that this subsidy has little or no economic impact on the volume of wagers. Unless the state recoups nearly all of the subsidy in other ways, such as sales taxes on racehorses, the sire stakes amount to a direct transfer from taxpayers to the breeding industry. We also develop information useful to racetrack managers.
Alternative measures of rates of return: Some empirical evidence
Authors: Bosch J. C.
Published: May 2007

Firm profitability is measured in most cases by an accounting rather than by the theoretically superior economic (or internal) rate of return. This paper explores the relationship between accounting and internal rates of return using COMPUSTAT data for 1013 large industrial firms over a 20‐year period. The research was motivated by the controversy ongoing between scholars concerning the validity of the accounting rate of return as a proxy for economic profit. The method used in this paper is different from previous research in that cash flow profiles are estimated instead of being assumed. The results, while generally supporting the contention that accounting rates of return are poor proxies for underlying economic rates of return, also provide evidence that the distortions are not so great as to render them useless for performance measurement and managerial decision‐making purposes.
Transfer pricing: Technical and productivity change within the firm
Authors: Tisdell C. A.
Published: May 2007

Use of transfer prices is regarded by many writers as an efficient means of management of multidivisional firms. Its use in effect creates an internal market for the firm. However, its value as a management technique isknown to be subject to a number of limitations of the type discussed in the general economic theory of market failure. Nevertheless, two important limitations of transfer pricing have been neglected in the literature: (1) imputed profit/loss based on optimal transfer prices can be a poor guide to the economic value of a division to a firm when market transaction costs are important (for instance, even if a division shows an imputed loss, it may not be optimal to dispose of it), and (2) transfer pricing can retard technical change, innovation and productivity enhancement within a division to the detriment of the firm as a whole. Both aspects are examined here.
Inventory management under uncertainty: A financial theory for the transactions motive
Authors: Kim Yong H. , Chung Kee H.
Published: May 2007

This paper examines the effects of risk aversion and output market uncertainty on optimal inventory policy decisions for a transactions demand for inventory using the capital asset pricing theory. The paper shows that (1) the optimal order quantity of the risk‐adjusted value‐maximizing firm is smaller than that of the expected‐profit‐maximizing one and (2) the greater the firm's output market uncertainty, the smaller its optimal order quantity, where the output market uncertainty is defined as the relative volatility of the demand for the firm's output.
Who has a drug lag?
Authors: Parker John
Published: May 2007

Arrival time lags in twelve countries have been compared and the following conclusions drawn. Compared with the other countries in the sample population the USA does not have a drug lag. Alternative candidates are Australia, Norway and Japan. There are indications that arrival time lags decline over time. Recently introduced drugs probably now spread more quickly to destination countries.
The demand for retailer‐financed instalment credit: An econometric analysis
Authors: Crook Jonathan
Published: May 2007

During the mid‐ to late 1980s the UK's Chancellor of the Exchequer has attempted to reduce the volume of consumer credit extended by increasing interest rates rather than by re‐introducing terms controls. This paper presents estimates of demand functions for new credit extended by retailers which was financed by them and repaid by instalments. Following earlier papers, a stock‐adjustment model is presented that is extended to allow for credit rationing. The results suggest that the demand for such new credit extended is related negatively to terms control and positively to personal disposable income and expectations. Demand was not found to be related to (a proxy for) the nominal interest rate charged by retailers (although it was found to be positively related to the real rate). The former finding is consistent with questionnaire evidence that consumers are unaware of the interest rate that they pay for credit. Elasticities of demand are presented.
New evidence on predatory price cutting
Authors: Burns Malcolm R.
Published: May 2007

This paper presents new evidence on predatory price cutting as a monopolization strategy. The evidence consists primarily of what appear to be repeated expressions of predatory intent in business letters exchanged between senior officers of the old Tobacco Trust. These letters come from the trial records of United States v. American Tobacco Co., 221 US 106 (1911). Although they are not entirely free of ambiguity, the tobacco letters are remarkably candid and very interesting.
New product introduction under demand uncertainty in competitive industries
Authors: Chatterjee Rabikar , Sugita Yoshi
Published: May 2007

A game‐theoretic model is employed to examine the conditions under which firms in a duopoly, faced with a new product introduction opportunity of uncertain profitability (because of uncertainty in demand), choose to enter the market immediately or, alternatively, decide to wait, thereby avoiding the risk of failure. The implications for a firm's strategic behavior are contrasted with situations in which the competitor is believed to be (1) passive, implying that the firm expects to enjoy indefinite monopoly status if it introduces the new product, and (2) committed to a waiting strategy, implying monopoly status for a limited time period, if the new product is successful.
Corporate debt, corporate taxes and leasing
Authors: Bayless Mark E. , Diltz J. David
Published: May 2007

This paper utilizes recent developments in capital lease modeling to develop a new specification of the relationship between the expected returns to debt, levered equity and unlevered equity for firms that lease a portion of their assets. Accounting explicitly for leases is shown to be important when the difference between equity and debt risk is large, when the risk of leased assets differs from the firm's other assets and when salvage value is a significant portion of the capitalized value of the firm's lease obligations. This new specification yields improved estimates of firms' unlevered cost of capital, thereby facilitating improved capital budgeting decisions in those that lease a significant portion of their assets.
A Method for the estimation of limit prices without entry data
Authors: Shaanan Joseph
Published: May 2007

Estimates of limit pricing values are useful to researchers studying princing strategies and oligopolistic behavior. Previous studies have demonstrated that limit prices (profits) can be estimated with the use of data on the entry of new firms. Unfortunately, entry data are scarce. The current study presents a methodology based on a property of dynamic‐stochastic theories of limit pricing wherein limit prices can be estimated without entry data. This methodology requires the use of price elasticity of demand values which are more readily available than entry data. Following the methodology section, an application of this method is presented with a cross‐section sample of consumer goods industries.
Towards a managerially specific (MS) framework for bank capital adequacy
Authors: Gardener E. P. M.
Published: May 2007

The stock market crash of 1987 and continuing Third World debt problems are among the factors that have re‐emphasized the importance of bank capital adequacy. The contemporary academic literature, however, seems to provide limited practical help for banks in this important decision area. This study develops a strategic framework for the appraisal of capital adequacy within the banking firm. It is suggested as a suitable practical way of overcoming the uncertainty problems for which bank capital adequacy is alleged to exist.
Shareholder gains from callable‐bond refundings
Authors: Emery Douglas R. , Lewellen Wilbur G.
Published: May 2007

A re‐examination indicates that current procedures for measuring the benefit realized by shareholders when a firm calls and refunds an outstanding debt obligation are mis‐specified. The key to a proper measurement is found to lie in the identification of the extinguished remaining‐time‐to‐maturity value of the exercised option on the called debt. A simple procedure for assessing that value is provided and incorporated into a corrected measure of the gains from a callable‐bond refunding.
A study of production decisions under extreme uncertainty in the wood products industry
Authors: Vertinsky Ilan , Kira Dennis , Kanetkar Vinay
Published: May 2007

Management under uncertainty has posed economists with the most important conceptual challenge to their basic models of profit maximization. This paper investigates firms' behavior under conditions of extreme uncertainty in the wood products industry of British Columbia. The investigation compares the predictive powers of models developed on the basis of empirical research of how firms decide “in fact” (behavioral models) and models derived from the assumption that firms behave “as if” they maximize profits. The paper lends support to the claim that firms are adaptive organisms and tend to behave as if they maximize profits.
Vertical integration: A comparative analysis of performance and risk
Authors: Reed Richard , Fronmueller Michael P.
Published: May 2007

Hofer's (1973) argument for strategy analysis by matched pairs forms a central methodological feature in this examination of vertical integration. With twenty matched pairs of companies we have sought to eliminate the major extraneous factors that have precluded consensus among previous research findings. Our results show that vertical integration (via whole ownership) is performance and risk‐neutral. Support is generated for the fundamental notion that successful strategy selection, and subsequent performance, is a function of firm‐specific competencies and opportunities. Consequently, we urge that research on vertical integration move forward to consider ex ante conditions of fit rather than continuing to pursue ex post rationalizations of performance and risk.
Survey of mathematical programming models and experimental results for linear discriminant analysis
Authors: Erenguc S. Selcuk , Koehler Gary J.
Published: May 2007

The mathematical programming approach to linear disciminant analysis was first introduced in the early 1980's. Since then, numerous mathematical programming models have appeared in the literature. Some of these models were merely formulated while others were subjected to experimentation, in some cases rather extensively. The purpose of this paper is to present a unified survey of these models and their experimental results where applicable. Some mathematical programming (MP) models, unfortunately, have certain pathologies inherent in their structure which puts the degree of usefulness of these models in doubt. When known, such pathologies are also identified for the specific model in question.
A robust methodology for discriminant analysis based on least‐absolute‐value estimation
Authors: Glorfeld Louis W.
Published: May 2007

Many important real‐world discriminant problems require application of linear discriminant analysis to data that are contaminated with outliers and do not approximate the assumptions required for the near‐optimal performance of the standard statistical model. A robust diagnostic methodology is developed based on least‐absolute‐value estimation which addresses both descriptive and classification objectives of discriminant analysis. When used in conjunction with standard discriminant analysis this methodology allows the assessment of the impact of contamination on standard discriminant analysis and identification of possible assumption violations and contaminating data points through an informal graphical display. An application to the mortgage loan‐granting problem is used as a basis for demonstrating the methodology.
International competitiveness of japanese manufacturing
Authors: Daly Donald J.
Published: May 2007

This paper deals with the effect of corporate management practices on the efficiency of Japanese manufacturing and their international trade performance. It also looks at the relative cost position in comparison with the major industrialized countries. Such cost comparisons reflect changes in productivity performance, inflation and exchange rate changes that have been so marked that the United States has become the lowest‐cost producer of manufactured products recently for the first time in the post‐war period. Some effects of these changes on the trade and balance of payments positions of Japan in relation to North America are outlined. The paper includes data for selected years from 1950 to 1988 for real GDP per employed person, real output per hour for manufacturing, and unit labour costs for manufacturing for the United States, Japan, Canada and six of the major European countries.
The growth in the Japanese stock market, 1949–90 and prospects for the future
Authors: Ziemba William T. , Schwartz Sandra L.
Published: May 2007

This paper surveys the growth in size and value of the Japanese stock market from its post‐Second World War reopening until the end of 1990. The rise has been spectacular, but there have been many declines along the way. These are discussed along with the close relationship between land and stock prices. The paper concludes with an assessment of the current situation and prospects for the short and long term.
Competitive management and working capital
Authors: Hamlin Alan P. , Heathfield David F.
Published: May 2007

Working capital is a necessary input to the production process and yet is ignored in most economic models of production. The implications of modelling the time dimension of production, and hence the working capital requirements of firms, are explored, with particular stress placed on the competitive advantage gained by firms that retain flexibility in the time structure of their production.
Managerial evaluation of exogenous forecast sources
Authors: Lawrence David B.
Published: May 2007

This paper concerns the managerial evaluation of forecast vendors—individuals or firms offering for sale future forecasts of random variables relevant to managerial decision making. Assuming the forecasts are exogenous in the sense they are generated by a methodology unknown or unproven to management, the paper uses a logistic regression model to present a statistical test for informativeness that allows for an interpretation of the vendor's abilities. The advantage of the approach is that it requires as input only knowledge of the unconditional probability distribution of the variable being forecast and a relatively small historical track record of the vendor's forecasting performance. No benchmark forecast is necessary and few assumptions are required about the statistical process that generates the forecasts. As an illustrative empirical application, the paper presents an evaluation of the informativeness of the published long‐range price forecasts by a veteran analyst of the Iowa hog market.
Managerial intensity, firm size and growth
Authors: Gander James P.
Published: May 2007

Thirty years ago Edith Penrose proposed that managerial resources will grow at a rate somewhat faster than that of the size of the firm. With available data, the Penrose Hypothesis and an alternative steady‐state hypothesis are tested, using simple econometric models involving managerial intensity, firm (industry) size and growth. The steady‐state hypothesis is accepted for the recent data and the Penrose Hypothesis is accepted for the earlier data. Policy issues are then discussed.
MNE competitiveness: A scenario‐driven technology transfer construct
Authors: Georgantzas Nicholas C.
Published: May 2007

To compete effectively, multi‐national enterprises (MNEs) must establish market presence in their global rivals' home courts and/or profit sanctuaries. Technology transfer is often used as a means toward that end. The technology adoption decisions of an aggressor MNE and a defender MNE are investigated in a model that features indirect moves and changes in strategy through technology transfer. Each firm may adopt a strategy that incorporates the transfer of high technology or appropriate technology. The strategic decision situation is modelled as a closed‐loop sequential equilibrium in discrete time. In contrast to results in the technology adoption literature, the aggressor MNE may successfully transfer technology first, to be imitated later by the defender MNE. This and several other scenarios emerge from the model which, by incorporating the cost of social adjustment and risks involved in technology transfer, ties technology to the competitive interaction of MNEs and specifies conditions for creating competitive advantage through technology, both locally and worldwide.
Postauditing capital assets and firm performance: An empirical investigation
Authors: Myers Mary D. , Gordon Lawrence A. , Hamer Michelle M.
Published: May 2007

The argument presented in this paper is that the adoption of sophisticated postaudit procedures should be associated with improved firm performance. Based on a matched‐pair experimental design, utilizing the Wilcoxon matched‐pairs signed‐ranks test and a newly developed statistic to test for a change point, empirical evidence is provided to support this argument.
Game theoretical foundations of evolutionary stability by Bomze, I. M. and Pötscher, B. M., Springer‐Verlag, New York, 1988
Authors: Samuelson Larry
Published: May 2007

The theory of evolution and dynamical systems by Hofbauer, J. and Sigmund, K., Cambridge University Press, Cambridge, 1988.
Organizational choice and product differentiation
Authors: Hendrikse George
Published: May 2007

A centralized structure will set higher prices and locate products closer together than a decentralized one. A decentralized organizational structure is chosen because the entry‐deterring effect of such a structure outweighs the monopoly effects of a centralized one for sufficiently low entry fee levels.
A closed‐form expression for the net present value of a time‐power cash‐flow function
Authors: Grubbström Robert W.
Published: May 2007

Previous work has shown how Laplace Transform Theory and z‐Transform Theory may be used in Net Present Value Analysis. A closed‐form expression is easily derived for a continuous cash flow tk, where t denotes time and k is a positive integer. In the corresponding discrete case, explicit expressions have only been provided for k 10. In this article we derive a closed‐form formula for the missing general case when k is an arbitrary non‐negative integer. As a byproduct, we also obtain a closed‐form expression for the z‐transform of such a power series.
Analysts' utilization of historical earnings information
Authors: Lobo Gerald J. , Nair R. D.
Published: May 2007

This study examines whether security analysts (in)efficiently utilize the information contained in past series of annual and quarterly earnings in producing earnings forecasts. To do so, it investigates whether equal‐weighted combinations of security analysts' forecasts with forecasts from statistical models based on historical earnings are superior, both in terms of being a better surrogate for the market's expectations of earnings and of accuracy, to forecasts from either one of these two sources. The empirical findings indicate that, although analysts' forecasts are superior to forecasts from statistical models, performance can be improved—both in terms of accuracy and also of being a better surrogate for market earnings expectations—by combining analysts' forecasts with forecasts from statistical models based on past quarterly earnings. Improvements in proxying for market earnings expectations were obtained even when analysts' forecasts made in June of the forecast year were used in the combinations. An implication of these findings is that investors can improve their investment decisions by using an average of the mean analysts' forecasts and the forecast produced by a time‐series model of quarterly earnings in their investment decisions.
A billing policy for credit customers
Authors: Stowe John D. , Miller Janis L.
Published: May 2007

Firms frequently bill customers on a fixed‐period basis (such as once a month), or on a fixed‐amount basis (whenever the outstanding credit balance reaches a particular amount). We examine here a more flexible procedure, the bill‐or‐carry policy, which uses a simple decision rule and results in lower costs than either the fixed‐period or fixed‐amount procedures. The logic and properties of the bill‐or‐carry policy are compared with those of the fixed‐period and fixed‐amount procedures.
Oligopsony/oligopoly power and factor market performance
Authors: Chang Yang‐Ming , Tremblay Victor J.
Published: May 2007

This paper is concerned with the economic performance of factor markets in an oligopsony/ oligopoly setting. Firm arid industry indexes are developed to measure factor market price distortions caused by exerted oligopsony/oligopoly power. These measures indicate that the elasticity of output demand, the elasticity of input supply, and the input and output conjectural elasticities determine the degree of non‐competitive performance in factor markets. It is also shown that under special conditions the firm index equals the Lerner index and the industry index equals the Herfindahl‐Hirschman index.
Market anticipation of merger activities: An empirical test
Authors: Jayaraman Narayanan , Mandelker Gershon , Shastri Kuldeep
Published: May 2007

This paper empirically examines the possibility that there is leakage of information regarding a merger prior to the announcement of the first bid for the target firm. The tests for the existence of market anticipation are based on the behavior of variances implied in the premia of call options listed on the target firms' stocks. We conclude that the evidence is consistent with the hypothesis that the market anticipates an acquisition prior to the first announcement.
Debt, lock‐in assets and corporate restructuring
Authors: Ang James S.
Published: May 2007

Why do some firms refuse to sell assets that are worth more to another firm? This paper shows that the presence of debt could cause anex postoverinvestment agency problem. In contrast to Myers' underinvestment problem, which is concerned with debt and growth assets, the model in this paper analyzes the role of debt and alternate users of assets in place. This type of agency problem is of interest because it is inherently related to the important recent corporate finance phenomenon of restructuring.
An anatomy of the poison pill
Authors: Macminn Richard D. , Cook Douglas O.
Published: May 2007

In this paper the workings of the generic version of the poison pill are investigated. The analysis shows that the poison pill with only a flip‐over provision is ineffective as either an anti‐merger mechanism or an anti‐takeover device. Two antidotes to the flip‐over provision (one of which is well known) are provided here. The analysis further demonstrates that with the inclusion of a flip‐in provision it is possible for the target firm to construct a poison pill right to either increase the tender price and allow the takeover or to eliminate the possibility of a successful hostile tender offer.
An econometric model of a retail firm
Authors: Ratchford Brian T. , Stoops Glenn T.
Published: May 2007

Existing models of retail resource allocation generally specify response functions in a somewhat ad hoc manner. These are not usually derived from an explicit model of consumer maximization, and they generally do not explicitly consider the supply side of the market. This paper shows how the model of Ehrlich and Fisher (1982) can be used to provide insights into the proper specification of these functions. We illustrate the application of this model on data from a retail chain; our application extends work in Ratchford and Stoops (1988) to the demand side of the market. Potential areas of application of the model are to understanding the demand for labor and advertising services by consumers, and to the measurement of retail productivity.
Retailer‐manufacturer price and profit relationships along the advertising life cycle: An empirical examination
Authors: Liebermann Yehoshua , Ayal Alex
Published: May 2007

Competitive intra‐channel forces are an important factor to the success (or failure) of newly introduced brands. The present study offers an extended theoretical framework of the advertising life‐cycle concept, which illuminates the changes in the manufacturer‐retailer balance of power within the marketing channel along the development path of new brands. The theoretical conclusions are then tested against a unique data set. The empirical findings confirm the prediction that dynamic competitive elements will change the intra‐channel pricing balance.
A two‐part incentive scheme to implement productive efficiency over time
Authors: Tam M.‐Y. S. , Tam Mo‐Yin S.
Published: May 2007

Under rate‐of‐return regulation the firm is not induced to minimize cost. All the incentive regulatory schemes thus far suggested in the literature have the desirable feature of inducing the firm to do so, but they either require the regulator to have full information about demand or take a number of periods to induce the firm to converge to the optimal output level. Hence they do not work well in the dynamic situation where demand and/or cost changes. In this paper a two‐part negative price incentive scheme is suggested whereby the regulator will implement the subsidy scheme only if the firm charges a price higher than its unit expenditure. This scheme (1) requires limited information for implementation; (2) induces the firm to minimize costs; and (3) under certain situations leads to optimal behavior in one period. More importantly, it will continue to have the above features over time.
Portfolio management using a factor‐analytic stock selection strategy
Authors: Badrinath S. G. , Kini Omesh
Published: May 2007

This study takes an integrated look at six widely documented price‐related CAPM anomaly variables. Using maximum likelihood factor analysis, we extract factors common to these variables. We find that portfolios formed according to the first extracted factor alone exhibit abnormal performance. Further, the performance of firms ranked on the basis of extracted factor scores for this factor is superior to that of firms selected on the basis of any one of the six variables. Our results have implications for (1) isolating missing factors in the CAPM specification and (2) designing dynamic portfolio strategies aimed at jointly exploiting more than one anomaly.
Ownership structure and corporate liquidity policy
Authors: Papaioannou George J. , Strock Elizabeth , Travlos Nickolaos G.
Published: May 2007

This study analyzes the relationship between corporate liquidity (i.e. the fraction of assets invested in cash and marketable securities) and managerial ownership in the firm's stock. We postulate a negative relationship between excess liquidity and managerial stock ownership as the managers' interests shift from protecting the value of their human capital to maximizing the value of their stockholdings. This managerial behavior is constrained by the disciplining forces of the firm's product market structure and the market for corporate control. While the tests fail to reveal any significant impact of managerial stock ownership, they show that firm liquidity is positively related to the firm's ability to earn economic rents.
International joint ventures: Theoretical considerations
Authors: Yu Chwo‐Ming Joseph , Tang Ming‐Je
Published: May 2007

This paper constructs models to investigate the rationale for a multinational corporation to enter into a joint venture to serve a host market. In particular, the model examines the impact of profit sharing, cost reductions, risk reductions, and competition reductions on the profits of international joint ventures. The results may explain the ‘recent’ popularity of international joint ventures. The models show that (1) a joint venture is the dominant entry strategy when there is a formidable local competitor and the risks of operation are high, (2) a wholly owned subsidiary is preferred if a multinational corporation has a significant cost advantage, (3) a joint venture is preferred to a wholly owned subsidiary if significant cost reductions can be achieved through combining the strengths of a multinational corporation and a local firm, and (4) multiple licensing is preferred if the number of local firms is large.
The effects of ownership structure and diversification strategy on performance
Authors: Belkaoui Ahmed , Pavlik Ellen
Published: May 2007

This study developed and tested a model that attempts to describe the influence of ownership structure and diversification strategy on performance. Results based on data from a crosssectional set of 228 Fortune 500 firms suggested that ownership structure and diversification explain differences in performance between firms.
Tax wedges, bid‐ask spreads, and international financial parity conditions
Authors: Schnabel Jacques A.
Published: May 2007

Tax wedges do not induce a priori inconsistencies in the international Fisher effect nor do they render forward rates biased predictors of future spot rates once proper account is taken of the bid‐ask spreads present in spot and forward foreign currency transactions.
Investment and pricing strategies of competing firms: A computational approach
Authors: Kivijärvi Hannu , Soismaa Margareta
Published: May 2007

We analyze the classical investment and pricing problem of a dominant firm faced with competition from substitute industries or marginal firms in the same field. The firm owns a finite level of a resource (e.g. the stock of an exhaustible one), the consumption of which is to be divided optimally over a finite planning horizon. The competitors' measures affect the demand for the resource towards the dominating firm. Rising crude oil prices and investments in forms of alternative energy are representative examples of the strategic questions which involve competitive and contradictory interests among firms within an industry. The investment and pricing problem can be solved analytically only with strong, simplifying assumptions. To make the analysis simpler and to relax these restrictions, we combine a series of numerical tools, computerize them, and build up a user‐oriented, computerized decision aid, which we call a ‘computerized approach’. We solve the problem under different sets of theoretical assumptions. This chosen incremental theory building allows us to study the theoretical sensitivity of the original problem.
Mutually related firms and the rationality of producing nothing
Authors: Dobson Paul W.
Published: May 2007

This paper considers the pricing and output decisions of firms which are related by the complementary nature of their products. The paper focuses on the problems which may result from non‐co‐operative behaviour of such firms. At the extreme, it is shown that non‐cooperative complementary firms may ‘rationally’ choose to produce nothing. The paper considers the conditions which lead to this market failure result, and whether encouragement by government for the firms to co‐operate or merge is required to make the market operate more efficiently.
Executive compensation, method of payment and abnormal returns to bidding firms at takeover announcements
Authors: Travlos Nickolaos G. , Waegelein James F.
Published: May 2007

This study investigates the association between method of payment, long‐term performance plans, managerial stockholdings and abnormal returns to bidding firms at takeover announcements, using a cross‐sectional regression methodology. Previous studies have examined each of these factors separately. The results indicate that firms with long‐term performance plans and high managerial stockholdings in cash offers experience significantly higher abnormal returns at the announcement of mergers prior to 1980. The study provides additional evidence in explaining the previous conflicting results (Jensen and Ruback, 1985), examining the stock market reaction of bidding firms at merger announcements.
Graphical analysis and financial classification: A case study
Authors: Chatterjee Sangit , Srinivasan Venkat
Published: May 2007

This paper illustrates the use of graphical analysis as a complementary diagnostic tool in financial classification problems. For more than two decades statistical models have been used frequently to understand the information content of multivariate data in the context of financial classification. These statistical classification models can be complemented by the use of computer‐generated multidimensional data displays and graphical analysis. We illustrate the use of the scatterplot matrix, which is the simplest and very effective form of graphical analysis on a sample of bankrupt and non‐bankrupt firms. The paper demonstrates the complementary nature of the scatterplot matrix for tree‐structured classification models.
Some differences between licensed and internalized transfers of machine tool technology: An empirical note
Authors: Davies Howard
Published: May 2007

This note uses survey evidence drawn from the machine tool industry in three countries to identify some of the differences in form between technology transfers which are internalized and those governed by licensing contracts between independent firms. The results show that, consistent with transactions cost theory, the internalized mode of governance leads to the transfer of a much broader range of information and skills than licensed transactions.
Firm value and investment in R&D
Authors: Johnson Lewis D. , Pazderka Bohumir
Published: May 2007

This paper employs Canadian stock market and corporate financial data to test the hypothesis that the market places a positive value on reported research and development spending of firms as an indicator of expected profitability and growth. The empirical results show a positive, statistically significant relationship between R&D spending and market value. The magnitudes of estimated coefficients are consistent with those reported in several published US studies. These results suggest that investment in R&D is a rational allocation of resources, contrary to the undervaluation hypothesis.
Analyzing the underlying dimensions of firm profitability
Authors: Banker Rajiv D. , Chang Hsi‐Hui , Majumdar Sumit K.
Published: May 2007

In this paper we decompose a traditional measure for firm's performance, return on sales, into four components that capture the impact of productivity, price recovery, product mix and capacity utilization, respectively, on a firm's profitability. The new measures are used as an illustration to explain changes in the performance of firms in the US telecommunications industry following deregulation. Changes in the overall profitability margin of these firms are explained by substantial but offsetting changes in their productivity, price recovery ability, product‐mix maximization and capacity utilization, that have occurred as a consequence of deregulation. The new measures enable us not only to illustrate relative differences between firms in a given cross‐section but also to shed light on how changes take place over time in the different components that underlie firms' profitability.
Signalling, financial hierarchy and agency theory as explanations for dividend behaviour: Evidence from Italian firm data
Authors: Sembenelli Alessandro
Published: May 2007

Starting from the traditional Lintner model, an asymmetric model of dividend behaviour is derived. It allows both the speed of adjustment and the desired pay‐out structural parameters to vary according to firm‐ and time‐specific economic conditions. The model is then tested on a sample of large Italian quoted and non‐quoted firms. The main result of the econometric testing is that managers adjust more quickly when they have to reduce dividends than when they have to increase them. This finding is not consistent with the traditional view that firms are more reluctant to reduce than to increase dividends because of signalling problems. It is, however, consistent with the existence of a financial hierarchy. If internal sources of funds are cheaper managers will rationally adjust relatively quickly when they have to reduce dividends in order not to cut investment and will adjust relatively slowly when they have to increase them in order to build financial slack. One further interesting result observed is that quoted firms are found to fix a higher pay‐out ratio than non‐quoted firms.
‘Derivative’ firms, agency and economic integration
Authors: Choi Yoon K. , Merville Larry J.
Published: May 2007

This paper proposes a ‘derivative’ firm model that emphasizes the decisions to invest in productive assets and to contract with firm managers. Contemporary examples of derivative firms include joint ventures and LBOs. The traditional joint venture is recast as a derivative firm with the model pointing out why managerial contracts and asset investment decisions should be made simultaneously for optimal shareholder wealth.
Management ownership and corporate value
Authors: Chen Haiyang , Hexter J. Lawrence , Hu Michael Y.
Published: May 2007

Existing literature on the relation between management ownership and firm value has provided competing hypotheses and conflicting evidence. Using samples of Fortune 500‐sized firms in 1976, 1980 and 1984, we find that corporate value measured by Tobin's q is a function of management ownership. Specifically, the q rises when management ownership is between 0% and 5‐7%, and falls as the ownership increases to 10‐12%. Beyond this range, we find that the q continues to fall in the 1976 sample, and starts to rise in the 1980 and 1984 samples. The evidence supports the hypothesis that there is a nonmonotonic relation between management ownership and corporate value.
Deregulation and price discrimination in the conveyancing market
Authors: Stephen Frank H. , Love James H. , Gillanders Derek D. , Paterson Alan A.
Published: May 2007

Using data from a telephone survey of solicitors in England and Wales, this paper presents data on the impact of deregulation on price discrimination in 27 local conveyancing markets. It is concluded that variations in price discrimination can be explained not only by differences by firm and market structure but also by systematic differences in firm conduct. In particular, the nature of the response within different markets to deregulation in the legal profession (advertising and licensed conveyancers) has a significant effect on the extent of price discrimination.
A non‐co‐operative bargaining model of membership expansion in a producer co‐operative
Authors: Neary Hugh M.
Published: May 2007

This paper presents a non‐co‐operative bargaining model of membership expansion in a producer co‐operative. The emphasis is on examining the distribution of the resulting surplus between the existing partners and the new member. In the presence of a number of alternative candidates, the existing partners can use the threat of switching negotiating partners to extract additional surplus from the negotiations. The degree of symmetry between the competing candidates necessary for these threats to be credible is specified, as is the nature of the dependence of the parties' payoffs on the various parameters of the model. Potential sources of misallocation within the model are identified.
Comparative statics for profit‐maximizing and labor‐managed cournot oligopolies
Authors: Okuguchi Koji
Published: May 2007

Comparative static results are derived for two types of oligopoly: profit‐maximizing and labor‐managed Cournot oligopolies. After establishing a general principle for comparative statics for oligopoly, we will examine how a shift in the demand function, changes in the wage rate, indirect tax rates and fixed costs, and technical change affect the equilibrium Cournot industry and firms‘ outputs, firms’ profits and dividends per unit of labor. We will also analyze the effects of entry. Our analysis makes an extensive use of the relationship existing between an individual firm's and industry outputs. We will derive two kinds of stability conditions: one behavioristic and the other computational. Finally, we will conduct comparative static analysis for mixed oligopoly where several profit‐maximizing and labor‐managed firms co‐exist.
Workers' enterprises in price competition
Authors: Sertel Murat R.
Published: May 2007

Extending earlier equivalence results for perfect competition and for (imperfect) quantity competition, here it is shown that in price competition, too, the behavior of a workers‘ enterprise (defined by the coincidence of its workers with its partners) is tamed by the worker‐partnership market so as to be identical with that of a twin entrepreneurial firm. Thus, not only is Bertrand–Nash equilibrium unaltered when an entrepreneurial firm is replaced by its workers’ enterprise twin, but such a replacement also leaves Bertrand‐von Stackelberg equilibrium intact whether we switch the leader or a follower from one form of ownership/management to the other.
A capital accumulation model of the workers' enterprise
Authors: Shimomura Koji
Published: May 2007

This article formulates a capital accumulation model of the workers' enterprise in which the standard adjustment‐costs theory of investment is introduced into Sertel's framework. The existence, uniqueness and local stability of the steady state are shown to be established under mild conditions and the long‐run effects of changes in the price of output, the external wage rate and the interest rate on the volume of capital and the size of membership are examined.
Advertising conjectures and the nature of advertising competition in an oligopoly
Authors: Seldon Barry J. , Banerjee Sudip , Boyd Roy G.
Published: May 2007

We estimate advertising conjectural variations within a simultaneous system that includes advertising and demand equations for cigarette manufacturers. This allows insight into advertising decisions in an oligopoly. The advertising conjectures are positive and statistically significant, indicating that firms do not hold Cournot conjectures as is usually assumed in theoretical models. Instead, firms perceive that their rivals will respond directly to their own advertising. We also find evidence that, while cigarette advertising rearranges market share by increasing firm‐level demand relative to rivals' demand, it also increases market demand for cigarettes. Hence there are positive spillovers from advertising in the cigarette industry.