Mapping the successful succession process in family firms: evidence from Greece

The succession process in family firms has by far been determined to be the most critical phase in the family business life-cycle (e.g. Morris et al. Journal of Business Venturing 18:513–531, 1997; Wang et al. 2000) and characterized as the period in which most family firm fatalities occur (Handler and Kram Family Business Review 1:361–381, 1988). This paper is an empirical study on Greek family firms and seeks to identify the critical success factors that have a major impact on the outcome of a generational transition in the leadership of the family firm. Based on an integrated conceptual framework proposed by Pyromalis et al. (2006), we test the impact of five factors, namely the incumbent’s propensity to step aside, the successor’s willingness to take over, the positive family relations and communication, succession planning, and the successor’s appropriateness and preparation on both the satisfaction of the stakeholders with the succession process and the effectiveness of the succession process per se. The results provide a useful insight and confirm the importance of the aforementioned factors in the succession process by mapping a safe passage through the family business succession process, and by contributing not only to the overall family business literature but also generating strong arguments in favor of the family firm as an integral entrepreneurial element for a region’s sustainable economic development.     

Assessing bankruptcy prediction models via information content of technical inefficiency

We use a stochastic frontier model with firm-specific technical inefficiency effects in a panel framework (Battese and Coelli in Empir Econ 20:325–332, 1995) to assess two popular probability of bankruptcy (PB) measures based on Merton model (Merton in J Financ 29:449–470, 1974) and discrete-time hazard model (DHM; Shumway in J Bus 74:101–124, 2001). Three important results based on our empirical studies are obtained. First, a firm with a higher PB generally has less technical efficiency. Second, for an ex-post bankrupt firm, its PB tends to increase and its technical efficiency of production tends to decrease, as the time to its bankruptcy draws near. Finally, the information content about firm’s technical inefficiency provided by PB based on DHM is significantly more than that based on Merton model. By the last result and the fact that economic-based efficiency measures are reasonable indicators of the long-term health and prospects of firms (Baek and Pagán in Q J Bus Econ 41:27–41, 2002), we conclude that PB based on DHM is a better credit risk proxy of firms.     

Estimation of trade and domestic distortions: an application to world agriculture

The world’s nations often produce commodities for which they have no apparent comparative advantage, and do so with techniques that are not particularly efficient by world standards. These inefficiencies may arise from various forms of trade and domestic distortions, as described in Chau et al., Int Econ Rev 44:1079–1095, (2003). We estimate these distortions for 33 countries of the world using a newly compiled data set. We find that domestic distortions tend to be slightly more important than trade distortions. For the average country, revenues in the agricultural sector would be 26% higher if domestic distortions were eliminated, but 21% higher if trade distortions were eliminated. Our measures of trade and domestic distortions across countries provide a complement to measures of protectionism such as producer subsidy equivalents.     

A stochastic frontier model with correction for sample selection

Heckman’s (Ann Econ Soc Meas 4(5), 475–492, 1976; Econometrica 47, 153–161, 1979) sample selection model has been employed in three decades of applications of linear regression studies. This paper builds on this framework to obtain a sample selection correction for the stochastic frontier model. We first show a surprisingly simple way to estimate the familiar normal-half normal stochastic frontier model using maximum simulated likelihood. We then extend the technique to a stochastic frontier model with sample selection. In an application that seems superficially obvious, the method is used to revisit the World Health Organization data (WHO in The World Health Report, WHO, Geneva 2000; Tandon et al. in Measuring the overall health system performance for 191 countries, World Health Organization, 2000) where the sample partitioning is based on OECD membership. The original study pooled all 191 countries. The OECD members appear to be discretely different from the rest of the sample. We examine the difference in a sample selection framework.     

Innovation and export activities in the German mechanical engineering sector: an application of testing restrictions in production analysis

Since Solow (Q J Econ 70:65–94, 1956) the economic literature has widely accepted innovation and technological progress as the central drivers of long-term economic growth. From the microeconomic perspective, this has led to the idea that the growth effects on the macroeconomic level should be reflected in greater competitiveness of the firms. Although innovation effort does not always translate into greater competitiveness, it is recognized that innovation is, in an appropriate sense, unique and differs from other inputs like labor or capital. Nonetheless, often this uniqueness is left unspecified. We analyze two arguments rendering innovation special, the first related to partly non-discretionary innovation input levels and the second to the induced increase in the firm’s competitiveness on the global market. Methodologically the analysis is based on restriction tests in non-parametric frontier models, where we use and extend tests proposed by Simar and Wilson (Commun Stat Simul Comput 30(1):159–184, 2001; J Prod Anal, forthcoming, 2010). The empirical data is taken from the German Community Innovation Survey 2007 (CIS 2007), where we focus on mechanical engineering firms. Our results are consistent with the explanation of the firms’ inability to freely choose the level of innovation inputs. However, we do not find significant evidence that increased innovation activities correspond to an increase in the ability to serve the global market.     

Do Ukrainian Firms Benefit from FDI?

All countries are eager to attract as much foreign direct investments (FDI) as possible. At the same time FDI may have not only positive, but also negative economic effects for receiving countries. Positive effects are associated with technology transfer, efficient allocation of resources, and training of domestic workers. However, the entry of foreign firms could, e.g., lead to a decrease of labor productivity at domestic firms, which is a negative effect. The main purpose of this paper is to estimate direct and indirect effects of FDI. First, we test for direct influence of foreign direct investments on firms performance, where the latter is estimated alternatively as labor productivity and as exports. FDI notably increases both labor productivity and export volumes. Second, we look for spillover or indirect effects. There is statistical evidence that the levels of FDI in certain regional industries are associated with higher performance indicators of firms not receiving FDI in those same regional industries.JEL Classification: L1, L6, F2     

FOREIGN DIRECT INVESTMENT AND REGIONAL PRODUCTIVITY SPILLOVERS IN US MANUFACTURING

This research examines how inward foreign direct investment (FDI) impacts manufacturing productivity in select industries across US regions. Although some evidence has documented the phenomenon of knowledge spillovers to national economies, little is known about how the regional penetration of foreign investment affects the productivity performance of local firms. The analysis proceeds in a novel fashion by adjusting aggregate data on industry operating statistics to "net out" the contaminating influence of foreign firms producing in each of the host regional economies. A cross section of state-by-industry observations is used to estimate labor productivity, controlling for FDI penetration both by region and by industry. In general, the results demonstrate that domestic firms do not reap productivity gains as a result of a larger presence of foreign affiliates. Related research efforts, although not specifically concerned with the regional transmission of FDI spillovers, offer corroborative support for these findings.     

Does going abroad lead to going green? Firm outward foreign direct investment and domestic environmental performance

This study examines whether and how outward foreign direct investment (OFDI) affects firms' domestic environmental performance. We use both the reverse knowledge transfer and resource crowding perspectives to predict the association. Using a sample of Chinese firms, we find that firms' environmental performance improves after the initiation of OFDI, which is consistent with the reverse knowledge transfer perspective. Furthermore, we find that when the host countries of OFDI are developed countries, have stricter environmental regulations, and are characterized by higher values for the long-term orientation and masculinity dimensions of national culture, firms enjoy a further improvement in environmental performance. Our channel tests show that firms' domestic green patent applications and their investment in research and development increase after the initiation of OFDI.     

Timing of price clustering and trader behavior in the foreign exchange market: evidence from Taiwan

In this paper, I use a unique proprietary dataset from the foreign exchange market to examine the existing hypotheses on price clustering. I find that market uncertainty plays an important role in price clustering. Moreover, since trading behavior changes under different market conditions, market timing also affects the likelihood of price clustering. The results support both the price resolution hypothesis (Ball et al. J Futures Mark 5:29–43, 1985) and the negotiation hypothesis (Harris Rev Financ Stud 4:389–415, 1991). Since the data covers the interbank foreign exchange market, which is the market for the professional bank dealers, the attraction hypothesis is less likely to be a plausible explanation for price clustering in the foreign exchange market.     

Financial crisis and relative productivity dynamics in Korea: evidence from firm-level data (1992–2003)

We have estimated the relative TFP growth at firm level and analyzed the firm dynamics in view of entry and exit of firms in Korea during 1992–2003, which includes the turbulent financial crisis of 1997–1998. Following Pyo and Ha, Hitotsubashi J Econ 48(1): 67–81, (2007), we have adopted a gross output model rather than a value added model of relative TFP analysis. We have found that the cyclical variation of productivity growth plays a dominant role in the decomposition effects before and after the 1997 financial crisis in Korea. Productivity growth is modest before the crisis and strong after the crisis owing to the recovering market efficiency. There is the likelihood that the productivity growth of stayers during the post-crisis period was significantly higher than new entrants. The net entry effect is found to be more sensitive in small business and export-based firms than in large business and domestic market-based firms. Our findings suggest that Korean firms have recovered a modest level of technical change after its severe financial crisis owing to the improvement of management transparency and the build-up of market efficiency during the IMF-mandated restructuring process. But since the entry effect is estimated to be still negative in Manufacturing and the exit effect is negative in Service sector after the crisis, the Korean economy has not fully recovered its metabolism in the post-crisis period and still lacks a creative destructive process to resume another round of sustainable growth path.     

Accuracy, Bias, and Dispersion in Analysts' Earnings Forecasts: The Case of Cross-Listed Foreign Firms

This paper examines differences in analysts' earnings forecast characteristics for foreign incorporated non-U.S. firms cross-listed in the U.S. stock markets relative to a control sample of purely domestic firms. Examining summary earnings forecasts over the calendar years 1984 through 1989, this paper provides evidence that there are statistically significant differences in bias and accuracy between domestic and cross-listed foreign firms. Consistent with prior research, we find a horizon effect in accuracy; i.e., accuracy improves as we get closer to the actual earnings announcement for both types of firms. However, the differences in accuracy between the cross-listed and domestic firms persist only in the earlier forecast horizons where analysts' forecasts are less accurate for foreign cross-listed firms compared with domestic firms. The evidence is also consistent with analysts' exhibiting less optimism with respect to cross-listed foreign firms compared with the domestic firms. Finally, the paper also documents that there is a greater consensus among analysts for foreign cross-listed firms than for domestic firms.     

The wisdom of the few or the wisdom of the many? An indirect test of the marginal trader hypothesis

The Marginal Trader Hypothesis (Forsythe et al. 1992, in American Economic Review 82(5): 1142–1161) posits that a small group of well-informed traders keep an asset’s market price equal to its fundamental value. Forsythe et al. base this claim on evidence from U.S. presidential prediction markets. We test the Marginal Trader Hypothesis by examining a decision task that precludes marginal traders. Specifically, students are asked to predict the class average for a given exam. We show that performance on our task is similar to that reported for the Iowa Electronic Markets, and that accuracy is unrelated to academic performance and does not correlate across tasks.     

EPA enforcement,firm response strategies,and stockholder wealth: an empirical examination

We investigate the effect of EPA pollution control enforcement activities and firm response strategies on stockholders' wealth. We find that the market reacts negatively upon learning that the firm has been targeted, and that losing a contest with the EPA is very costly to stockholders. Apparently firms are not expected to recover a significant part of pollution control costs from their customers. Somewhat surprisingly, losses are only weakly related to the presence of (unregulated) foreign competition, suggesting that untargeted domestic competitors may restrain cost recovery. Our analysis also indicates that firms may benefit by cooperating with the EPA; i.e., compliant strategies reduce (but don't avoid) wealth losses. The losses of firms that settle are about 40% less than those of firms that fight and lose, and we find no evidence of value gains for firms that fight and win. © 1998 John Wiley & Sons, Ltd.     

How Domestic and Foreign Firms Differ and Why Does it Matter?

Abstract.  This paper reviews and summarises the results of selected studies on performance gaps between multinational enterprises and their domestic counterparts. Performance gaps arise in such fields as productivity, technology, profitability, wages, skills and growth. While these gaps are often attributed to foreign ownership of the affiliates, the theory of the Multinational Enterprise argues that these gaps are due to being a Multinational rather than the nationality of the firm. Empirical evidence on the existence of performance gaps between foreign and domestic firms is supportive of this view: foreign ownership turns out to be a much less important explanatory factor than normally assumed. Firm‐specific assets and firm characteristics like industry, size, parent country and multinationality per se are more important. Such results are broadly consistent with those derived in the literatures on ownership change, on foreign entry and on spillovers. We conclude that there is little case for foreign direct investment promotion policies to discriminate between firms on the basis of ownership.     

Knowledge acquisition processes during the incubation of new high technology firms

High technology incubators have been funded in universities by the UK government as part of the ‘third mission’ for higher education (DTI 2000a). The provision of such facilities is premised on the notion that new technology firms achieve success at least in part from the benefits of incubators as rich networked environments where specialist knowledge acquisition can occur. This paper presents a exploration of how this process takes place, based on a case study of the high-tech incubator at the University of Southampton. The paper shows that firm founders adopt different approaches to the networked environment provided by the incubator; in this case the shift from Directorial support to that embedding in external networks was significant as firms grew. Taking account of this process should enable incubator managers to develop practices that ensure firms gain maximum advantage from the available resources.     

Monday returns and asset pricing

The seasonal patterns observed on Monday stock returns are still unexplained by different asset pricing models. We attempt to fill this gap in the finance literature by using the Fama-French (Journal of Financial Economics 33:3–56, 1993) risk factors to explain the Monday seasonal. The results in the study show that Monday returns are explained by risk factors such as the market return, the size of the firms, and the book-to-market ratios of firms.     

Price cap regulation and the ratchet effect: a generalized index approach

In this study we estimate a variable cost function on a panel of English and Welsh Water and Sewerage companies, observed over two full regulatory periods (1995–2004). The main aim of the paper is to investigate the presence of a ratchet effect in the cost cutting activity associated with the price cap regulatory regime. By applying the Generalized Index of Technical Change approach suggested by Baltagi and Griffin (J Polit Econ 96(1):20–41, (1988)), we provide some empirical evidence consistent with the existence of regulatory cycles. In particular, firms’ cost cutting activity tends to increase in the early phase of the regulatory cycle, while it weakens as the price review approaches. D24, L51, L95.     

The Effect of Import Competition on Firm Productivity and Innovation: Does the Distance to Technology Frontier Matter?

How does foreign competition affect growth and innovation in China? Using our unique measures of proximity of Chinese firms and industries to the world technology frontier, we find that despite vast sectoral heterogeneity, Chinese manufacturing industries have undergone rapid technological upgrading over the period of 2000–06. The distance to the world production frontier of firms and industries plays an important role in shaping the nexus between the competition pressure from foreign imports and domestic firms' growth and innovation behaviour. Our results support the theoretical predictions of Aghion et al. (2005, The Quarterly Journal of Economics, pp. 701–728) that import competition stimulates the domestic firms' productivity growth and R&D expenditure if firms and their industries are close to the world frontier, but discourages such incentives for laggard firms and industries. The two forces highlighted by the model operate for imports under the ordinary‐trade regime, for collective and private firms, and for imports originated from high‐income countries. Our findings are robust after controlling the influence of foreign investment, the reverse causality of regressors and the short‐term business cycle fluctuations.     

Institutional antecedents and performance consequences of employment security and career advancement practices: Evidence from the people's republic of China

In this study, we examine the provision of employment security and career advancement opportunities in firms of diverse institutional ownership and the impact of such practices on employee and firm outcomes. The sample included 478 state‐owned and non‐state‐owned firms (i.e., domestic private firms, Sino‐foreign joint ventures, and wholly‐foreign‐owned firms) in the People's Republic of China. We found that the provision of employment security was greater in state‐owned than in non‐state‐owned firms. The provision of career advancement opportunities in domestic private firms and Sino‐foreign joint ventures was similar to that in wholly foreign‐owned firms, but greater than that in state‐owned firms. The provision of career advancement opportunities was positively related to employee organizational commitment, citizenship behaviors, and firm performance. The provision of employment security was positively related to employee organizational commitment, but not to citizenship behaviors or firm performance. © 2008 Wiley Periodicals, Inc.     

Shareholder Heterogeneity and Conflicting Goals: Strategic Investments in the Japanese Electronics Industry

This article investigates the effects of the changing institutional environment on strategic orientations of Japanese electronics firms during the 1990s. We examine the effects of three different types of shareholders on strategic directions of their invested firms. The first one, foreign portfolio investors, characterizes the emerging influence that pressed for change in corporate strategies. The two domestic shareholders, corporate investors and financial institutions, represent the conventional forces for continuity. Between the two domestic forces, though, while corporate investors attempted to maintain status quo, financial institutions have shifted towards market‐oriented behaviour of investment. Specifically, we explore: (1) the influence of each type of shareholder on a firm's diversification strategy and capital commitment; and (2) the moderating effects of firm performance on the relationships between ownership structure and strategic choices. The results suggest that foreign investors prefer the focused product portfolio and conservative capital commitment. They also prefer the reduction of capital investment when the financial performance of their invested firms is poor. Domestic financial institutions are now similarly sensitive to the performance of their invested firms when those firms make strategic investments. By contrast, domestic corporate shareholders remain indifferent to performance, while they aim to maintain relational business ties with invested firms.