Are Mergers Beneficial or Detrimental? Evidence from Advertising Agencies1

We study 33 pairs of advertising agencies that merged between 1947 and 1985, comparing each merging pair against two controls: (a) a pair of agencies with combined merger-date billings close to the total billings of the merged unit, and (b) a single agency with similar total merger-date billings. Gross revenues are the dependent variable. Results: Merging firms do worse in the short run than controls. Assuming similar subsequent rates of growth for merging and non-merging firms, a loss of 16 percent of firm value due to merging is implied.     

The Economics of Business Process Design: Motivation,Information and Coordination Within the Firm

This paper presents a transaction cost analysis of the internal business processes of firms. Business processes are collections of activities which are technologically or managerially linked so that they jointly affect value added. Their organisation is characterised by their ‘architecture’—the allocation of responsibilities amongst individuals and groups and communication between them for information and coordination—and their incentive structure. The overall costs of organisation are determined by losses due to imperfect motivation of process members, which flows from the incentive structure, and imperfect information and coordination, which flow from the architecture, together with the resource costs associated with incentives and architecture. Perfect motivation corresponds to ‘team behaviour’ and a quantitative model, based on team theory, indicates how the best architecture depends on the degree interaction between activities comprising the business process.     

Examining the Longevity of New Agency Accounts: A Comparative Study of U.S. and U.K. Advertising Experiences

Abstract

Since the typical account longevity is short, agencies should anticipate their likelihood of loss, seek to forestall and invest in their client relationships. A model is proposed for examining account lifetimes, which can offer guidance on the likely retention of future accounts. The impact of agency structural characteristics on longevity is also examined, and compared for both U.S. and U.K. markets. Results for both markets indicate that cumulative account dissolution increases at a decreasing rate over time. Greater account longevity is associated with larger agency size (both in terms of agency billings and employees), and agency age but not with stability of billings growth. Evidence suggests that several structural characteristics of agencies reflect the motivation and / or ability to maintain accounts.     

The Supply of Corporate Social Responsibility Disclosures Among U.S. Firms

Corporate social responsibility (CSR) is a dramatically expanding area of activity for managers and academics. Consumer demand for responsibly produced and fair trade goods is swelling, resulting in increased demands for CSR activity and information. Assets under professional management and invested with a social responsibility focus have also grown dramatically over the last 10 years. Investors choosing social responsibility investment strategies require access to information not provided through traditional financial statements and analyses. At the same time, a group of mainstream institutional investors has encouraged a movement to incorporate environmental, social, and governance information into equity analysis, and multi-stakeholder groups have supported enhanced business reporting on these issues. The majority of research in this area has been performed on European and Australian firms. We expand on this literature by exploring the CSR disclosure practices of a size- and industry-stratified sample of 50 publicly traded U.S. firms, performing a content analysis on the complete identifiable public information portfolio provided by these firms during 2004. CSR activity was disclosed by most firms in the sample, and was included in nearly half of public disclosures made during that year by the sample firms. Areas of particular emphasis are community matters, health and safety, diversity and human resources (HR) matters, and environmental programs. The primary venues of disclosure are mass media releases such as corporate websites and press releases, followed closely by disclosures contained in mandatory filings. Consistent with prior research, we identify industry effects in terms of content, emphasis, and reporting format choices. Unlike prior research, we can offer only mixed evidence on the existence of a size effect. The disclosure frequency and emphasis is significantly different for the largest one-fifth of the firms, but no identifiable trends are present within the rest of the sample. There are, however, identifiable size effects with respect to reporting format choice. Use of websites is positively related to firm size, while the use of mandatory filings is negatively related to firm size. Finally, and also consistent with prior literature, we document a generally self-laudatory tone in the content of CSR disclosures for the sample firms.     

The performance effect of network and managerial capabilities of entrepreneurial firms

Building on the organizational capabilities view, this study explores the impact of network and managerial capabilities on the performance of entrepreneurial firms in the architecture and real estate sector. We apply an extended organizational capabilities model by integrating Porter’s value chain model and Grant’s hierarchy of organizational capabilities. Starting from differences in entrepreneurial orientation between architecture and real estate development firms, we argue that under higher environmental uncertainty, network capabilities are more important for the performance of architecture firms whereas managerial capabilities are more important for the performance of real estate development firms. Employing data from Austria, Germany, and Switzerland, the research results support the hypotheses. This study integrates Porter’s value chain concept and the organizational capabilities model and delivers a contribution to the organizational capability theory. In addition, it contributes to the entrepreneurship literature by showing that network capabilities are more important for creating competitive advantage in entrepreneurial firms than in other firms.     

Trade liberalisation and labour shares in China

We estimate the extent to which firms responded to tariff reductions associated with China's WTO entry by altering labour's share of value. Firm‐level regressions indicate that firms in industries subject to tariff cuts raised labour's share relative to economy‐wide trends, both through input choices and rent sharing. Our estimates suggest that, on average, an industry that experienced no reductions in output or input tariffs would have a 15.7% lower labour share of value in 2007 than it actually did, assuming the same economy‐wide trends. There is significant variation across firms: the impact attenuates with geographic remoteness and union presence and strengthens with foreign ownership.     

Digging into Construction Data

Construction is a large, diverse, and—lately—fast-growing sector of the U.S. economy, comprising several distinct categories of activity. Construction accounts for roughly five percent of non-farm payroll employment and 12 percent of self-employment. The value of construction put in place totals eight percent of GDP; construction supplies and equipment are important components of manufacturing output. The current outlook for the industry is for a pause in the fast-growing residential market, but we can expect an acceleration in private and public nonresidential construction. Data on different aspects of construction are available from a variety of federal and private sources. There are limitations and pitfalls that data users should bear in mind.JEL Classification L700     

The alignment of service architecture and organizational structure

How does service modularity contribute to performance of service firms and how does organizational architecture facilitate these effects? We propose a new perspective that service modularity contributes to the service performance by increasing efficiency, broadening the service scope, and increasing the visibility of service to customers. Moreover, we bring forward the ambiguous relationship between organization integration and service modularity by holding that organization integration can influence the service modularization process so as to moderate the relationship between service modularity and performance. Our analysis of classic professional service firms (i.e. accounting firms, architecture firms, and law firms) in China, which is a typical emerging market, supports our theoretical framework.     

外包:集成整合视角

外包是企业集成整合外部资源、充分发挥自身核心能力的新商业模式。文章认为,外包一方面是企业融合市场的结果,另一方面是产品结构模块化的结果。外包架构由提供类似产品的发包商、为发包商提供竞争性组件的模块商、发包商之间的竞争性整合、模块商之间的竞争以及模块商对发包商的可能替代构成。厂商应尽可能模块化产品结构,充分利用发包商和模块供应商的制造优势,并利用模块化优势共同推动产品快速升级换代。     

APPLICATIONS TO SELECT SERVICE SECTORS

The authors report the findings of a survey of architecture firm principals concerning the status of marketing in the architecture profession. Among other key findings, the vast majority of responding principals consider marketing essential to new business development, and believe marketing's importance to firm success is increasing. However, fewer than half of the responding firms have a marketing plan in place. Architecture firms are more oriented toward public relations than marketing, and large firms are more involved in marketing than small firms. Overall, the results suggest a somewhat limited understanding of marketing's role and potential, and the need for architecture firms to either develop better internal marketing expertise or rely more heavily on experienced marketing consultants.     

Firm racial segregation and affirmative action in the highway construction industry

In this paper I document that highway construction firms in California, particularly those owned by blacks and Asians, exhibit considerable racial segregation in that they are disproportionately located in zip codes with the greatest concentration of own-race residents. I find that segregated firms serve a larger market than minority-owned firms that are not segregated and that this effect is concentrated in black-owned firms. I next exploit the segregation of firms to examine the effect of affirmative action on the success of minority-owned firms. Following the significant curtailment of affirmative action in California due to a direct statewide ballot initiative, the number of highway construction establishments located in zip codes with the highest concentrations of black and Asian residents fell relative to the rest of the state, even conditional on the number of non-construction establishments. This suggests that affirmative action policies may play a role in the net survival rates of minority-owned firms.     

Building A Sustainable Shelf: The Role of Firm Sustainability Reputation

The reputation of firms for being environmentally friendly and socially responsible is a key purchase driver for sustainable products. However, the commitment of firms to sustainability varies – some firms are founded on strong environmental and social principles; other more traditional firms are built on strong product/brand focus and are not known for sustainability. In response to market trends, many traditional firms are introducing sustainable products to their portfolios. We argue that the firm’s sustainability reputation (FSR) will influence consumer purchase with respect to equally sustainable products from different firms. Two choice studies demonstrate that FSR favors sustainable product choice when the consumer decides between equally sustainable products. However, FSR affects the choice only for sustainable products and not regular products and does so only for consumers that construe sustainability at a high (abstract) level. Retailers should pay attention to the role that FSR plays in consumer response when they select sustainable products to sell.     

A review of small business employment data bases in the United Kingdom

This paper is designed to provide an overview of some of the key trends in small business development in the U.K., by surveying analyses of small business data sets. It focuses upon data sets which are concerned with the birth and death of primarily small enterprises, with particular emphasis upon the impact of smaller firms on employment creation.There is no single official data set which comprehensively covers all sizes of firms or enterprises. Nevertheless, after an exhaustive review of several sources the review supports the view that small firms have increased in number in the U.K. in recent years, with growth occurring particularly in the numbers of very small firms.     

Unlocking the potential to influence government skills policy: a case study of the UK construction industry

Despite a series of national policy initiatives aimed at addressing skills shortages in a number of sectors, little evidence of longer‐term change is apparent. This paper examines concerns expressed by small businesses that their local views are not sought or considered when national training policies and initiatives are either being developed or being implemented, and that the investment in skills development does not appear to adequately represent their skills needs. The research was carried out on the UK construction industry, which is characterized by a small number of large contractors who employ mainly managerial and professional staff, and a large number of small, micro‐ and self‐employed firms that provide, on a subcontract basis, the majority of the industry's demand for a skilled manual workforce. The identification and delivery of vocational education and training at an industry level rests firmly on addressing the skills needs of the small and micro‐type organizations and not those of the large construction firms, although it is the voice of the larger firms that appears to dominate the skills and training development agenda. The public policy model that articulates the requirements for training and skills development in the UK is based on sector‐specific skills councils. This model is examined in relation to the construction sector by drawing upon the experiences of the South Wales region as a case study. Findings indicate that the current construction skills framework, upon which public policy is formulated and delivered, fails to adequately reflect the structure, skills and training priorities of the industry. The tensions that exist in this system are highlighted and the implications for reform of public policy articulation with regard to sector skills councils are discussed.     

Creative Destruction and Human Resources

Discussion about demography of firms and industries is asking not only for the entity of organizations but also for processes of entry and exit. Changes and shifts in the overall structure of enterprises are very often regarded as reflections of market forces which are leaded by company strategies and their management elites. Too less attention is paid to some overall trends in which deaths and births of firms are embedded. The paper tries to discuss some developments in the structure of the labour force which are regarded as an autonomous interpretation scheme for new occupations, markets and firms. The secular sectoral transformation towards the service sector is connected to the course of productivity which provides in itself the breeding ground for new organizations. Analysing long-term social and economic changes is one of the necessary perspectives to understand recent trends in economy and society and to arrive at a better understanding of future developments. The argument in the paper is a conceptual one which is highlighted by empirical observations. Evolutionary processes of creative destruction must be understood best by an integrated interdisciplinary approach including different aspects of market formations and socioeconomic dimensions such as labour market trends, social stratification issues and life-style elements.     

The capital market spillover effect of product market advertising: Evidence from stock price synchronicity

We analyze whether product market advertising has a spillover effect on stock price synchronicity by transmitting firm-specific information to the capital market and attracting more investor attention. Using a sample of Chinese listed firms from 2009 to 2017, we find that firms with greater advertising expenditures have lower stock price synchronicity. The results are robust after we address endogeneity concerns. In accord with our hypothesis that product market advertising increases the amount of firm-level information capitalized into stock prices through the information channel, we find that the impact of advertising on synchronicity is more pronounced for firms with a higher degree of information asymmetry and firms in the consumer-product industry. Further tests show that product market advertising enhances the ability of current period returns to reflect future earnings, and thus rules out that the negative relationship between advertising and synchronicity is driven by noise trading. Our results imply that product market advertising plays an informative role and improves information efficiency in a capital market.     

Effects of differential information on the after-market valuation of initial public offerings

This paper examines the after-market for initial public offerings (IPOs), particularly the security valuation effects of structural differences in available information. There is a diversity of information among issuing firms at the time of their offering and particularly under certain market conditions. Because this diversity decreases with time and after-market trading, the IPO market provides an ideal setting for testing errors due to differential information levels in early after-market valuation of IPO firms. We find evidence that during “hot” market conditions and for firms characterized by low levels of available information, the market values of issuing firms are more likely to be overestimated in the immediate after-market. We also find positive overestimation of market values to be more likely for larger IPOs and for those marketed by the less prestigious underwriters.     

Uncertainty and Information Search Activities: A Study of Owner–Managers of Small High-Technology Manufacturing Firms

This study examines the relationship among perceived strategic uncertainty (PSU), environmental scanning, and the information sources used by owner–managers of a sample of 153 small high-technology manufacturing firms. The results suggest that increased scanning activities are associated with high levels of PSU. Perhaps most importantly, the results also suggest that owner–managers of younger firms respond to uncertainty differently than their counterparts in more mature firms. Specifically, owner–managers of younger firms appear to respond to higher PSU by relying more heavily on personal and external information sources. Owner–managers of older firms, on the other hand, rely more heavily on internal and impersonal information sources to address environmental uncertainty.     

Why do firms delete brands? Insights from a qualitative study

Large consumer goods firms manage and market an assortment of brands and consistently deal with strategic challenges related to brand portfolio management, such as creating or acquiring brands, growing brand equity, managing brands in the portfolio and deleting brands. There is substantial research on several areas of brand portfolio management except in the area of brand deletion. This situation exists despite the fact that deleting weak brands has important implications for a firm and its brand portfolio. Therefore, it is critical to understand why firms delete brands from their portfolios. This research applies a qualitative approach using semi-structured interviews and thematic analysis in the context of firms that adopt a ‘house of brands’ brand architecture and presents findings guided by the strategic decision-making literature.     

Does founder ownership affect foreign investments? Evidence from India

We study the effect of founder ownership on foreign investments for Indian firms. We show that foreign investors underinvest in firms with higher level of founder ownership, since these firms are more vulnerable to information problems and expropriation risk. This effect is particularly stronger when founder ownership exceeds a threshold beyond which founders hold effective control on firms. We exhibit that information problems are the main cause of the relation between foreign investments and founder ownership. This is because the relationship is more pronounced in case of business group firms and firms that are engaged in more earnings management.