A corporation’s culture as an impetus for spinoffs and a driving force of industry evolution

We offer a theory of spinoffs that explains some salient aspects of these important market entrants. In infant industries, a great share of new market opportunities is depleted by firms that spinoff from incumbents. A model emphasizing the relation between incumbents’ evolving corporate cultures and the generation of spinoffs explains this regularity in industry evolution. By doing so, we capture different patterns in firm development that finally will help explain the evolutionary paths that industries may follow. We show that organizations reach a critical size that entails the collapse of a cooperative culture and triggers the exodus of personnel founding own firms. Thereby, organizations with a cooperative culture active in a dynamic business environment provide ideal training grounds for potential founders. Moreover, we argue that cooperative firm cultures and processes of “entrepreneurial imprinting” are important sources of spinoffs’ superior capabilities concerning their later market performance. We relate our findings to empirical evidence on developmental patterns in industries, such as genealogies and performance of spinoffs.     

重构企业技术创新能力评价体系:从知识管理到价值创造

基于从知识管理到价值创造的思路,重新审视了企业技术创新能力的内涵。通过系统的文献回顾,总结了已有企业技术创新能力评价指标体系相关框架(包括点状模型、线状模型、链状模型和面状模型)的特征和不足,提出了由问题驱动、思考未来、多样化知识、创新文化、利益相关者协同、经济价值与社会价值构成的企业技术创新能力评价体系新框架,并构建了新框架的二级指标,为企业技术创新能力的理解、体系框架的构建和评价提供了理论和实践参考。     

Business type,industry value chain,and R&D performance: Evidence from high-tech firms in an emerging market

This study focuses on how the business type and technological learning mode, which a high-tech firm chooses based on its core competence, influence the firm's R&D strategies, which in turn affect firm performance. This study also explores how the interaction between a firm's business type and industry value chain stage affects the relationship between R&D investments and operating performance. We suggest that the linkage of R&D investments and operating performance will increase gradually, when firms move from contract manufacturing to own brand business. R&D investments can contribute more to performance when firms adopt the hybrid business type. Furthermore, R&D investments generate more significant benefits for the own brand companies than the contract manufacturers at the same stage of the industry value chain. R&D investments of the downstream contract manufacturers have a negative impact on firm performance. Regardless of business type, firms in the upstream (midstream) stage of the industry value chain outperform downstream stage firms in deriving benefits from R&D activities. Finally, the lagged effects of R&D investments on operating performance are affected by the interaction between business type and industry value chain.     

Interactions of the firm's real and financial decisions

This paper provides an integrated approach to the theory of the firm. Under technological uncertainty, corporate taxes, risky debt and risk neutrality it is shown that the firm's investment production and financing decisions are made simultaneously. It is demonstrated that the relationship between optimal capital (or labour) and debt is not strictly negative as in Dotan and Ravid (1982) nor strictly positive as in Hite (1977). The direction of this relationship depends on the characteristics of debt and the characteristics of the firm's production function. Given the simultaneity of the real and financial decisions, it is shown that an interior optimum exists for the firm's value as a function of debt.     

The relationship between business diversification and productivity: considering the impact of process innovation at different corporate life cycles

This paper investigates the link between a firm's process innovation (PI) and its segment productivity at different life cycles. The results show that business diversification is negatively associated with a firm's productivity, and further reveal that a firm's PI moderates the above relationship. In addition, the corporate life cycle literature builds blocks for this study to explain that the involvement of administrative costs varies across life cycles when diversified firms get mature and bigger. Our empirical evidence indicates that the potential costs of a complex organisational structure contingent on business diversification at a firm's mature life cycle could be alleviated by the conduct of process innovation. As process innovation at different life cycles may alter managerial incentive that leads to different firm performance, the managerial implication is that diversified firms should appropriately engage in process innovation to prevent unfavourable liability from the development of their businesses.     

Compliance and multidimensional firm performance: Evaluating the efficacy of rule-based code of corporate governance

This study seeks to evaluate the efficacy of the Pakistani Code of Corporate Governance by finding out its impact on firm's performance and efficiency. This exploration is done in the context that Securities & Exchange Commission of Pakistan's choice of corporate governance regulations is heavily influenced by Anglo-Saxon approach, whereas de-facto realities of Pakistani corporate environment are quite in contrast.Using a panel data of 119 firms for the period of 8 years i.e. 2003 to 2010, and using a multidimensional performance framework i.e. financial performance and technical efficiency, we find that the extent of compliance has increased since the issuance of code in 2002. After controlling for firm size, growth, dividend payout, age and leverage, we find significant positive impact of compliance on firm's performance (ROA, ROE and ROCE). We also find a weak positive relationship between compliance and technical efficiency. We suggest that compliance is not linearly related with financial performance and we find that high compliant firms are less profitable than average or low compliant firms. This implies that one-size-fit all approach along with mandatory compliance is a questionable approach for Pakistani firms.This study is first in Pakistan in providing empirical evidence on efficacy of the rule-based Code of Corporate Governance and also adds to growing but underdeveloped literature on compliance and firm performance in emerging/developing economies. Further, this study offers insight to policy makers on the efficacy of current corporate governance regulations and offers a research framework for assessing the extent of compliance, effectiveness and economic impact of code of corporate governance.     

The Dynamic ‘Diamond’: A Technological Innovation Perspective

A firm's local environment can constitute a source of national or regional cornpetitive advantage. An important question, therefore, is how these environments come about and how they can be lost. In this paper, we argue that a local environment is a function of the process of technological evolution. It is a function of how certain initial and prevailing conditions, the type of innovation, and chance events, influence the processes of uncertainty resolution, capabilities building, and survivor selection that are characteristic of technological evolution. We also argue that a region can lose its advantage when a dominant design emerges or when a technological discontinuity obsoletes the localized technological capabilities of not only manufacturers, but also of their suppliers, customers and related industries. The environment is dynamic as firms and nations, in response to their performances, also influence it by changing their strategies or policies.     

Corporate social responsibility and strategic trade policy: An endogenous timing game and its policy implications

This study incorporates the corporate social responsibility (CSR) initiatives of a domestic firm and analyses strategic trade policy towards a foreign firm in a different market structure. We show that the tariff rate under a foreign (domestic) firm's leadership is lowest when the degree of CSR is large (small). We also show that the foreign firm's leadership yields the highest welfare when the degree of CSR is intermediate, while the domestic firm's leadership yields the highest welfare otherwise. In an endogenous‐timing game, we show that a simultaneous‐move outcome is the unique equilibrium when the degree of CSR is small; thus, it is never socially desirable. We also show that the domestic firm's leadership can be an equilibrium, which results in the highest welfare when the degree of CSR is large. Finally, when the degree of CSR is large, collusive behaviours between the domestic and foreign firms can increase welfare.     

Present bias and corporate tax policies

Two major forms of corporate tax policies are dividend and profits taxes. Based on conventional corporate theory, these tax policies distort the firm's investment decisions and decrease firm value. However, this paper shows that under hyperbolically discounted preferences, dividend taxation is capable of boosting firm investment in a value‐enhancing way. The hyperbolically discounted present value can be interpreted as reflecting irrational myopic preferences or, as we demonstrate, reduced‐form implications of corporate agency issues. Both cases result in an underinvestment problem for the firm, but the firm valuation criteria differ. The optimal taxation issue is discussed under a Cobb–Douglas production function setting.     

A simple theory and evidence on the determinants of firm R&D

This paper derives a simple, but informative, model of firm R&D to figure out key factors that determine firm R&D effort. The model suggests a demand-pull, technology-push theory of R&D by showing that a firm's profit-maximizing R&D expenditure is determined jointly by both demand-side factors and technology-side factors. The former includes demand size (firm sales) and consumer preference over quality and price and the latter includes R&D cost structure or the production-cost effect of product R&D and firm-specific technological competence. In addition, the model shows that other things being equal, the stock of exogenous technological knowledge, including the firm's previously accumulated technological knowledge, relevant to current R&D which is negatively related with current R&D effort. An empirical analysis of firm R&D intensities and technological capabilities of more than 1600 firms in nine industries across six countries provides supportive evidence for the theory. Further, the theory implies that R&D intensity or the R&D-to-sales ratio is independent of firm size unless firm size affects technological competence and that given consumer preference and R&D cost structure facing all firms in the same industry, the distribution of firm-specific technological competence among firms determines the distribution of firm R&D intensities within the industry.     

Evolution of corporate governance in Russia: government policy vs. real incentives of economic agents

This article is devoted to analysing the evolution of corporate governance mechanisms in Russia. Special attention is paid to the causes of dramatic discrepancies between the expected outputs of institutional reforms implemented by the Russian government with World Bank and IMF support and the actual behaviour of Russian companies. Why was the model of interaction between enterprises and investors, owners and managers, which had been successful in other countries, rejected by Russian business in the 1990s? And how can we evaluate certain positive changes that have occurred recently in corporate policies of major Russian companies? These questions are answered on the bases of analysis of economic agents' motivation at different stages of development of corporate structures in Russia. The article argues that the need for comprehensive organisational and technological restructuring of enterprises led to the need for a concentrated ownership structure. The formation of such a structure in the late 1990s (which occurred, in fact, contrary to the government's activities) created preconditions for extending the time horizon of dominant owners and managers and for positive qualitative changes in the relations between major Russian companies and their shareholders and investors.     

How should firms carry out technological diversification to improve their performance? An analysis of patenting of Korean firms

This research aims to analyze how a firm's technological diversification strategies influence its financial performances, in terms of ‘technological diversification’ in broad technology sectors and ‘technological concentration’ on its own core technology, especially in the case of Korean large firms. The data used in the analysis were panel data encompassing the years between 1990 and 2006, which linked Korean firms’ patent information registered in the United States Patent and Trademark Office to the financial data of those firms collected from Korea Investors Service, Inc. (Kis-Value). For the estimation of the panel data, a fixed effect model, which considers the individual firms’ own effect on the financial performance, was used. Tobin's q was used as a dependent variable representing firm performance, while ‘broad technology diversity’ and ‘core technology diversity’ were used as the focal explanatory variables. The results show that a firm seeking to have more technological assets should invest in a broad technological diversification strategy in its search for new business opportunities; it should likewise concentrate on the core technology in order to maintain its financial performance.     

Riding out of a financial crisis: The joint effect of trust and corporate ownership

We study how generalized trust shapes the ability of firms with different ownership forms to obtain trade financing and perform during a financial crisis. Exploiting geographic variations in trust across Italian regions and the occurrence of the 2008-09 financial crisis in a difference-in-differences setting, we show that generalized trust makes family firms less able to obtain trade financing during the crisis. This finding maps into performance results: trust alleviates the negative effect of a crisis for non-family firms, while it aggravates the negative effect for family firms. This latter result depends crucially on a firm's corporate governance: trust does not harm family firms whose board is open to non-family directors. Collectively, our findings illustrate how culture interacts with corporate attributes in shaping a firm's prospects.     

Corporate financial policy with pension accounts: an extension of the Modigliani–Miller theorem

We build a model of an incomplete market economy with a firm, which we apply to the study of corporate financial policies with pension accounts. We show that prior to ERISA, even though the sponsoring firm's integral financial policy is neutral for its market value, it may affect the economy by creating a pension call option. On the other hand, in the post‐ERISA periods, the firm's financial policy is not only neutral for its value but also has no real effect on the economy. Thus, the Modigliani–Miller theorem is valid in this sense.     

Progressive taxation,tax exemption,and corporate liquidation policy

This paper develops a real options model of a firm that operates in continuous time with an infinite horizon. The firm receives stochastic profit flows that are subject to progressive taxation. Tax progression arises from an exogenously given tax exemption threshold that makes the average tax rate increase with the tax base. The firm possesses an option to liquidate its operation, which is optimally exercised when the firm's profit flow reaches an endogenously determined threshold level (the liquidation trigger) from above. We show that the firm's liquidation trigger under progressive taxation increases with either a reduction in the tax exemption threshold or an increase in the corporate income tax rate. Corporate income taxes are thus not neutral when tax schedules are progressive.     

Duopoly Competition with Corporate Social Responsibility

This paper highlights the effect of firms’ position on firms’ strategies with corporate social responsibility (CSR) practices under three different cases: Cournot competition; Stackelberg competition with the CSR firm taking the leader position and turnover, with the profit maximising (PM) firm playing as the leader. Some interesting conclusions are achieved. First, the CSR firm always produces more than the PM firm. Second, the outputs of both firms (the consumer surplus) under the PM firm's leading position are larger than those under Cournot. Third, the profits of both firms (producer surplus) under the PM firm playing the leading position are less than those under Cournot. Surprisingly, when the PM firm first moves, the PM firm's profits are the lowest while the CSR firm's outputs are the highest in all three cases. Finally, the relationship of social welfare under the three cases is ambiguous.     

Risk sharing and export performance with firm heterogeneity

We investigate how market uncertainty affects the export performance of a firm through financial frictions. We first extend Melitz's (2003) heterogeneous firm trade model by incorporating demand shocks, linking the demand uncertainties to the financing costs of firms. In this extension, the default probability is endogenously determined by a firm's productivity and demand uncertainty. Hence, firms with higher productivity or lower market uncertainty are offered lower interest rates and thus show better export performance. As an application, we also show that a risk-sharing mechanism, that pools default risk for a certain group of firms, lowers the default risk. This mechanism allows banks to charge lower interest rates to the member firms and therefore ultimately improves their export performance in both extensive and intensive margins. We find a real-world example of such a mechanism from business groups in Korea. Using Korean firm-level data, we show that the more diversified the business group, the greater the likelihood that its member firms export and the bigger their export revenues. We also show that our results are robust to alternative explanations for Korean business groups’ export competitiveness.     

Dynamics of firm's network community associations and firm's innovation performance

ABSTRACT

R&D network structures have crucial impacts on firm's innovation performance. However, most previous studies have been based on the whole or ego network perspective, few studies have investigated the influence of community structure that a firm is engaged in on its innovation performance, and it is still unclear how a firm's relation to network community affect its innovation performance. This research aims to address this gap by focusing on the dynamics of firm's network community associations, empirically investigate the relationship between dynamics of firm's network community associations and its innovation performance. Based on the unbalanced panel data of smartphone R&D network during year 2004–2017, the results demonstrate that change in community member associations and movement across communities both have inverted-U-shaped effects on firm's innovation performance. Moreover, innovation openness depth has moderating effects on the relationships between dynamics of firm's network community associations and its innovation performance.     

The effects of abandonment options on operating leverage and investment timing

This paper examines how the presence of an abandonment option affects a firm's investment decision in general, and its operating leverage in particular. We show that the value of the abandonment option is a decreasing function of the firm's operating leverage. Upon the introduction of the abandonment option, the firm as such optimally lowers its operating leverage. We further show that there are direct and indirect effects of the abandonment option on the firm's optimal investment trigger, which act against each other. First, the ability to shut down production offers downside protection to the firm, thereby making the firm more eager to exercise the investment option. This is the negative direct effect that pushes down the investment trigger. Second, introducing the abandonment option to the firm induces the firm to lower its operating leverage, thereby making the firm more reluctant to exercise the investment option. This is the positive indirect effect that lifts up the investment trigger. We numerically verify that the overall effect of the abandonment option on the firm's optimal investment trigger is negative.     

The boundaries of firms in the new economy: M&As as a strategic tool toward corporate technological diversification

Following the dynamic capabilities approach, we understand the recent wave of M&As as a corporate strategy mainly stimulated by the increasingly complex and uncertain techno-socio-economic environment in which firms operate. In this new situation, the boundaries of firms are in greater flux since firms are unable to develop individually all the competencies required to keep pace with the continual redefinition of business lines being driven by corporate competition. Using US patents granted to the world's largest firms, this paper analyses the dynamics of the sectoral specialisation of corporate technological profiles following large shocks that require some M&A deal. The findings of the analysis enable us to evaluate the adoption of M&As as a strategic tool to reshape corporate technological boundaries. On these grounds, we are able to identify patterns of technological diversification into strategic fields according to different models of industrial technological development.