Export Market Participation,Investments in R&D and Worker Training,and the Evolution of Firm Productivity

This paper uses micro panel data for firms in the Taiwanese electronics industry in 1986, 1991 and 1996 to investigate a firm's decision to invest in two sources of knowledge – participation in the export market and investments in R&D and/or worker training – and assess their effect on the firm's future productivity. The firm's decisions to export and invest in R&D and/or worker training are modelled with a bivariate probit model that recognises the interdependence of the decisions. The effect of these investments on the firm's future productivity trajectory is then modelled while controlling for the selection bias introduced by endo‐genous firm exit. The findings indicate a significant interaction effect between exporting and R&D investments and future productivity, after controlling for size, age and current productivity. Firms that undertake both investment activities have significantly higher future productivity than firms that do one or neither. In addition, these firms are more likely to continue investing in these activities leading to further productivity gains. These findings are consistent with the hypothesis that export experience is an important source of productivity growth for Taiwanese firms and that firm investments in R&D and worker training facilitate their ability to benefit from their exposure to the export market.     

Does the decision to issue public debt affect firm valuation? Russian evidence

This paper examines the association between firm valuation and the sources of debt financing. In particular, using a sample of 353 firms, we test whether the decision to issue bonds affects the firm's stock market performance in the emerging Russian markets. Our results indicate that public debt financing may have a negative effect on the firm's market valuation. After controlling for the differences in firm-specific characteristics and addressing potential endogeneity issues, we document that the firms which rely on public debt underperform relative to firms with other sources of debt financing in terms of stock market valuation.     

International Catalog Mix Adaptation

Abstract

Striking the right balance of adaptation of the international catalog mix may be the key to profitability. U.S. catalog firms, new to international markets, have less experience in adapting than firms in more globalized industries. The literature on international marketing strategy adaptation reveals that this decision depends on the environment, industry, market, product, and characteristics of the firm. This paper examines the influence of market similarity, type of business and the firm's international experience on international catalog adaptation, and explores the effects of catalog adaptation on a firm's performance. We hypothesize that the greater the market similarity, the less likely it is that firms will adjust their catalog. We also argue than adaptation is greater for consumer catalogs than for business-to-business catalogs. A third hypothesis is that more internationally experienced firms will adapt more and a final hypothesis is that a greater degree of adaptation will increase the international catalog performance. The results did not support the association of international catalog adjustment and market similarity, experience, and type of catalog. Findings are mixed both on catalog adaptations and firm performance. We found that some but not all adaptations in the catalog lead to improved performance. We speculate that U.S. catalog firms are making adaptations to reduce the costs of international marketing operations. This cost reduction strategy may not necessarily lead to profitability, thereby discouraging other firms from entering international markets.     

Home Firm Performance After Foreign Investments and Divestitures

An almost undisputed aim for firms in today's globalised world is to operate internationally. Several papers find a positive relationship between foreign direct investment (FDI) and the domestic performance of firms. In this paper, we address the ‘FDI – export’ relationship to better understand this trend. Furthermore, by presenting results on firm's post‐divestiture employment growth at home, we are able to provide a more comprehensive view on firm performance after stepping in and out of foreign markets. We apply a propensity score matching technique in combination with a difference‐in‐difference estimator to analyse the performance dynamics of French firms that either invested abroad or carried out foreign divestitures during the period 2000–2007. FDI has, on average, a positive effect in terms of export share, operating turnover and employment in firm's domestic market. Industry differences reveal that firms in high‐tech industries experience a strong increase in their domestic performance, whereas firm performance in low‐tech industries increases only moderately in post‐investment periods. In contrast, the divestiture impact on the post‐divestiture performance is rather negligible.     

The Impact of Changes in the Political and Economic Environment on Foreign Direct Investment Opportunities in Romania

Abstract

This study reports findings of a survey including 139 Finnish and 97 Austrian companies active in Eastern Europe. The study focuses on two major areas in the firm's business activities in Eastern Europe, namely on market strategies-the timing of market entry, market selection, entry modes and motives-and company performance. The number of market entries has increased after the transition, but the majority of business activities still take place in geographically-close countries. Companies have gradually started to use more high-commitment modes of operation, but contrary to our expectations, high commitment modes were also frequently used in more unstable markets. Company performance in Russia and especially in other countries of Eastern Europe was in general clearly lower than in domestic markets and foreign markets in general. Against expectations, firm size, dependence on international markets, length of operation, and mode of operation in Eastern Europe did not significantly influence the performance. However, firms which concentrated on Russian markets on a continuous basis performed much better than other firms.     

Corporate governance and investment-cash flow sensitivity: Evidence from emerging markets

Controlling for country-level governance, we investigate how firms' corporate governance influences financing constraints. Using firm-level corporate governance rankings across 14 emerging markets, we find that better corporate governance lowers the dependence of emerging market firms on internally generated cash flows, and reduces financing constraints that would otherwise distort efficient allocation of investment and destroy firm value. Additionally and more importantly, firm-level corporate governance matters more significantly in countries with weaker country-level governance. This suggests substitutability between firm-specific and country-level governance in determining a firm's investment sensitivity to internal cash flows.     

A model of demand,productivity and foreign location decision among Taiwanese firms

We develop a theoretical framework to examine the relative importance of firm demand and productivity in firm decisions to export and where to locate foreign direct investments. The model shows that the equilibrium firm decision depends on product technology, consumer preference for product quality, fixed investment costs of establishing a foreign subsidiary, transportation costs and relative wages. Our empirical results confirm the predictions of the theoretical model. Firm-level demand and productivity components are important in explaining the decision to participate in foreign markets with their relative importance depending on the firm's organizational form (exports versus FDI) and the destination of the investments. In general, FDI firms are more productive than exporting firms regardless of FDI destinations. FDI firms also have a higher demand component than exporters and this demand component is stronger than productivity. Finally, among FDI firms, while those with a high demand index and productivity have a significantly higher propensity to invest in high-income countries, firm productivity is the sole determinant of firms undertaking FDI in low-income countries.     

Asset or constraint: Corporate reputation and MNCs’ involvement in the least developed countries

This study investigates the relationship between corporate reputation and a firm's involvement in the least developed countries (LDCs), where the most impoverished base of the pyramid markets are located. We draw upon extant literature in corporate reputation and international business to develop competing hypotheses regarding the foreign investment of the highly reputable firms in the LDCs. Corporate reputation can be a double-edged sword: while it can be a valuable asset to be leveraged in the LDCs, it demands monitoring and protection which might be challenged by a firm's LDC presence, thereby constraining the involvement in LDCs. Our results show that corporate reputation has a negative effect on a firm's foreign direct investment involvement in LDCs, supporting the view that reputation could constrain firm action in uncertain environments. We contribute to a more nuanced understanding of the relationship between reputation and international action than that of existing literature.     

Technology and export behaviour: A resource-based view approach

A firm's capacity to enter and sell products in international markets requires an important degree of competitiveness, which fundamentally resides in its intangible resources. Thus, in the current work and drawing from the resource-based view of the firm, we analyse the influence of a firm's technological capacity on both its decision to export and its export intensity from a sample of Spanish manufacturing firms using non-linear regression models. Our findings show that product innovations, patents and process innovations positively and significantly affect both the decision to export and the export intensity. R&D spending intensity is not significant in the decision to export, although it is significant in export intensity.     

The impact of firmspecific capabilities on the amount of capital raised in an initial public offering: Evidence from the biotechnology industry

Going “public” has a magical sound to most entrepreneurial managers. By going public the firm increases its legitimacy in the business community, improves access to debt financing, and creates a means of exit for major shareholders. However, by far the most important reason for going public is to infuse a significant amount of investment capital into the firm. It is well documented that small businesses frequently fail because of insufficient funding and heavy debt loads. Issuing an initial public offering (IPO) allows entrepreneurial firms to overcome these pitfalls. Clearly, if access to capital is the major goal of going public, then the success of an offering is measured by the amount of capital raised by the firm. This study presents a model of the total amount of capital raised by a firm through an IPO. The explanatory variables include several indicators of the scientific capabilities of the firm including the location of the firm, the quality of the research staff, the number of products under development, the number of patents held by the firm, and the firm's prior spending on research and development (R&D). The model is empirically tested on a sample of 92 biotechnology IPOs. The results provide strong support for the hypothesized positive relationship between the total amount of capital raised by a firm's IPO and the scientific capabilities of the firm.Our results have important implications for entrepreneurs. First, an entrepreneur needs to develop and send credible signals indicating the value of the firm's intangible assets to the market. Second, the market values as deep a product pipeline as possible given a firm's resource constraints. Third, choice of location is a key strategic decision that should not be overlooked. Fourth, the market values firm-specific capabilities and will increase the capital it is willing to invest in a firm accordingly. Finally, the amount of capital a firm raises in its IPO can be influenced by entrepreneurial managers' strategic decisions.     

Where Do Firms Export,How Much and Why?

The empirical finding that exporting firms are more productive on average than non‐exporters has provoked a large theoretical literature based on models such as Melitz ( 2003 ), where more productive firms are more likely to overcome costs associated with trade. This paper investigates how closely the productivity heterogeneity framework fits the data from a firm‐level survey that includes information on export destinations and firm characteristics such as productivity. We find a high degree of unpredictable idiosyncratic participation in export markets by firms and a relatively weak positive correlation between the extent of a firm's export market participation and its export sales. We find that a small number of standard gravity variables provide a close fit to the country‐level determinants of trade but that greater variation results in more difficulty in explaining firm‐specific factors driving exporting behaviour. We also illustrate some elements of the dynamics over time in firm exporting patterns by destination. We show that lagged exporting activity has a significant effect on a firm's current exporting profile.     

Outward FDI and Productivity: Micro‐evidence from Slovenia

This paper uses a rich data set of Slovenian manufacturing firms active in the period 1994–2002 that contains information on outward FDI and exports to different markets in order to test three empirical hypotheses that relate the decision for outward FDI to total factor productivity. First, the evidence supports the hypothesis proposed by Helpman, Melitz and Yeaple (2004) that more productive firms are more likely to invest in a foreign affiliate. Second, the hypothesis proposed by Head and Ries (2003 ) that less productive firms may be encouraged to invest in low‐income countries is rejected by the data. However, the main contribution of the paper is to confirm the third hypothesis that required firm's productivity increases with the number of markets that the firm serves, i.e. there is a positive relationship between the number of a firm's foreign affiliates and its total factor productivity.     

The interplay of need and opportunity in venture capital investment syndication

This study examines the syndication of investments novel to a VC firm as a function of the firm's need and opportunity to do so. We distinguish two types of uncertainty that firms face when considering novel investments: egocentric, pertaining to making the right decisions, and altercentric, pertaining to being evaluated as a potential partner on the investment. Whereas the former increases the firm's need to syndicate the investment, the latter reduces the firm's opportunity to do so, making it contingent upon the firm's status and reputation for attracting potential partners. Using data on first-round venture capital investments, we find that novel investments are more likely to be syndicated. Moreover, this relationship is stronger for firms with higher status and weaker for firms with higher reputation. These results highlight a relational aspect of uncertainty, inherent in a particular VC firm — investment dyad, and suggest that status and reputation play different roles in aligning the need and opportunity to syndicate novel investments.     

Motivation and ability in the decision to acquire

This study considers the decision to undertake an acquisition using a framework built around the concepts of motivation and ability to acquire. The paper develops an integrative model to examine how firm characteristics contribute to motivation and ability in predicting the likelihood of an acquisition and draws on two streams of literature to motivate the model: behavioral theory of the firm to explain a firm's motivation to acquire, and absorptive capacity to explain a firm's ability to acquire. Results from a publicly traded sample show that firms failing to meet aspirations (i.e., those with motivation) are more likely to acquire, as are firms that have a high absorptive capacity (i.e., those with ability). Most interestingly, absorptive capacity moderates the influence of performance shortfalls in the decision to acquire and is most important when the motivation to acquire is low.     

Effect of Customers' and Suppliers' Perceptions of the Market Orientation of Manufacturing Firms on Channel Relationships and Financial Performance

ABSTRACT

This study is designed to investigate the effect of customers' and suppliers' perceptions of the market orientation of manufacturing firms on customers' and suppliers' trust in, cooperative norms in, and satisfaction with the relationship with the manufacturing firm. The findings from a sample of 72 matched sets of suppliers, manufacturing firms and customers in industrial channels in the Netherlands reveal that the perceived market orientation of manufacturing firms engaged in channel partnerships has a positive influence on customers' and suppliers' levels of trust in, cooperative norms in, and satisfaction with the relationship. This study further investigates the effect of the customers' and suppliers' trust in, cooperative norms in, and satisfaction with the relationship on the financial performance of the manufacturing firm. The results reveal that customers' and suppliers' cooperative norms in the relationship positively influence the manufacturing firm's financial performance. Customer's and supplier's trust in and satisfaction with the relationship have no effect on the manufacturing firm's financial performance.     

Optimal trade,industrial, and privatization policies in a mixed duopoly with strategic managerial incentives

Abstract

This paper examines optimal trade, industrial, and privatization policies in a home-market model of mixed international duopoly with strategic managerial incentives. Under linear demand and constant marginal costs, the optimal degree of privatization is shown to depend crucially on cost and demand parameters and on the availability of strategic trade and industrial policies. If both firms are equally efficient, optimal trade and industrial policies drive out the foreign firm and the privatization policy loses its effect on national welfare; however, if the home firm is less efficient, then full privatization combined with an import tariff and a production subsidy is optimal for the home country, while an export subsidy is optimal for the foreign country. If trade and industrial policies are unavailable and if both firms are equally efficient, full state-ownership, which drives out the foreign firm, becomes optimal; however, if the home firm is less efficient, only partial privatization is optimal, The state-ownership share is increased if either the market size grows, the home firm's efficiency increases, or the foreign firm's efficiency decreases. Further, the paper demonstrates the potential conflict between privatization and trade liberalization policies.     

Expanding near the home base or venture far? The influence of home country state on the economic distance of foreign direct investments

The extent of the economic distance between a firm's home origin and its foreign direct investment (FDI) is an important strategic decision for the investing firm. This study fills an important knowledge gap by investigating the home institutional antecedents of FDI economic distance. Drawing insights from comparative institutionalism, we argue that home-country states vary in both their power to coordinate the economy and the external and internal channels through which they exercise that power. These variations have implications on a firm's motivation and capability to escape external dependencies on the home-country state by investing in economically distant foreign locations. Empirically, using a dataset of 891 new international entrants from 2004 to 2011, we found support for our hypotheses that home-country state power is positively associated with FDI economic distance, and that the influence of the home-country state is contingent on the state's governance quality and its ownership in firms.     

Learning to export from neighbors

This paper studies how learning from neighboring firms affects new exporters' performance. We develop a statistical decision model in which a firm updates its prior belief about demand in a foreign market based on several factors, including the number of neighbors currently selling there, the level and heterogeneity of their export sales, and the firm's own prior knowledge about the market. A positive signal about demand inferred from neighbors' export performance raises the firm's probability of entry and initial sales in the market but, conditional on survival, lowers its post-entry growth. These learning effects are stronger when there are more neighbors to learn from or when the firm is less familiar with the market. We find supporting evidence for the main predictions of the model from transaction-level data for all Chinese exporters over the 2000-2006 period. Our findings are robust to controlling for firms' supply shocks, countries' demand shocks, and city-country fixed effects.     

Exploring the innovation strategies of young firms: Corporate venture capital and venture capital impact on alliance innovation strategy

We investigate how governance structure and power influence alliance exploration strategy. Adopting a real options perspective and the agency view, we suggest that innovation strategies differ based on the firm's governance authority. We find that the motivations of corporate venture capitalist firms, venture capitalists, and firm founders may have an impact on the formation of exploratory alliances among adolescent firms. Using a sample of 122 adolescent firms, we examine the influence that governance structure has on the firm's alliance portfolio and innovation potential. While the influence of corporate venture capitalist firms alone do affect alliance formation strategy, corporate venture-backed firms with founders having high influence (knowledge or ownership in the firm) are more likely to form innovation-focused alliances. In contrast, venture capitalist-backed firms tend to avoid innovation-focused alliances, preferring more exploitive ones, even when founders have high influence within the firm.