Firm heterogeneity and international trade in services

This study, using panel data on Japanese firms, analyses the relationship between services trade and firm heterogeneity. It finds that the number of firms engaged in services trade is far less than that engaged in goods trade. Further, the productivity of services traders is higher than that of domestic firms and goods trading firms, whereas the productivity of firms that export services beyond the boundary of their firm groups is higher than that of those that export services only to their affiliate firms. These results suggest that only productive firms can engage in services trade by incurring the relatively large fixed costs.     

The economics of subsidies for R&D: Implications for reform of EU state aid rules

The primary aim of the reform of EU rules on research, development and innovation for the period 2014–20 is to ensure that aid stimulates more research and that it is kept to the minimum necessary. This paper develops a simple model that identifies a number of problems in the public funding of private research and demonstrates that the determination of the optimum subsidy for research is a complex task. The results suggest that research subsidies should be allocated in a way that reduces the amount of subsidy per recipient firm and ensures that the subsidies go to more efficient firms.     

Estimating financial distress likelihood

This study develops an ex-ante model for estimating financial distress likelihood (FDL), and contributes to the literature by presenting a financially-based definition of distress that is independent of its legal consequences, a theoretically supported model for the FDL, and an appropriate methodology that uses panel data to eliminate the unobservable heterogeneity. The model is then estimated cross-sectionally to obtain an indicator of the likelihood of financial distress that incorporates the specificity of each company. In doing so, this study provides a well-specified model that is stable in terms of magnitude, sign and significance of the coefficients and, more importantly, that yields a measure of the FDL that is more robust to time and the international context than the estimates of FDL that are based on seminal models. This measure could be appropriate for use in future research that deals with FDL, such as capital structure and the prevention of financial distress.     

Non-Conscious Influences on Consumer Choice

While consumer choice research has dedicated considerable research attention to aspects of choice that are deliberative and conscious, only limited attention has been paid to aspects of choice that occur outside of conscious awareness. We review relevant research that suggests that consumer choice is a mix of conscious and nonconscious influences, and argue that the degree to which nonconscious influences affect choice is much greater than many choice researchers believe. Across a series of research domains, these influences are found to include stimulus that are not consciously perceived by the consumer, nonconscious downstream effects of a consciously perceived stimuli or thought process, and decision processes that occur entirely outside of awareness.     

Effects of the Use of the Availability Heuristic on Ethical Decision-Making in Organizations

Recent corporate scandals across various industries have led to an increased focus on research in business ethics, particularly on understanding ethical decision-making. This increased interest is due largely to managers’ desire to reduce the incidence of unwanted behaviors in the workplace. This article examines one major moderator of the ethical decision-making process – moral intensity. In particular, we explore the potential influence of a particular cognitive heuristic – the availability heuristic – on perceptions of moral intensity. It is our contention that moral intensity is a perceptual construct, and that individuals’ use of the availability heuristic will influence perceptions of moral intensity which, in turn, will affect how moral issues are viewed and ultimately resolved. In this article, we present propositions concerning possible relationships between the availabilities of various phenomena and the components that moral intensity comprises, and report on two studies examining the effects of availabilities on two␣of these components: magnitude of consequences and social consensus. Our findings indicated that the availability of consequences associated with an act was positively related to perceptions of the magnitude of consequences of that act. We also found that the availability of others who believe that a particular act is morally acceptable is positively related to perceptions of social consensus that that act is morally acceptable. We posit that our results suggest the possibility that perceptions of moral intensity can be actively influenced to reduce unethical behavior in organizations.     

When Online Visibility Deters Social Interaction: The Case of Digital Gifts

One of the defining features of online social networks is that users' actions are visible to other users. In this paper, we argue that such visibility can have a detrimental effect on users' willingness to exchange digital gifts. Gift giving is an intimate activity that comes with social risk, and the public nature of online environments can deter interactions that usually occur in smaller, more intimate settings. To study the effects of online visibility on the decision to give, we analyze a unique dataset from a large online social network that offers users the option of buying a digital gifting service. We find that purchase rates of the service increased with the number of ties that users kept on the network, but decreased with the extent to which those ties were connected to each other. We argue that the latter effect is due to the fact that, when a user's ties are connected, any gift sent between the user and one tie is visible to their mutual contacts. We explore how characteristics of users' networks moderate the effect of online visibility, and argue that firms should take consumer network structure into account when designing digital products and promoting engagement online.     

Executive Compensation and Corporate Fraud in China

This study investigates the relation between CEO compensation and corporate fraud in China. We document a significantly negative correlation between CEO compensation and corporate fraud using data on publicly traded firms between 2005 and 2010. Our findings are consistent with the hypothesis that firms penalize CEOs for fraud by lowering their pay. We also find that CEO compensation is lower in firms that commit more severe frauds. Panel data fixed effects and propensity score methods are used to demonstrate these effects. Our results also indicate that corporate governance mechanisms influence the magnitude of punishment. We find that CEOs of privately controlled firms, firms that split the posts of CEO and chairman, and CEOs of firms located in developed regions suffer larger compensation penalties for committing financial fraud. Finally, we show that CEOs at firms that commit fraud are more likely to be replaced compared to those at non-fraud firms.     

Patterns of social reporting from an Islamic framework and the moral legitimacy factors that influence them

The objective of this study is twofold: to examine the patterns that govern social reporting with reference to an Islamic framework and to identify the moral legitimacy factors that influence them. We select 146 publicly listed Sharia‐compliant companies and classify the disclosures in their annual reports according to an Islamic framework that categorises items as either Required, Expected or Desired to indicate the degree of importance each item carries from an Islamic perspective. Based on this framework, we then analyse moral legitimacy factors, specifically the type of Sharia screening body and the proportion of Muslims in the population, that may influence the prioritisation of the different categories of social reporting. We find that disclosures that fall into the Required category of our framework—especially those that relate to companies’ involvement in “haram” activities (activities not permissible in Islam)—are still few among the companies studied. Our research also reveals that both moral legitimacy factors under investigation influence the three categories of social reporting, although in different ways. This research contributes to the existing literature by empirically examining how organisations prioritise their disclosure of virtues and the moral legitimacy factors that influence that prioritisation.     

Generic strategies and firm performance in SMEs: a longitudinal study of Austrian SMEs

This paper studies the impact of generic strategies on firm performance using a longitudinal study of small and medium-sized enterprises (SMEs) in Austria. In two surveys, data on the strategic behavior and performance of the same group of firms were gathered for the period from 1992 to 2002. The study expands existing literature, which provides little evidence whether the persistent commitment to a generic strategy over a longer period pays off or whether strategic change is the rule in SMEs, reflecting their flexibility as a potential competitive advantage. We consider the traditional generic strategies of cost-efficiency and differentiation, but also examine the group of firms that have no clear strategy or are “stuck in the middle.” Within this group, we distinguish between those companies that deliberately combine traditional low cost production and differentiation, i.e., follow a combination strategy, firms that change their strategy and those that have no strategy. We argue that a combination strategy is a viable strategic choice for SMEs in the long run. We found that the majority of firms pursued a persistent strategy over a 10-year period, but that companies that changed their generic strategy did not produce inferior results to those that adhered to a single strategy over the entire period. Our results reveal that firms that follow a combination strategy outperform companies with no generic strategy in terms of profitability and growth and achieve higher profitability than companies that follow a differentiation strategy.     

New product planning: Lessons from Japanese experience

Japan has derived a reputation as a market that is extremely difficult to enter. However, this belief tends to promote neglect of the study of other factors—important among which is that of the competitive styles of Japanese companies. An issue that is particularly germane is that of product strategy. This article reports on research that was performed among a sample of foreign consumer products' companies in Japan. The article explores the theme that effectiveprodud strategy in Japan requires cultural sensitivity, as well as an ability to cope with the aggressive, technical led approaches of Japanese companies that comprise the competitive set.     

Cultural Insights to Justice: A Theoretical Perspective Through a Subjective Lens

Distributive, procedural, and interactional justice are constructs that are increasingly being recognized as important factors that affect individual perceptions in the workplace environment. This paper presents a theoretical perspective that suggests that justice is perceived through a subjective lens that consists of individualized beliefs and proposes that cultural attributes and demographic characteristics play an integral part in determining the perception of justice. The distinctions between these three constructs are presented in context with the core beliefs of individual employees – affected by a multitude of perceptual and demographic factors that we briefly identify herein. Based on the theoretical perspective, an instrument that measures the constructs of justice as perceived by individuals was developed. With a focus on justice within the business setting, hypotheses about attitudes related to justice were tested. Survey results confirm that the three constructs of justice are distinct but correlated. Significant differences were found in the perceptions of African-American respondents with regard to procedural justice. Although the empirical findings do not support all the hypotheses, this research highlights the need for further development of measures to assess the perception of justice in business settings and at an applied level, underscores the importance of recognizing cultural attributes and demographic characteristics in understanding how justice is perceived.     

Mexico's integration into the North American capital market

We explore a model of time varying regional market integration that includes three factors for the North American equity market, the local Mexican equity market and the peso/dollar exchange rate. We argue that a useful instrument for the degree of integration is the sovereign yield spread. Applying our methodology to Mexico over the 1991–2002 period, we show that the degree of market integration was higher at the end of the period than at the beginning but that it exhibited wide swings that were related to both global as well as local events. We also discover that Mexico's currency risk is priced. Further, the currency returns process reveals strongly significant asymmetric volatility that is strongly related to the asymmetric volatility of the Mexican equity market returns process. A plausible reason for these results is that currency devaluations in emerging markets like Mexico can cause default-risk crises in local banking systems that mismatch local-currency assets and hard currency liabilities, whereas appreciations produce no such problems. Devaluations that destabilize banking systems are, therefore, more likely than appreciations to increase the volatilities of both the currency's and the equity market's returns.     

Towards a comprehensive model of entry timing in the ICT industry: Direct and indirect effects

We propose and contrast a model that integrates the factors influencing entry timing and the way entry timing influences firm performance, using a sample of firms that carry out international activities from the Information and Communications Technology Industry (ICT) in Spain. We found that capabilities are the main factor influencing firm performance. We also demonstrate that entry timing plays a significant mediator role in this relationship. Furthermore, we found that the utility strategy, which combines efforts in costs and differentiation, is a basic factor that explains and reinforces sustainable competitive advantages for those firms that enter early into the market. Managers need to analyse the implications of entry timing at length. In this sense, managers should evaluate if they have a suitable configuration of capabilities for entering the market successfully. They should also try to consolidate first mover advantages (FMAs), developing hybrid strategies that combine low cost and differentiation.     

Friendships of Virtue,Pursuit of the Moral Community,and the Ends of Business

It is argued here that business firms can and do provide an incubator that enables the Aristotelian category of friendships of advantage to develop into friendships of virtue. This contradicts other literature that views acquaintances of utility as the business norm, and expresses pessimism concerning more advanced virtuous development of friendship within the business firm. It is argued here, however, that this virtuous development is integral to the Kantian social aim of pursuing a moral community, an aim which declares the appropriate moral motivation for business, and that certainly should incorporate a role for developing virtuous relations as a component of that pursuit. An atmosphere that encourages the development of relations of virtue is feasible, exists in real business, and is optimal for pursuit of moral business communities.     

Encouraging innovative environmental actions: what companies and managers must do

Increasingly environmentally proactive firms are interested in finding ways to encourage employees to take environmental actions that will improve the environmental performance of company operations, products and services. Results of an employee survey show that both environmental policies and supportive supervisory behaviors can increase the probability that employees will try environmental initiatives. We describe environmental policies and supervisory behaviors that exist in firms that are committed to sustainable development and employee environmental initiatives. From the survey results, we draw some lessons for managers and organizations that would like to support employee participation in sustainable development activities.     

What's Wrong with Computer-Generated Images of Perfection in Advertising?

Advertisers often use computers to create fantastic images. Generally, these are perfectly harmless images that are used for comic or dramatic effect. Sometimes, however, they are problematic human images that I call computer-generated images of perfection. Advertisers create these images by using computer technology to remove unwanted traits from models or to generate entire human bodies. They are images that portray ideal human beauty, bodies, or looks. In this paper, I argue that the use of such images is unethical. I begin by explaining the common objections against advertising and by demonstrating how critics might argue that those objections apply to computer-generated images of perfection. Along the way, I demonstrate an ethically significant difference between computer-generated images of perfection and the images in ordinary ads. I argue that although critics might use this fact to apply the common objections to the use of computer-generated images of perfection, the objections fail. Finally, I argue that despite surviving the common objections, the use of computer-generated images of perfection is subject to an ethical objection that is based on aesthetic considerations. Advertisers are ethically obligated to avoid certain aesthetic results that are produced by computer-generated images of perfection.     

The impact of social norms on entrepreneurial action: Evidence from the environmental entrepreneurship context

Using insights from institutional theory, sociology, and entrepreneurship we develop and test a model of the relationship between centralized and decentralized institutions on entrepreneurial activity. We suggest that both decentralized institutions that are socially determined as well as centralized institutions that are designed by governmental authorities are important in promoting firm foundings in the environmental context. In a sample of the U.S. solar energy sector we find that state-sponsored incentives, environmental consumption norms, and norms of family interdependence are related to new firm entry in this sector. Our findings also suggest that the efficacy of state-level policies in the sponsoring of entrepreneurial growth is dependent upon the social norms that prevail in the entrepreneur's environment. We expand entrepreneurship theory and the study of institutions and the natural environment by demonstrating the integral role that social norms play in influencing the creation of new firms and by illustrating the potential effect social norms have on the effect of policy that seeks to encourage environmentally responsible economic activity.     

Meat labels: consumer attitude and meat consumption pattern

This paper addressed consumers’ attitude towards food labels and the influence of different aspects of meat labels on beef, poultry and seafood consumption using data from a national survey in the USA. Approximately 70% of the respondents reported that food labels helped in the purchases of beef and other meat products. While 50% thought that the present level of information on meat labels was about right, about 30% thought that it was insufficient. Similarly, 80, 81, 60, and 80% of the respondents thought that it was very important that meat labels contain information regarding nutrition, ingredients, health claim, and production process respectively. Those respondents who thought that nutrition and ingredient information on food labels were very important also thought that meat labels helped them select beef and other meat products. Consumer preferences for nutrition and ingredient information on food labels were positively related with meat consumption frequency.     

Independence,Conflict of Interest and the Actuarial Profession

The actuarial profession has a long history of providing critical expertise to society. The services delivered are some of the most complex and mysterious to outsiders of all professions but little has been written about the professional responsibilities of actuaries in the academic literature beyond that of the profession itself. This paper makes the case that the issues surrounding professional independence of actuaries are, in principle, similar to those that faced the audit profession before the scandals and resultant regulatory changes early this century. It is argued that, despite the position taken by the actuarial profession and management, the status quo raises genuine concerns about conflicts of interest and independence and that the risks that arise are of sufficient magnitude that they should at least be the subject of a full debate.