Corporate governance and IPO underpricing in a cross‐national sample: A multilevel knowledge‐based view

Prior studies of IPO underpricing, mostly using agency theory and single‐country samples, have generally fallen short. In this study, we employ the knowledge‐based view (KBV) to explore underpricing across 17 countries. We find that agency indicators are insignificant predictors, board of director knowledge limits underpricing, and external knowledge both substitutes for and complements internal board knowledge. This third finding suggests that future KBV studies should consider how internal and external knowledge states interact with each other. Our study offers new insights into the antecedents of underpricing and extends our understanding of comparative governance and the KBV of the firm. Copyright © 2014 John Wiley & Sons, Ltd.     

Capital Deployment Roundtable: A Discussion of Corporate Investment and Payout Policy

U.S. companies are now reportedly earning record‐high operating returns on capital while at the same time continuing to set new records both for corporate cash holdings and distributions to investors in the form of dividends and stock repurchases. But are most of these companies really maximizing value? And what role, if any, do these large distributions play in creating value? These are the two main questions that are addressed by a small group that includes two senior corporate executives and two representatives of well‐known activist investors. A number of panelists suggest that many companies, in misguided efforts to maximize returns on capital, have been using hurdle rates that are too high and so sacrificing value‐adding investment opportunities. As evidence for this claim, they cite evidence that, in recent years, the companies that have achieved the highest stock market returns appear to have made conscious decisions to reduce their returns on capital to pursue higher growth. Another increasingly common charge against U.S. companies is their tendency to pay out excessive capital to investors, especially in the form of stock repurchases at prices that turn out to be too high. But this last practice, however widespread, may not be as troubling as it has been made out to be. Although it involves a wealth transfer from existing to selling shareholders, overall investor value is lost only if such buybacks lead to corporate underinvestment. But, as a number of panelists (including the activist investors) point out, such payouts of capital have generally functioned as a demonstration of corporate managers' commitment to investing and operating with the optimal, or value‐maximizing, level of capital—neither too much nor too little.     

Pacioli's Example Entries—a Conundrum Resolved?

This paper discusses the nature of the 10 example paragraph entries at the end of Pacioli's bookkeeping treatise. It concludes that these are entries from fledgling banking operations involving one account holder and one borrower who, along with two others, has financial transactions with the account holder. The widely held assumption that they are examples of entries in the Ledger is set aside and it is concluded that, on the basis of the available evidence, they are examples of entries in a Ricordanze, a record book Pacioli described as being used to record items of this type.     

Roundup Ready soybeans in Argentina: farm level and aggregate welfare effects

Although adoption rates of genetically modified crops have been staggering in some countries, there is still comparatively little evidence about biotechnology impacts under diverse agroecological and institutional conditions. These knowledge gaps lead to an overly precautious attitude among policy makers and the public. This article analyzes the effects of Roundup Ready (RR) soybeans in Argentina, the country with the second biggest transgenic area worldwide. Based on recent survey data, it is shown that the technology increases total factor productivity by 10% on average, with cost savings being somewhat more pronounced for smaller than for larger farms. The reduction in use of toxic herbicides and of tillage operations entails positive environmental repercussions. Aggregate welfare effects are computed over the 1996–2001 period with a three-region, partial equilibrium model, comprising Argentina, the United States, and the rest of the world. In 2001, RR soybeans created more than US$1.2 billion of economic surplus at the global level. The largest share went to consumers (53%), followed by seed and biotechnology firms (34%), and agricultural producers (13%). Due to comparatively weak intellectual property protection, and thus only small technology mark-ups in seed prices and widespread adoption, Argentine soybean growers receive 90% of the benefits in that country. This demonstrates that farmers in developing countries can gain considerably when they obtain access to suitable foreign innovations through technology spill-overs.     

Mergers and partial ownership

We compare the profitability of a merger between two firms in which one firm fully acquires another and the profitability of a partial ownership arrangement in which the acquiring firm, although owning less than 100% of the acquired firm, is nevertheless able to obtain corporate control over all pricing decisions. We find that joint profit can be higher in the latter case because it may result in a greater dampening of competition with respect to an outside competitor when the partial ownership arrangement is publicly observable. We also derive comparative statics on the prices of the acquiring firm, the acquired firm, and the outside firm and use them to explain puzzling features of the pay-TV markets in Norway and Sweden.     

Modelling intervention options to reduce GHG emissions in housing stock — A diffusion approach

The building sector is regarded as having one of the highest benefit-cost ratios from greenhouse gas (GHG) emission reduction strategies. However, because of uncertainties around household behaviour patterns, it is very difficult to assess and compare the GHG reduction impacts of different intervention schemes for whole housing stock. Intervention schemes include policy instruments such as incentives or rebates for energy efficient appliances or renewable energy, and regulatory building code requirements for energy efficiency. This paper presents a decision support tool based on mathematical diffusion that evaluates the adoption levels of different schemes or pathways towards reducing GHG emissions in housing stock. It is an extension of the Bass diffusion model that accommodates financial and non-financial benefits, ceilings of adoption and interactions between intervention options. The model capability was tested using a case study of seven suburbs in Brisbane, Australia, comprising of 25,000 houses and units. Estimates of GHG emission reductions to 2019 of a household rebate scheme for solar panels and a rebate scheme for solar hot water compared to a base case of no rebates were presented and analysed. Modelling also allowed identification of important characteristics of adoption trends that could assist policy makers and industry to substantially improve the design of effective intervention options.     

Determinants of Financial Ratio Disclosure Patterns of Australian Listed Extractive Companies

We investigate the disclosure patterns of Financial Ratios (FRDs) within the annual reports of 111 Australian listed resource companies over the period 2002 to 2006. Disclosure of financial ratio information increased over this period with a significant increase in disclosures recorded in the first full‐year annual report prepared following adoption of IFRS. The results of logistic regression analysis demonstrate that income tax and firm size are factors that are significantly associated with financial ratio disclosures. This study contributes to an understanding of the extent, trends and rationale behind resource firms’ financial ratio disclosure practices in Australia.     

Incentive Compensation and the Likelihood of Termination: Theory and Evidence from Real Estate Organizations

We analyze two managerial compensation incentive devices: the threat of termination and pay for performance. We first develop a simple model predicting that these devices are substitutes: when termination incentives are low, optimal contracts provide stronger pay‐for‐performance incentives. We then use data from real estate organizations to provide two independent tests of the model’s central prediction. First, we use the fact that chief executive officers of Real Estate Investment Trusts (REITs) and general partners of Real Estate Limited Partnerships (RELPs) perform similar tasks, yet organizational features of RELPs ensure that the latter are much harder to terminate. Consistent with the model, we find that pay‐for‐performance sensitivity is much higher for general partners of RELPs, where the termination threat is less credible. Second, we use a recent cross‐section of REITs to show that in property types where it is expected to be more costly to replace managers, those managers have stronger pay‐for‐performance incentives.     

An economic efficiency study on different regions of Ghana via Slack-based data envelopment analysis and regression analysis

In this article, we evaluate the efficiency of the 10 different regions of Ghana using slack-based data envelopment analysis, a nonparametric linear programming technique. Furthermore, we analyse the variable effects on the efficiency of the regions by various regression models using bootstrap sampling technique. The data come from the 1991/1992 and 1998/1999 Ghana Living Standards Survey. Our results show that wealth is not strongly related to efficiency. For example, the study indicates that the Brong–Ahafo region is the most efficient region but not the most wealthy in Ghana. Generally, urban regions are not found to be among the most efficient regions due to the high expenditures. The regression analysis shows that female heads of household have an overall positive effect on efficiency. In addition, any form of education obtained is also found to have a significant positive effect on efficiency.     

SME Internet use and strategic flexibility: the moderating effect of IT market orientation

Abstract

One of the most important topics in the marketing literature has been the concept of market orientation. However, questions remain as to the dynamics of how market orientation translates into intermediate capabilities. This study explores relationships among different types of Internet usage, IT market orientation (the extent to which IT is aligned to manage customer and competitor information and internal activities), and strategic flexibility (firm capability to respond to the need for change). Specifically, use of the Internet for communication with relevant stakeholders, owing to its market-sensing potential, should be positively and significantly related to strategic flexibility for SMEs with more IT market-oriented alignment. The market-sensing potential of Internet communication to impact strategic flexibility positively for SMEs is likely to be lost under low IT market-oriented-alignment conditions. In contrast, IT market orientation should not moderate the relationship between Internet use for transactions with relevant stakeholders and strategic flexibility, given that the typical order taking and processing is a static, routine function for SMEs. Results supported hypothesised relationships. By delineating the type of Internet usage and required IT alignment that contribute to leveraging the Internet effectively, findings hold implications for future research by clarifying boundary conditions for Internet effects. Specifying how and when Internet use promotes strategic flexibility, an important enabler of competitive advantage, helps small business owner/managers better utilise their limited resources.