Performance assessments of Taiwan’s financial holding companies

This paper uses Risk-Adjusted Return on Capital (RAROC) to assess the performance of 14 financial holding companies (FHCs) in Taiwan. RAROC value indicates a firm’s performance after considering the market risk effect, and gives a better measurement of the firm’s operational productivity than traditional methods. We use the full valuation methods to calculate Value at Risk (VaR) as the market risk measurement for economic capital. According to the New Basel Capital Accord, the market risk of Internal Model should be adjusted, and the Bank for International Settlement suggests using the backtest to select the best full valuation method for estimating adjusted VaR. Therefore, this paper evaluates the best market risk model, and assesses and compares the performance for each firm before and after its merger and acquisition into the FHC. Overall, we find weak evidence that the performance of 14 FHCs increased over time.     

Resource linkages and capability development

In this paper, we examine the different resource linkages sought by manufacturing firms through strategic alliance. We look closely at the impact of manufacturing activities on choice of resource linkage. Using a sample of Taiwanese firms, we found that product development ability and marketing distribution channels are the top priority resource linkages that Taiwanese manufacturing firms seek to establish. The authors also found it interesting that marketing know-how was not a resource commonly sought by Original Design and Manufacturing (ODM) firms, nor by Own-Brand Manufacturing (OBM) firms. Some implications are further discussed. Instead of outsourcing production to external suppliers, Taiwanese OBM firms remained committed to manufacturing as a core competence when they established their own brands overseas.     

Time-Series Wage Differential in Taiwan: The Role of International Trade

Rising relative wages between skilled and unskilled workers in developed countries has been a popular subject of recent studies. This paper analyzes Taiwan, a semi-developed economy, where the relative wage reveals a declining trend since the mid-1980s. The authors study the role of international trade. A major point of departure is to distinguish the effects of net exports to OECD countries from those to non-OECD countries. The paper also differentiates the effects of net exports to China from those to non-OECD countries except China. It is found that net exports to the OECD countries raise the relative wage of skilled workers, whereas net exports to non-OECD countries and China diminish the relative wage. Moreover, the impacts of net exports to China are much larger than those to OECD and other non-OECD countries. The documented wage effects of international trade in this work diverge from what existing works have argued based on Heckscher–Ohlin theory.     

Direct and indirect effects of continuous treatments based on generalized propensity score weighting

This paper proposes semi- and nonparametric methods for disentangling the total causal effect of a continuous treatment on an outcome variable into its natural direct effect and the indirect effect that operates through one or several intermediate variables called mediators jointly. Our approach is based on weighting observations by the inverse of two versions of the generalized propensity score (GPS), namely the conditional density of treatment either given observed covariates or given covariates and the mediator. Our effect estimators are shown to be asymptotically normal when the GPS is estimated by either a parametric or a nonparametric kernel-based method. We also provide a simulation study and an empirical illustration based on the Job Corps experimental study.     

Detecting which firm-specific characteristics impact market-oriented R&D

This paper investigates which firm-specific characteristics lead multinational enterprises (MNEs) to increase their R&D expenditure in host countries as a way of expanding their business into local markets (market-oriented R&D). The literature that addresses this topic is quite limited because of the difficulty of separating market-oriented R&D expenditure from knowledge-sourcing R&D expenditure in the data. We argue that determining the relationship between local sales and R&D expenditure is a better way to identify whether MNEs are investing market-oriented R&D than is separating the two types of R&D. For connecting firm-specific characteristics, local-market sales, and R&D expenditure together, we adapt two-stage regressions. By employing data from Taiwanese multinationals from 2003 to 2006, we found that if an MNE moves its technology toward capital-intensive products, it increases its R&D expenditure to promote its sales in the local markets in the host country.     

Linking organisational critical activities with business typology

This research aims to discover the connection between strategic typologies and organisational critical activities, and focuses on the organisational critical activities in three functional areas in high-tech organisations: ‘research and development’, ‘marketing’ and ‘manufacturing’. Research methods used include semi-structured interviews with 11 firms and 15 interviewees. And 34 participants were surveyed with analytic hierarchy process (AHP) questionnaires in Taiwan. The results show that organisations adopt different typologies tend to perform organisational critical activities differently to achieve success. Prospectors place more emphasis on ‘research and development’ related activities, Defenders focus on activities of ‘manufacturing and production related fields’, and Analysers care more about activities in ‘marketing related fields’. Defenders tend to pay more attention to activities relating to the manufacturing domain than Prospectors and Analysers. This research establishes a linkage between organisational critical activities and corporate strategy, and it could be useful for high-tech organisations to better manage their strategies.     

Trade,inventories, and forward exchange under exchange rate and demand uncertainty

The author is very grateful to Professor Klaus Spremann of University of Ulm and an anonymous referee for invaluable comments and suggestions. The research support from the National Science Council of R. O. C. is appreciated.     

Production location and random input price

The purpose of this paper is to develop systematically the theory of plant location for a competitive firm facing random input price. It will be shown that the impact of input price uncertainty on the firm's optimum location depend crucially upon (i) the firm's attitude toward risk, (ii) the characteristics of the production function, (iii) the structure of transport costs on inputs and output, and (iv) the type of input usages. Moreover, and more importantly, some conclusions obtained by prior studies on location theory in a certainty world can also be shown to be special cases of our more general results, but some are not justifiable in a world with random input price.     

How Does Asymmetric Information Affect Catering Behavior?

This study examines the association between information asymmetry and payout policy, and how asymmetric information affects catering behavior. Using forecast error and forecast dispersion as information asymmetry variables, this study finds that the more information asymmetry the firms face, the less likely they will increase dividends. Meanwhile, the effects of information asymmetry dominate over those of catering incentives for managers to decide dividend policy. Finally, our empirical results demonstrate that the signaling theory holds when dividend yield is high or market underestimates the EPS of firms. In addition, companies use share repurchases as a substitute for dividend increases, and take retained earnings into account when making dividend policies.     

ESO compensation: The roles of default risk, employee sentiment, and insider information

This paper derives a pricing model for employee stock options (ESO) that includes default risk and considers employee sentiment. Using ESO data from 1992 to 2004, the study finds that the average executive's subjective value is about 55% of the Black-Scholes value. Only employees who over-estimate firm returns (or insiders who know that the firm is under-valued) by about 10% per annum will prefer ESOs over cash compensation. Our model also shows that work incentives offered by ESOs may be far lower than those implied by Black-Scholes but that ESOs may induce less risk-taking behavior, contrary to typical moral hazard arguments. Findings may impact relevant accounting regulations as well as compensation decisions.