Adaptive capacity to technological change: A microfoundational approach

Research summary> : W e take a microfoundational approach to understanding the origin of heterogeneity in firms' capacity to adapt to technological change. We develop a computational model of individual‐level learning in an organizational setting characterized by interdependence and ambiguity. The model leads to organizational outcomes with the canonical properties of routines: constancy, efficacy, and organizational memory. At the same time, the process generating these outcomes also produces heterogeneity in firms' adaptive capacity to different types of technological change. An implication is that exploration policy in the formative period of routine development can influence a firm's capacity to adapt to change in maturity. This points to a host of strategic trade‐offs, not only between performance and adaptive capacity, but also between adaptive capacities to different forms of change . Managerial summary : W hy are firms differentially effective at adapting to technological change? We argue that firms differ in the adaptive capacity of the routines that underlie their capabilities. These differences arise well before change occurs, and result because firms build routines that are differentially responsive to signals of performance decline associated with technological change. Thus, early managerial efforts to build superior productive efficiency must be complemented by efforts to build superior adaptive capacity. Our theory suggests that managers can prepare for technological change by implementing policies, in the formative period of organizational development, that promote individuals' exploration of novel actions. However, there are trade‐offs because preparation aimed at building adaptive capacity to one type of technological change may limit adaptive capacity to other types of change . Copyright © 2016 John Wiley & Sons, Ltd.     

Firm heterogeneity and immigrant wage assimilation

This article investigates the role of job mobility in immigrant wage assimilation. I use longitudinal linked employer–employee data for Portugal to estimate the immigrant wage catch-up in log wage regressions with both individual and firm fixed effects. I show that moving to firms with higher wage premiums accounts for approximately 30% of the immigrant wage catch-up in the first years.     

Corporate Cash Holding in Asia

In this paper, we analyze the determinants of corporate saving in the form of changes in cash holdings for 11 Asian economies using firm‐level data from the Oriana Database for the 2002–2011 period. We find some evidence that cash flow has a positive impact on the change in cash holdings (i.e. that the cash flow sensitivity of cash is positive) and that the positive impact of cash flow on the change in cash holdings is larger and more significant in the case of smaller and presumably more constrained firms than in the case of larger and presumably less constrained firms in both developed and developing economies. Both of these findings corroborate the importance of financial constraints in Asian firms. In addition, we find that the cash flow sensitivity of cash declined after the global financial crisis and that Tobin's q has a positive impact on the change in cash holdings, especially in the case of larger and presumably unconstrained firms.     

Incubation of an industry: Heterogeneous knowledge bases and modes of value capture

Research summary : We examine firms' technological investments during an industry's incubation stage—the period between a technological breakthrough and the first instance of its commercialization. Using the agricultural biotechnology context, we develop stylized findings regarding the understudied knowledge evolution preceding product evolution in an industry's life cycle, the trend and diversity of firms undertaking technological investments in anticipation of industry emergence, their leverage of markets for technology and corporate control, and their use of alternative modes of value capture. We juxtapose these stylized findings with existing literature to identify new theoretical insights, and set the stage for future scholarly work to develop and test new theories for the incubation period, examine its existence in other industries, and study its impact on subsequent firm and industry evolution. M anagerial summary : New technological breakthroughs present managers of existing firms and aspiring entrepreneurs with opportunities to create altogether new industries. During the vibrant incubation period, we find that multiple firms capitalize on diverse knowledge bases to shape the industry's knowledge evolution and also capture economic value in diverse ways. Existing firms in the obsolescing industry are more likely to become targets in acquisitions given their complementary knowledge. Science‐based start‐ups are more likely to engage in acquisitions and collaborations with established firms. Diversifying firms are more likely to commercialize products after leveraging of internal development, acquisitions, and alliances. Our study highlights the importance for managers to think about “success” and “failure” across multiple yardsticks of performance, rather than only as product commercialization as the sole goal. Copyright © 2016 John Wiley & Sons, Ltd.     

How knowledge flow affects Korean ICT manufacturing firm performance: a focus on open innovation strategy

The paper presents an integrated viewpoint of technological innovation strategy by considering both the firm and industry levels. Further, we provide a new open innovation framework by adopting a knowledge flow perspective using patent citation information. Finally, we consider a firm’s outbound open innovation performance using cites per patent information together with financial performance to look at both the practical and the potential effects of technological innovation strategy. Through these analyses, this study examines determinants of open technology innovation activity in the information and communication technology manufacturing industry in Korea and draws managerial and policy implications for effective industry promotion and improvement of technology innovation capability.     

On the measurement of investment types: Heterogeneity in corporate tax elasticities

This paper contributes to debates about the appropriate characterisation of heterogeneous investment types and to what extent different investment motives affect the responsiveness to corporate taxation. In particular, we employ and refine a methodology to better evaluate the tax elasticity of investment types. Using a combination of both firm‐specific information and sector‐specific information from input–output tables, we discuss how to classify investment as non‐related, horizontal, vertical and complex types. First, we point out to what extent the resulting classification depends on assumptions made by the researcher. Second, we employ an ample set of classifications and find that non‐related investment reacts stronger to corporate taxation, whereas horizontal investment is less responsive, though, significant negative tax semi‐elasticities turn out for the subset of manufacturing industries. To address inherent characteristics of vertical and complex investment, we extend the methodology and find that, by and large, stronger business motives reduce the tax responsiveness of investment to a larger extent. Given the current debates about substantial corporate tax reforms, it is all the more important to recognise that corporate tax effects can vary fundamentally between countries, driven by country‐specific differences in their composition of industries and investment types.     

The impact of earnings expectations on corporate downsizing

Research Summary: We propose that due to financial market pressures, managers are forward‐looking in their search and decision processes and focus on meeting performance targets set by the financial community. Using panel data on S&P 100 companies, we find that pressure felt by management to meet the analyst consensus earnings estimate influences the extent of corporate downsizing. Moreover, our results show that high levels of institutional investor stock ownership and CEO power attenuate managers’ sensitivity to financial market pressures, while high levels of analyst coverage increase their sensitivity. Managerial Summary: In this study we examine how financial market pressures influence managers’ downsizing decisions. We argue that investment analysts’ earnings estimates represent important performance targets to which managers aspire. If firms fail to meet analysts’ expectations, the stock price will suffer. This study shows that managers utilize corporate downsizing to address the potential shortfall between a firm's future performance and the analyst consensus earnings estimate. In addition, we find that managers’ concerns over meeting analysts’ earnings estimates are influenced by various contextual factors such as institutional investor stock ownership, CEO power, and high levels of analyst coverage.     

Does Accrual Management Impair the Performance of Earnings‐Based Valuation Models?

This study examines how accrual manipulations affect firm valuation in the years surrounding the passage of the Sarbanes‐Oxley Act (SOX). We compare the absolute percentage pricing errors of RIM and DCF valuation models for a group of US firms suspected to have engaged in accrual manipulations to avoid a small loss or a small earnings decline vs. ‘Normal’ firms matched on industry, year and size. We find that RIM can better estimate intrinsic value than DCF for the matched Normal firms in the pre‐SOX period, but not so for accrual manipulators, and that SOX mitigates the harmful effect of accrual manipulations, completely eliminating the difference in RIM's accuracy advantage over DCF between Normal firms and accrual manipulators. As a further analysis, we redefine Suspect firms as real‐activity manipulators and find a significant across‐group difference in accuracy wedge in both sample periods, implying that SOX has prompted firms to favor real‐activity manipulations over accrual manipulations.     

Broadband connected employees and labour productivity: a comparative analysis of 14 European countries based on distributed Microdata access

In this study, the association between information and communication technology (ICT) intensity in firms and labour productivity is explored across 14 European countries for the years 2001–2010. ICT intensity is approximated by the proportion of broadband internet-enabled employees, a novel indicator measuring not only adoption but also diffusion within and among firms. Data have been retrieved by means of the distributed microdata approach (DMD) from registers on business, trade and education as well as from surveys on production, ICT usage and innovation activities in firms held at the national statistical offices. This pioneering approach allows access to otherwise confidential linked firm-level information in dimensions not earlier available. Pooled OLS estimations based on approximately 400,000 observations in harmonised and representative datasets show that in a majority of countries there is a significant and positive relationship between the proportion of broadband internet-enabled employees and labour productivity in firms. However, the strength of the relationship varies across countries and industries. Manufacturing firms receive 50% larger estimates than the services firms, while the latter instead experience the positive association more frequently.