Should countries block foreign takeovers of R&D champions and promote greenfield entry?

Abstract In R&D intensive industries, governments promote greenfield foreign investments, while being sceptical towards foreign acquisitions of domestic high‐quality firms. We develop a theoretical model that shows that foreign acquisitions are conducive to high‐quality targets because of strategic effects on the sales price. However, foreign firms ‘cherry pick’ high‐quality targets to expand R&D rather than to downsize. Otherwise, rivals expand R&D, making the acquisition unprofitable. Thus, our model predicts that acquired affiliates invest more in R&D than greenfield affiliates. Using affiliate data, we find evidence that acquired affiliates have a higher level of sequential R&D intensity than greenfield affiliates.     

Risk Aversion and the Value of Risk to Life

The standard literature on the value of life relies on Yaari’s (1965) model, which includes an implicit assumption of risk neutrality with respect to life duration. To overpass this limitation, we extend the theory to a simple variety of preferences that are not necessarily additively separable. The enlargement we propose is relevant for the evaluation of life‐saving programs: current practice, we estimate, puts too little weight on mortality risk reduction of the young. Our correction exceeds in magnitude that introduced by the switch from the notion of number of lives saved to the notion of years of life saved.     

Export diversification,specialisation and inequality: Evidence from Asian and Western countries

This paper examines the dynamic effect of globalization at the disaggregated level of sectoral export diversification and manufacturing specialization on income inequality using a panel data set of 52 Asian and Western countries from 1988 to 2014. The paper uses dynamic panel data models applying the System Generalized Method of Moments (GMM) estimations that provide more accurate and better results than those obtained with static panel data models. The results suggest that there is no statistically significant relationship between manufacturing specialization and inequality while sectoral export diversification has been the driving force of inequality. For sub-groups of countries, higher sectoral export diversification increases inequality and higher manufacturing specialization decreases inequality in high-income Asian countries and European Union (EU) member states. Moreover, the study finds insignificant effects in low-income Asian countries and Anglo-Saxon countries.     

When the Client Is a Former Auditor: Auditees' Expert Knowledge and Social Capital as Threats to Staff Auditors' Operational Independence

Auditees can play an active role in influencing staff auditors' professional judgment and skepticism. Yet, although it constitutes one of the main threats to auditor independence, very little is known about the means and extent of auditees' power during the audit engagement. To address this knowledge gap, our study focuses on a specific category of auditees, namely, auditees who have worked as auditors in large accounting firms. We interviewed 36 of these auditees and triangulated our findings with 11 interviews conducted with auditors. At the theoretical level, we conceptualize auditees' influence over auditors as intentional and active through the notion of “social power.” Overall, our analysis shows that the efficacy of auditees' power during the engagement materializes through the mobilization of two main power resources developed during their time at the firms: (i) expert knowledge of auditing techniques and (ii) social capital. On the one hand, relying on their cognitive authority, auditees' employ three different power strategies to constrain staff auditors' operational independence: stage-setting, teaching, and questioning. On the other hand, auditees' social capital can support the use of two additional strategies: attracting and monitoring. Our triangulation analysis confirms our findings and suggests that auditors may be aware of the threats to independence that auditee expertise and social capital pose. By focusing on auditees' agentic capabilities—that is, individuals' capabilities to consciously exert influence over the course of events—we reinterpret the pressures exerted by clients on auditors as the product of strategic actions and discuss substantive consequences for independence risk.     

Navigating Through the Spatial and Institutional Contradictions of Public Audit Oversight

Abstract

This study revisits the actions of the French audit regulator (H3C) and the French profession over the 2003–2013 period in response to the regulatory transformations that occurred both in the national and transnational space. Our analysis highlights how these actors have navigated through the spatial and institutional contradictions that characterize public audit oversight in order to manage variable and opposing interests from one space to another. In particular, we show how conflicting national and transnational conceptions of professionalism and commercialism have developed to support different regulatory agendas. Our analysis of the spatial dynamics of public audit oversight allows us to propose a much less confrontational representation of the relationships between public audit regulators and the audit profession. We maintain that more attention should be paid to the spatial variants of commercialism and professionalism to better understand the development of audit regulation.     

On measuring synchronization of bulls and bears: The case of East Asia

This paper implements estimation and testing procedures for comovements of stock market “cycles” or “phases” in Asia. We extend the Harding and Pagan [Harding, D., Pagan, A.P., 2006. Synchronization of cycles. Journal of Econometrics 132 (1), 59–79] test for strong multivariate nonsynchronization (SMNS) between business cycles to a test that allows for an imperfect degree of multivariate synchronization between stock market cycles. Moreover, we propose a test for endogenously determining structural change in the bivariate and multivariate synchronization indices. Upon applying the technique to five Asian stock markets we find a significant increase in the cross country comovements of Asian bullish and bearish periods in 1997. A power study of the stability test suggests that the detected increase in comovement is more of a sudden nature (i.e. contagion or “Asian Flu”) instead of gradual (i.e. financial integration). It is furthermore argued that stock market cycles and their propensity toward (increased) synchronization contain useful information for both investors, policy makers and financial regulators.     

The relevance of political affinity for the initial acquisition premium in cross‐border acquisitions

Research summary : In the context of economic nationalism, we investigate the relevance of political affinity between countries to the initial acquisition premium offered in cross‐border acquisitions. Political affinity is defined as the similarity of national interests in global affairs. We argue that political affinity affects how foreign acquirers anticipate their bargaining position in their negotiations with domestic target firms. With decreasing political affinity, the host government becomes increasingly likely to intervene against foreign firms in an acquisition deal. Consequently, foreign acquirers need to provide a more lucrative initial offer to dissuade target firms from leveraging government intervention to oppose the acquisition. Our prediction is supported by strong evidence that political affinity, as revealed by UN general assembly voting patterns, leads to lower initial acquisition premiums. Managerial summary : Media reports suggest that politics plays an important role in international business transactions. However, we still know very little about how bilateral political relations affect corporate decision‐making. In this article, we analyze the influence of the quality of bilateral political relations on the bidding behavior of foreign acquirers in cross‐border acquisitions. We argue that the host government is more likely to intervene against the foreign acquirer during deal negotiations if the quality of bilateral political relations is poor. A lower political affinity between countries therefore decreases the bargaining power of the acquirer and pushes up the initial bid premium the acquirer has to offer to the local target. Our empirical results confirm our argument. Copyright © 2015 John Wiley & Sons, Ltd.     

On Sugden’s “mutually beneficial practice” and Berge equilibrium

Cooperative behavior is often observed in ordinary market transactions. To account for this observation, Robert Sugden proposes a team reasoning theory in which the common interest of team reasoners is defined by the notion of mutually beneficial practice. We study the relationships between mutually beneficial practices and Berge equilibria (a Berge equilibrium is a strategy profile such that a unilateral change of strategy by any one player cannot increase another player’s payoff). We propose two sufficient conditions under which a (strict) Berge equilibrium is a mutually beneficial practice.     

A characterization of social choice correspondences that implement the core of simple games

In a coalitional voting game, an alternative is said to be in the core when no majority is willing to replace it with another alternative. A social choice correspondence is a mapping which associates any profile of voters’ preferences with a non-empty subset of the set of alternatives, which is understood as the set of selected outcomes. We characterize the social choice correspondences which always select the core of a simple game for any profile of preferences. This work was completed when B. Tchantcho was Visiting assistant Professor at UTA (University of Texas at Arlington). We acknowledge the support of the Department of Mathematics of UTA. We are most grateful to R. Pongou of Brown University, USA for his help and advice. We sincerely thank N.G Andjiga for his helpful comments and we are indebted to two anonymous referees for their helpful comments.     

International Expansion,Diversification and Regulated Firm Nonmarket Strategy

Previous studies have shown that regulated firms diversify for reasons that are different than for unregulated firms. We explore some of these differences by providing a theoretical model that starts by considering the firm–regulator relationship as an incomplete information issue, in which a regulated incumbent has knowledge that the regulator does not have, but the firm cannot convey hard information about this knowledge. The incumbent faces both market and nonmarket competition from a new entrant. In that context, we show that when the firm faces tough nonmarket competition domestically, going abroad can create a mechanism that makes information transmission to the regulator more credible. International expansion can thus be a way to solve domestic nonmarket issues in addition to being a catalyst for growth. Copyright © 2012 John Wiley & Sons, Ltd.