Corporate Capital Budgeting Decisions and Information Sharing

Firms must overcome agency and information asymmetry problems to make efficient corporate capital budgeting decisions; this is particularly true for firms with multiple units dispersed across geographic locations. Internal communication and coordination may therefore be crucial in reducing information asymmetry and achieving efficient resource allocation. We examine the relationship between corporate capital budgeting decisions and the degree of internal information sharing using a dataset of 342 U.S. firms from 1993 to 2002. Information sharing is measured by the internal linkages observed in firms’ research and development activities worldwide. The efficiency of a firm's capital budgeting decisions is measured by the deviation of the firm's estimated marginal q from the theoretical tax‐adjusted benchmark. We observe a significant relationship between value‐enhancing capital budgeting decisions and stronger internal linkages. Specifically, corporate overinvestment is significantly reduced with better information sharing across units. All results are robust to firm‐ and industry‐level controls.     

Discrimination Against Women Reconsidered

Sexist earnings differences must not be confused with wage discrimination; wage discrimination against females is only one source of the large sexist earnings gap. The author agrees that his calculations of adjusted earnings ratios do not capture all changes in relative productivity between male and female workers.His present value estimates compared male and female earnings during entire productive lives, from labor market entrance to retirement. Hence they do reflect earnings variations at all age levels and thus the average experience of females with comparable educational attainment.     

New evidence on the impact of financial leverage on beta risk: A time-series approach

The traditional estimation of a project’s cost of capital often requires leverage adjustments to beta. Several researchers have empirically investigated the relationship between the debt/equity ratio (D/E) and beta implied by such leverage adjustments. Typically, this has involved cross-sectional analysis of a sample of U.S. firms in selected industry classifications. The major contribution of the current study is to extend this evidence by investigating the relationship between financial leverage and beta using a time-series approach. This has several advantages over the cross-sectional approach. Our results reveal that while the estimated unlevered beta produced by the time-series approach is quite close to the theoretically implied unlevered beta, the mean difference between the two measures across our sample of 348 U.S. stocks is highly significant. The analysis also reveals that 30–40% of our full sample rejects a theoretical D/E restriction on the time-series model. Moreover, the results suggest that the restriction is much more likely to be rejected for stocks with high debt/equity ratios, which in general have low unlevered betas. Further, there is a considerable cross-sectional variation in the proportion of these rejections across industry groupings. Accordingly, these results suggest that due care needs to be applied when taking the traditional view of delevering beta risk.     

Production subcontracting and location

Using data from a panel of Spanish manufacturing firms, I examine factors that explain firms' production subcontracting decisions and test whether there is any evidence that production subcontracting is facilitated in areas typically associated with higher agglomeration economies. The results show that location matters. Firms in industry agglomerations are more likely to subcontract production activities. While in general, larger and older firms as well as high wage firms show a greater probability for production subcontracting, industry agglomeration particularly facilitates subcontracting for smaller and lower wage firms and it allows firms to respond to a greater degree to expansive demand conditions by taking advantage of subcontracting.     

HUMAN CAPITAL AND URBAN GROWTH IN ITALY, 1981–2001

Over the last decades of the XX century, human capital has emerged as a critical source of agglomeration economies fueling urban growth in advanced economies. Focusing on the Italian case, this paper assesses the contribution of human capital to urban growth, the latter gauged by employment growth between 1981 and 2001. A 10% higher share of college‐educated residents prompted a higher growth in employment in the 0.5–2.2% range. These results hold controlling for a wide set of urban characteristics and using an instrumental variable approach. By exploiting a spatial localization model, we disentangle the estimated effect into two components related to higher productivity and to higher life quality, respectively. We found that the former contributed to more than 60% of the effect at municipal level, and to over 90% at the wider local labor market level.     

Competitive Strategies in an International Context: Impact of Multi-Cultural Dimensions

ABSTRACT

This study extended research on organization characteristics associated with successful technology-based competitive strategies in U.S. firms to Brussels-based firms in order to specifically investigate the multicultural aspects of competitive strategies in an international context. Organization characteristics associated with success in U.S. firms also were associated with success in Brussels firms. However, the pattern of performance criteria varied. Brussels firms with responsive and innovative organizational systems exhibited higher sales growth, higher creation and maintenance of employment, higher reduction of employee turnover and higher overall success. In contrast, firms characterized by traditional and hierarchical management philosophies exhibited lower profit growth, lower profit margins and lower returns to shareholders.     

The Worker, the Union and the Democratic Workplace

Abstract . Much attention has been devoted to the potential gains in work satisfaction and productivity that can result from more democratic work organization. In the U.S. the willingness of management to share power is a key factor in the transfer from authoritarianism, as is widely recognized. Less widely recognized are the worker and the union as impediments to change. Various characteristics and interests of both, many related to the long history of the authoritarian workplace, make transition difficult. A particular set of conditions, not generally prevailing in the U.S., would be necessary for a pervasive joint union, management, worker thrust toward more participatory work organization.     

LOCAL ECONOMIC REVITALIZATION OR NATIONAL INDUSTRIAL GROWTH? A COMPARATIVE OVERVIEW OF SMALL BUSINESS POLICY IN JAPAN AND THE U.S.

Contrasts in small business policy are examined for Japan and the United States. The author argues that Japan's small business policy has been part of an industrial growth-oriented policy, while comparatively the U.S. small business policy has been mainly part of locally-based economic revitalization schemes. Recent trends in policy development indicate that the policies in the two countries are converging. The U.S. policymakers have become increasingly concerned with the small business sector becoming competitive in global markets, while widespread offshoring of large firms have prompted Japanese policymakers to focus on supporting small businesses in order to prevent further loss of manufacturing jobs.     

Urban Wages and Labor Market Agglomeration

Using the 5% public use micro sample of the 1990 U.S. census, we find that observationally equivalent workers in the manufacturing sector earn higher wages when they are in urban labor markets that have a larger share of national or metropolitan employment in their same occupation and industry groups. Quantitatively, the effect is large, with an elasticity (measured at the means) of between 1.2 and 3.6 for these effects. We interpret the willingness of firms to pay more for equivalent workers in dense markets as evidence of an agglomeration economy in urban labor.     

System‐Spanning Values Work and Entrepreneurial Growth in Family Firms

Culture and values are key drivers of corporate entrepreneurship in early stages of family firm development, but value conflicts often arise over time that progressively inhibit their entrepreneurial efforts. How can family firms reconcile conflicting values to sustain corporate entrepreneurship over time? Our 45‐year longitudinal case study of a large global family firm shows that family business leaders’ practices of invoking and flexibly using family and business values were crucial to achieve sustained entrepreneurial behaviour and growth over an extended period of time. We theorize these efforts as system‐spanning values work enfolding through specific family, business, and temporal mechanisms. By identifying and elucidating three types of values work (i.e., rooting, revitalizing, and spreading), our study advances current understanding of the micro‐foundations underpinning the relationship between values and entrepreneurship in family firms.     

Economies of scale in the Mexican automotive sector

Recent growth of the Mexican motor vehicle industry has sparked a great deal of controversy on both sides of the U.S.-Mexico border regarding the potential effects of the North American Free Trade Agreement. One of the key factors affecting the future competitiveness of the Mexican motor vehicle industry relative to U.S. producers is whether the Mexican firms can exploit economies of scale as their output expands. This article investigates that possibility as well as the direct and cross-price elasticities of demand for the inputs by estimating translog cost functions for the Mexican motor vehicle and autoparts industries. The results are consistent with the hypotheses that substantial economies of scale remain to be exploited by the Mexican motor vehicle industry, but that the autoparts industry is operating with diseconomies of scale. However, the lack of investment in new technology and X-inefficiency on the part of the autoparts firms may have been partially responsible for the latter finding.     

Occupational Differences in the Determination of U.S. Workers'Earnings: Both the Human Capital and the Structured Labor Market Hypotheses Are Useful in Analysis

Abstract . Using the older men's panel of the National Longitudinal Surveys (n = 5,000), path analysis and occupationally stratified samples, an empirical examination is made of the relative role of the human capital hypothesis and the structured labor market hypothesis in the determination of earnings. Results suggest that both hypotheses are useful in achieving an understanding of the process. There is a primary labor market (jobs with high wages, job security and mobility on promotional ladders) with individual productivity differences largely consequent from human capital differentials (investments in education, training and experience). There is also a secondary labor market (jobs with low wages, high turnover poor working conditions) in which human capital investments are not rewarded, dominated by structural influences (e.g. unionization) that, rather than individual productivity differences, explain the process by which earnings are determined.     

Evaluating human capital: an exploratory study of management practice

The article explores the development of systems of human capital evaluation in a number of large UK firms. Human capital is a much used term in business literature, and it is widely recognised that firms need to develop mechanisms to determine the value of their employee base. An extensive human capital literature has developed in which the authors propose elaborate systems for measuring a firm's human assets. This article does not seek to offer yet another human capital model. Rather, the aim is to examine the management practices through which human capital evaluation is undertaken. The article is based on an exploratory study of such practices in 11 major firms in the UK. The findings are highlighted as follows. First, we note the preference for internal over external (static accountancy‐based) reporting. Secondly, we highlight the diverse nature of human capital evaluation systems that exist across UK business. Thirdly, we explore the relationship between practices of evaluation and the role and position of the HR function within the firm. Finally, in conclusion, we address the implications of the human capital perspective for practitioners, arguing that there is no single formula that can be applied to its evaluation. We go on to suggest that the importance of the human capital concept and its measurement may lie in its ability to re‐frame perceptions of the relationship between the contribution of employees and the competitive performance of the business.     

Managers and Wage Policies

Do individual top managers matter for wages and wage policies? Are there general differences in “style” among managers with respect to worker compensation? To shed light on these questions, we exploit a large panel dataset from Portugal that allows us to match workers, firms, and managers, and follow the movements of the latter across different firms over time. While accounting for the effect of worker and firm heterogeneity, we estimate the role of top manager fixed effects in determining wages and wage policies. The estimates suggest that (i) top managers have a significant influence on wages and wage policies; (ii) there exists different managerial “styles”; and (iii) managers’ (observable) attributes matter for worker compensation.     

Habit formation and wage determination

We analyse the implications of habit formation relating to wages in a multiperiod efficiency‐wage model. If employees have such preferences, their existence provides firms with incentives to raise wages and reduce employment over time. Greater intensity does not necessarily have the same consequences, because wage adjustments counteract the initial level impact. The firm's response additionally depends on the wage dependency of dismissal costs, because such costs make an increasing wage profile over time more attractive and mitigate the effects of greater intensity of habit formation. We further show that short‐lived productivity shocks have long‐lasting wage and employment consequences. Moreover, habit concerns by firm owners reduce wages.     

Inter‐industry Wage Differences and Individual Heterogeneity*

Two well‐established findings are apparent in the analyses of individual wage determination: cross‐section wage equations can account for less than half of the variance in earnings and there are large and persistent inter‐industry wage differentials. We explore these two empirical regularities using longitudinal data from the British Household Panel Survey (BHPS). We show that around 90% of the variation in earnings can be explained by observed and unobserved individual characteristics. However, small – but statistically significant – industry wage premia do remain, and there is also a role for a rich set of job and workplace controls.     

Competition and Conflict in the U.S. Atlantic Coast Menhaden Industry

Abstract . Fluctuations in the harvest of menhaden off the U.S. Atlantic coast, a common property resource, have caused competition and conflict among the small number of companies, two large and several small, which operate in the fishery. With no strong central management, the resource is not being exploited to the optimum and increased fishing pressure and effort bring, cyclically, a peak catch followed by contraction in catch and industry. The industry, state agencies and federal offices disagree on corrective measures. Restriction of the fall harvest off the North Carolina coast to replenish the stock would call for an extraordinary sacrifice by the North Carolina industry—costing it between $4.4 and $6.8 million to provide increases between $6.6 million and $8.4 million in gross revenues for the rest of the industry from Maine to Florida. This raises problems of equitable sharing of the burden. A bioeconomic computer model quantifies short and long run impacts that must be faced.     

Dynamics in a Mature Industry: Entry,Exit, and Growth of Big‐Box Grocery Retailers

This paper measures market dynamics within the U.S. grocery industry (defined as supermarket, supercenter, and club retailers). We find that despite being a mature industry, the grocery industry is remarkably dynamic. Each year retailers open or close roughly 7% of U.S. stores. We also find significant changes in the size of firms’ operations within markets over time. These changes in relative size are largely the result of expansion or contraction by incumbents rather than the result of firm entry or exit. In fact, entry and exit are quite rare, except by small firms. Moreover, only in small markets do new entrants gain substantial market share.     

Supply chain collaboration: Impact on collaborative advantage and firm performance

Facing uncertain environments, firms have strived to achieve greater supply chain collaboration to leverage the resources and knowledge of their suppliers and customers. The objective of the study is to uncover the nature of supply chain collaboration and explore its impact on firm performance based on a paradigm of collaborative advantage. Reliable and valid instruments of these constructs were developed through rigorous empirical analysis. Data were collected through a Web survey of U.S. manufacturing firms in various industries. The statistical methods used include confirmatory factor analysis and structural equation modeling (i.e., LISREL). The results indicate that supply chain collaboration improves collaborative advantage and indeed has a bottom-line influence on firm performance, and collaborative advantage is an intermediate variable that enables supply chain partners to achieve synergies and create superior performance. A further analysis of the moderation effect of firm size reveals that collaborative advantage completely mediates the relationship between supply chain collaboration and firm performance for small firms while it partially mediates the relationship for medium and large firms.     

Impact of China's currency valuation and labour cost on the US in a trade and exchange rate model

Ricardian dynamic general equilibrium analyses show that under free trade arrangements a low income country with lower wage cost and large endowment of labour has comparative advantage in trade. Efficiency gains from this enhance economic growth and welfare of households simultaneously in both low income and advanced economies. Theoretical predictions are empirically validated here with structural VAR analysis based on quarterly data over the time period 1995:1 to 2009:1 on China's relative wage cost, interest rate differential, real effective exchange rate (REER), relative GDP and the US current account balance. It is shown how the relative prices of labour, capital and the currency affect the economic activity in China and current account balance in the US. With free capital inflows and outflows and restrictions on labour mobility, comparative advantage of China and the trade deficit of the US will both be minimised if China allows real appreciation of the Yuan and complete adjustment in prices. Higher production cost and prices in China could reduce welfare of Chinese households and the trade imbalance of the US, while higher relative GDP of China lowers the current account balance for the US.