Reputation Leaders,Quality Laggards: Incentive Structure in Markets with Both Private and Collective Reputations

A theoretical model is developed to illustrate the economic incentives to invest in quality in markets with a dual reputation structure: private (firm reputation) and collective (regional reputation). Numerical dynamic programming techniques are then used to simulate firms’ strategic behaviour, and competitive outcomes are compared to the optimal investment of a regional planner. Market and product characteristics inducing asymmetric and/or sub‐optimal investment strategies, potentially destabilising for the region, are investigated.     

The determinants of outward foreign direct investment: a firm‐level analysis of Indian manufacturing

This paper analyses the determinants of the overseas direct investment activity of Indian manufacturing enterprises. In general, several firm‐specific characteristics such as age, size, R&D intensity, skill intensity and export orientation are observed to be important explanatory factors in the outward foreign direct investment (O‐FDI) activity of Indian firms. The impact of age and size on O‐FDI has been observed to be non‐linear. The product differentiation activities and the productivity of firms are other useful factors in overseas production expansion in certain industries. The study reveals that the performance of these firm‐specific variables is subject to sectoral dynamics. Internationalization of production activities of Indian firms has been observed to be partly fuelled by policy liberalization during the 1990s.     

Determinants of Adoption of Protected Designation of Origin Label: Evidence from the French Brie Cheese Industry

This paper investigates empirically the determinants of agro‐food firms’ adoption of the Protected Designation of Origin (PDO) label. A unique dataset containing firm‐level cost and production information on the French Brie cheese is used, covering the period 1980–2000. The Brie cheese data are especially relevant as PDO Brie producers have coexisted with other non‐PDO producers since 1981. To evaluate the producers’ incentive to opt for PDO certification, we use a structural switching regression model which incorporates cost and production structure variables. Results show that PDO certification is less attractive the higher the costs of raw materials and the greater the size of the company. PDO Brie cheese production costs are estimated to be on average 40% higher than those for non‐PDO Brie. The PDO production process could be technically inefficient when compared with the unconstrained non‐PDO manufacturing; yet, PDO producers benefit from a price premium on their product which offsets their higher production cost.     

Foreign Direct Investment and the Performance of European Agribusiness Firms

This article analyses the relationship between foreign direct investment and the performance of European agribusiness firms. Motivated by the role of heterogeneous firms in new trade theory and using a firm‐level dataset, statistical analyses identify key differences between firms investing in foreign economies and those that do not. A binary choice model quantifies the relationship between firm characteristics and the decision to engage in foreign investment. Size and – less strongly – productivity are greater for multinationals relative to domestic firms. Furthermore, European multinationals are characterised by a larger debt to equity ratio and show lower labour and input costs.     

Energy‐saving Technology Choices by Dutch Glasshouse Firms

This paper estimates a sequence of energy‐saving technology choices by Dutch glasshouse firms. The model allows for time‐constant, firm‐specific effects and serial correlation of errors and it is estimated on panel data over the period 1991–1995. The unobserved error sequences are simulated in the model in such a way that they are consistent with the observed choices. The results suggest that positive revenue shocks encourage adoption of new technologies. The choices also exhibit firm‐specific persistency over time. An increase of the price of energy encourages the adoption of a highly efficient energy‐saving technology. The probability of investing in energy‐saving technologies also decreases with capital invested in structures (e.g. double glazing of glasshouses) and increases with capital in energy installations.     

Price Discrimination in Russian Wheat Exports: Evidence from Firm‐level Data

Russia emerged as an important wheat exporter in recent years raising the question of how this will affect international wheat markets. In particular developing countries – the main destination of Russian wheat exports – could be harmed by aggressive pricing behaviour. This article analyses the exertion of price discrimination by Russian wheat exporting firms based on Krugman's pricing‐to‐market hypothesis. We apply Knetter's panel model to a firm‐level dataset and find evidence for price‐discriminating behaviour by Russian firms in 25 out of 61 destination countries over the period 2002–2011.     

A model of entry–exit decisions and capacity choice under demand uncertainty

Many investment decisions of agribusiness firms, such as when to invest in an emerging market or whether to expand the capacity of the firm, involve irreversible investment and uncertainty about demand, cost or competition. This paper uses an option‐value model to examine the factors affecting an agribusiness firm's decision whether and how much to invest in an emerging market under demand uncertainty. Demand uncertainty and irreversibility of investment make investment less desirable than the net present value (NPV) rule indicates. The inactive firm is more reluctant to enter the market when it takes into account demand uncertainty because it preserves the opportunity of making a better investment later. The active firm is more reluctant to abandon the investment because there is an option value of keeping the operation alive. There is a greater distance between the entry and exit thresholds under the option‐value approach than under the NPV rule due to demand uncertainty. The results have implications for agribusiness decision‐making.     

The transformation of the Indian agricultural input industry: has it increased agricultural R&D?

Indian agricultural input industries have gone through a major transformation in the last 40 years. State owned firms grew during the Green Revolution and then stagnated or declined. Indian corporations that were protected from foreign competition are now exporters of agricultural tractors and pesticides. Foreign multinational corporations are rapidly increasing their role in the seed, pesticide, and tractor industries. Entry by large Indian firms and multinationals has increased competition in the input industries. Private agribusiness R&D in India grew from $23 million in 1985 to $250 million in 2009 in 2005 US dollars. This is the same time period as a transformation in the agricultural input industry, rapid growth in demand for agricultural inputs, breakthroughs in information technology and biotechnology, and changes in intellectual property rights. An econometric model was used to test whether the transformation of agricultural input industry was a major factor in the growth of R&D expenditure or not. This article analyzes a unique, firm level sales and R&D data set from the seed, pesticide, tractor, and fertilizer industries in 2000–2009. The estimated model indicates that agribusiness firms' R&D expenditures from 2000 to 2009 were positively related to variables associated with industry transformation such as firm size, ownership by multinationals, and declining industry concentration. The model also indicates that strengthening patent policy as well as growth in the size of research‐intensive industries like the seed industry contributed to the growth of agribusiness R&D in India.     

Productivity effects of CAP investment support: Evidence from Sweden using matched panel data

This paper studies the effects of investment support from the common agricultural policy on labour and total factor productivity of agricultural firms in Sweden. Detailed firm-level data on 34 300 firms are used to estimate a matched panel model that relates firm productivity to a series of factors reflecting internal and external characteristics. The recently developed Coarsened Exact Matching method is used to estimate matched control groups and handle selection bias. Findings show a positive and significant treatment effect of investment support on firm productivity, but only for small firms. The analysis also reveals that an increase in the size of the support in relation to firm income has a negative and significant impact on productivity for all firms. Differentiating between various types of investment supports indicates heterogeneous treatment effects. The policy instrument can improve its efficiency if targeted to small firms and investments that have a link to public good provision.     

Heterogeneity of Long‐run Technical Efficiency of German Dairy Farms: A Bayesian Approach*

In parametric efficiency studies, two alternative approaches exist to provide an estimate of the long‐run efficiency of firms: the dynamic stochastic frontier model and the generalised true random‐effects model. We extend the former in order to allow for heterogeneity in the long‐run technical efficiency of firms. This model is based on potential differences in firm‐specific characteristics and in firms’ inefficiency persistence. The model is applied to an unbalanced micro‐panel of German dairy farms over the period 1999 to 2009. Estimation of long‐run technical efficiency and inefficiency persistence is based on an output distance function representation of the production technology and estimated in a Bayesian framework. The results suggest that heterogeneity in long‐run technical efficiency of farms is mostly attributed to discrepancies in farm‐specific factors rather than differences in farms’ inefficiency persistence. Farm size is positively related to long‐run technical efficiency while subsidies exert a negative effect on the long‐run technical efficiency of farms. Inefficiency persistence is found to be very high, but heterogeneity in this persistence is low.     

Persistence of firm‐level profitability in the European dairy processing industry

Based on autoregressive (AR) models and Arellano‐Bond dynamic panel estimation, this article analyses profit persistence in the European dairy processing industry. The sample comprises 590 dairy processors from the following five countries: Belgium, France, Italy, Spain, and the United Kingdom. The AR models indicate that cooperatives which account for around 20% of all firms in the dairy processing sector are not primarily profit oriented. In addition, the results point toward a high level of competition as profit persistence is rather low even if cooperatives are excluded. The panel model reveals that short‐ as well as long‐run profit persistence is influenced by firm and industry characteristics.     

Off‐farm work,land tenancy contracts and investment in soil conservation measures in rural Pakistan

This study examines the impacts of participation in off‐farm work and land tenancy contracts on the intensity of investment in soil‐improving measures and farm productivity. A multivariate Tobit model that accounts for potential endogeneity between the intensity of investment and the off‐farm work and tenancy contract variables is estimated for 341 rural households in Punjab province of Pakistan. An instrumental variable approach is also used to analyse the impact of tenancy contract and off‐farm work on farm productivity. The empirical results show that participation in off‐farm work and tenure security tends to increase the intensity of investment in long‐term soil‐improving measures. We also find that increases in off‐farm work and tenure security exert significant and positive effects on farm productivity.     

Productivity and Structural Heterogeneity in the Brazilian Manufacturing Sector: Trends and Determinants

Structural heterogeneity (SH)—i.e. the existence of marked asymmetries in labour productivity among firms, along with low-productivity firms forming a large share of total employment—plays an important role in development theory. But only recently has the availability of micro data made the rigorous measuring of SH possible. This paper makes compatible different databases on manufacturing production, innovation and micro-social data for Brazil—PIA, RAIS, Secex and PINTEC—for 2000–2008 in order to measure SH and analyse its determinants. First, productivity groups are formed out of the universe of Brazilian manufacturing firms using a k-mean cluster methodology. Second, the variables affecting the productivity group to which each firm belongs are tested using an ordered probit model. The results indicate that increasing returns (captured by the firm's market share, the number of employees in innovative activities, workers' years of schooling and the accumulation of workers' experience), the technological intensity of the industry, learning by exporting and public support to R&D have driven productivity growth and reproduced SH through time, as predicted by development and evolutionary theories.     

A Capital Budgeting, Mixed Integer, Temporal Programming Model

A temporal model utilizing mixed integer programming was constructed to evaluate investment alternatives in combination with the present value method of capital budgeting. As such it is a first step beyond conventional linear and integer programming in developing relevant capital decision-making models. The procedure permits the consideration of investment in discontinuous (lumpy) inputs which also are interdependent —thus overcomes some of the principle weaknesses of other capital budgeting procedures. The model was tested with a relatively simple five-year model including land and machinery investment alternatives for a cash grain farm and proved capable of handling both the discontinuities and interrelationships. The possibilities of extending the model to include a greater range of alternatives and more complicated interrelationships such as reinvestment of intermediate cash throwoffs also was explored .     

What determines the efficiency of Australian mining companies?

We examine the firm‐specific determinants of technical efficiency in Australian mining companies using data envelopment analysis (DEA). To do so, we employ panel data sourced from individual mining companies listed on the Australian Securities Exchange (ASX) over the period 2010–2014. To ensure valid statistical inference in the presence of serial correlation between DEA efficiency scores, we apply Simar and Wilson's two‐stage bootstrap method. We find that ownership concentration, firm size, firm age, product portfolio, product diversification and growth status significantly contribute to efficiency gains. However, other firm‐specific factors, such as capacity utilisation, financial risk and overseas operations appear to have limited impact on the technical efficiency of mining firms.     

The Effect of Market Orientation on Learning,Innovativeness, and Performance in Primary Agriculture

Market awareness and innovativeness are important resources in any business environment. As customer needs and competitor responses change, performance may depend on the ability for firms to recognize and react to market shifts. Using survey data from beef farmers in Illinois, we examine the role market orientation, organizational learning, and innovativeness play on satisfaction with performance. We use a structural equation model to find that market‐oriented and innovative firms are more satisfied with their performance while controlling for structural and demographic variables. Results also show that while market‐oriented firms are more innovative, human capital resources moderate the ability to exploit innovations. We also find that an increase in experience correlates with less organizational learning.     

Imported Intermediate Inputs and Firms’ Productivity Growth: Evidence from the Food Industry

Imported goods play a central role in determining the gains from trade. Using detailed trade and firm‐level data for Italy and France, we investigate the relationship between trade integration, imported intermediate inputs and firm performance in the food industry. Our main findings show that an increase in import competition spurs firm‐level productivity growth. Furthermore, the productivity growth effect attributable to imported intermediate inputs is significantly stronger than the effect due to imported final products. In addition, we find that new imported inputs are of particular importance, especially for Italian food firms, though less so for the French firms. Finally, the productivity growth effect of trade integration tends to be asymmetric across firms: more productive firms gain more from trade integration. These stylised facts have interesting policy implications.     

Sources of Firm Performance Differences in the US Food Economy

Researchers in economics and strategy have long been interested in understanding the determinants of firm performance. We apply the relatively novel approach of hierarchical linear modelling (HLM) to a large panel of food economy firms to shed new light on the long‐standing debate about the relative importance of industry, corporate parent and business unit effects on firm profits. Our results suggest that business unit and corporate effects are more relevant than industry effects in explaining firm performance differences in the food economy. In addition, we also explore the effect of specific strategic factors on performance within each level of analysis. In particular, we find that business‐segment size, industry barriers to entry, corporate diversification, R&D intensity, capital intensity and resource availability are significant predictor variables that explain firm performance differences. Given the relatively important role of corporate effects and the positive influence of corporate strategic variables on business unit performance, our findings suggest that the environment provided by corporate parents significantly affects business unit profitability. In other words, corporate strategy does matter and thus should continue to draw attention from scholars interested in explaining profitability in the food economy.     

On the market risk of securitized timberlands

Over 10 million acres of timberlands in the United States have been securitized through Real Estate Investment Trusts (REITs) in recent years. Publicly traded timber REITs have better liquidity and tax efficiency than private ownership, but at the same time, they are exposed to higher market risk as public firms. In this study, copula modeling is employed to assess the joint distribution between daily returns of five timber REITs and a stock market index. Both constant and time-varying symmetrized Joe-Clayton copulas are estimated to evaluate the dependence of timber REITs on the equity market from 1994 to 2010. In most cases, there exist lower tail dependence for market stresses, upper tail dependence for market booms, and tail asymmetry between individual firms and the market. On average, the dependence measure becomes larger after a firm is converted into a REIT. Each firm has smaller volatility of tail dependence after the conversion, except for Plum Creek. These findings reveal that the REIT structure has introduced non-diversifiable market risk into its ownership, and thus the diversification benefit of publicly traded timber REITs in a portfolio may be limited.     

Private Crop Insurers and the Reinsurance Fund Allocation Decision

This research investigates the strategic behavior of private crop insurance firms reinsured by the USDA through the Standard Reinsurance Agreement. This arrangement allows the private firm to strategically allocate individual policies into different risk-sharing arrangements. Thus, firm earnings are conditioned upon accurately forecasting policy loss experience. Our analysis begins with models investigating the characteristics explaining the placement of policies into the assigned risk fund. Then a simulation model of the SRA is used to compare the post-SRA returns of actual firm allocations to two alternative allocation strategies based on a aggregate models and a policy-level econometric forecasting model.