The Effect of Import Competition on Firm Productivity and Innovation: Does the Distance to Technology Frontier Matter?

How does foreign competition affect growth and innovation in China? Using our unique measures of proximity of Chinese firms and industries to the world technology frontier, we find that despite vast sectoral heterogeneity, Chinese manufacturing industries have undergone rapid technological upgrading over the period of 2000–06. The distance to the world production frontier of firms and industries plays an important role in shaping the nexus between the competition pressure from foreign imports and domestic firms' growth and innovation behaviour. Our results support the theoretical predictions of Aghion et al. (2005, The Quarterly Journal of Economics, pp. 701–728) that import competition stimulates the domestic firms' productivity growth and R&D expenditure if firms and their industries are close to the world frontier, but discourages such incentives for laggard firms and industries. The two forces highlighted by the model operate for imports under the ordinary‐trade regime, for collective and private firms, and for imports originated from high‐income countries. Our findings are robust after controlling the influence of foreign investment, the reverse causality of regressors and the short‐term business cycle fluctuations.     

Inter-firm cooperation and the problem of free riding behavior: an empirical study of voluntary retail chains

This article explores the problem of free riding behavior in voluntary retail chains. Based on agency theory and group theory, the authors analyze the antecedents to free riding behavior in voluntary retail chains and examine whether it is possible to handle the problem of free riding behavior by the use of monitoring arrangements. Hypotheses are developed and tested on a sample of 70 voluntary chains. The empirical findings show that both the size of the chain (the number of retailers being members of the chain) and the level of goal conflict within the chain are associated with free riding problems. It is also demonstrated that the implementation of monitoring arrangements is effective in lowering free riding behavior in voluntary retail chains.     

The dark side of solidarity: social norms and social relations in the aftermath of strikes

This paper studies how employees anticipate change in social relations after a strike in their organisation. We hypothesise that two group norms affect employees' fear that a strike deteriorates the social relations with their colleagues. We distinguish between two different norms associated with a collective action problem such as a strike. A ‘solidarity norm’ prescribes that workers should participate in collective protest when called for. A ‘free rider punishment norm’ describes whether and how violators of the solidarity norm should be treated. While the former itself theoretically does not impact intra‐group social relations, the latter one does. We test our hypotheses on a data set of 468 Dutch union members. Adherence to the free rider punishment norm significantly increases a fear for deterioration of social relations with colleagues after a strike, while adherence to the solidarity norm does not. We also find a moderating effect of expected proportion of strikers. The results are discussed with reference to industrial relations theory and mobilisation theory, further probing into mechanisms that relate social norms to the (anticipated) costs of participation and the quality of social relations after a strike.     

Tournament Compensation Systems,Employee Heterogeneity,and Firm Performance

Tournament compensation systems are widely used in practice and have been extensively analyzed theoretically. However, one major problem has hardly been studied in a company context so far: Although it is theoretically well understood that tournament compensation systems are only effective when employees are homogeneous, it has rarely been analyzed what companies can do when they are confronted with employee heterogeneity. In our article, we derive hypotheses on the performance effects of tournament compensation systems in a context of employee heterogeneity based on tournament and expectancy theory. Using personnel records from incentive travel contests, we are able to show that performance is lower in a situation with employee heterogeneity, but that in heterogeneous tournaments, incentives may still work for a subgroup of employees whom we term the “threshold group.” In addition, we also show how companies manage to design the information disclosure systems necessary to install effective “handicapping” or “league‐building” systems in order to increase the effort‐performance expectancy.     

Why does eco‐innovation differ in service firms? Some insights from Spain

Although environmental innovation studies have traditionally focused on manufacturing firms, the distinctive features of eco‐innovation activities carried out by service firms require special attention. Using the Spanish Commumity Innovation Survey (CIS), this paper determines which are the main drivers of undertaking eco‐innovation and investigates the similarities and differences between service and manufacturing firms within the five sub‐groups of services (supplier dominated, scale intensive physical networks, scale intensive information networks, science‐based, and others). The results confirm that the main eco‐innovation triggers are similar—technological push factor orientation (internal R&D and persistence) and firm size—while the impact of market pull factors and public environmental legislation differ within the services sub‐groups. In addition, we find a high degree of heterogeneity within service firms. In contrast to traditional service firms, those in the groups involving R&D activities, information networks, and scale‐intensive physical networks exhibit intensive eco‐innovation performance and show a high level of green indicators.     

The dynamics of within-group and between-group interaction

The article strengthens and provides a dynamic extension of the theory on collective rent seeking and private provision of a public good. Each individual agent within each group chooses in continuous or discrete time a continuous or discrete effort level. The combined effort within each group provides within-group public goods which are used as an input in the between-group n-group competition for an external prize. Intergroup mobility and intergroup warfare are allowed for. Each group and each individual agent within each group get a fraction of the prize based on a linear combination of equity and relative effort. A model/algorithm is developed generating analytical results and simulations illustrating how the interaction within and between groups proceeds through time.     

Delegation in Multi‐Establishment Firms: Evidence from I.T. Purchasing

Recent contributions to a growing theory literature have focused on the tradeoff between adaptation and coordination in determining delegation within firms. Empirical evidence, however, is limited. Using establishment‐level data on decision rights over information technology investments, I find that a high net value of adaptation is strongly associated with delegation, as are local information advantages and firm‐wide diversification; in contrast, a high net value of within‐firm coordination is correlated with centralization. Variation across establishments within firms is widespread: most firms are neither fully centralized nor fully decentralized. Delegation patterns are largely consistent with standard team‐theory predictions; however, certain findings, such as a negative correlation between delegation and firm size, call for a consideration of agency costs as well.     

Equilibrium Principal‐Agent Contracts: Competition and R&D Incentives

We analyze competition between firms engaged in R&D activities and market competition to study the choice of the incentive contracts for managers with hidden productivity. Oligopolistic screening requires extra effort/investment from the most productive managers: under additional assumptions on the hazard rate of the distribution of types we obtain no distortion in the middle rather than at the top. The equilibrium contracts are characterized by effort differentials between (any) two types always increasing with the number of firms, suggesting a positive relation between competition and high‐powered incentives. An inverted U curve between competition and absolute investments can emerge for the most productive managers.     

Civil conflict and secessions

This paper studies secessions as the outcome of conflict between regions. We study under what conditions regions will divert costly resources to fight each other over political borders. We derive the probability of secession and the amount of resources diverted to separatist conflict, and show how those variables depend on factors such as heterogeneity costs, economies of scale, relative size, and external threats. We also model civil conflict over types of government, after borders have been determined, and study how this political conflict affects the incentives to secede. This paper has been written in memory of Herschel Grossman, and owes much to his inspiration. I am grateful to Michelle Garfinkel and David Weil, who co-organized a conference in Herschel’s honor at Brown in April 2006, for their encouragement. I thank Michelle Garfinkel and an anonymous referee for useful comments and suggestions. The usual disclaimer applies.     

Exploring the Political Side of Board Involvement in Strategy: A Study of Mixed‐Ownership Institutions*

abstract This article reports on a comparative study of strategic decision‐making and board functioning in nine firms. Findings indicate that the heterogeneity of interests represented on the board, members' possession of relevant knowledge, and the presence of ex‐ante conflict resolution mechanisms combine in shaping if and how board members engage in strategy‐related activities and how strategic decisions are taken. Findings extend current understandings about the strategic functions of the board (monitoring, advice, and resource‐dependence), suggesting how, under certain conditions, boards may act as negotiation forums where directors search for a reconciliation between diverging shareholders' interests and views.     

Determinants of Public Service Broadcasting Size

We investigate the issue of whose interest is reflected in selecting the size of public service broadcasting (PSB). We examine two different approaches: (1) the public interest theory, where PSB size is selected to maximise citizens’ welfare and (2) the public choice theory, where PSB size is determined by self-interested politicians. Based on the foundations of these two views, we derive theoretical predictions about how PSB size changes with an increase in political competition. Then, we test these predictions using panel data from OECD countries over the period 1993–2010, and we find that the degree of electoral competition is negatively associated with PSB size. We conclude that PSB size does not reflect the public interest theory, but rather upholds the public choice theory, especially the politicians’ rent-seeking motive.     

In the eye of the beholder: Employee sexual orientation,perceived supervisory support for life beyond work and job satisfaction

We adopt congruence theory to compare perceptions of lesbian, gay and bisexual (LGB) and heterosexual employees between perceived supervisory support on life beyond work (LBW) and job satisfaction and the effect of life‐to‐work conflict (LWC). Using the 2011 UK WERS data and applying multilevel modelling, we find no incongruence between the two groups of employees on job satisfaction. We find a significant perceptual incongruence in the relation between supervisory support on LBW and job satisfaction. While the relation was positive for both groups, it was stronger for heterosexual than LGB employees. We also find significant perceptual incongruence when we add LWC. Specifically, as LWC increases, the positive relation between supervisory support on LBW and job satisfaction becomes stronger for LGB than heterosexual employees. This last finding may be the most interesting as it may place the concept of identity‐based conflict primarily in the life‐to‐work domain of LGB employees.     

Are Related‐Party Sales Value‐Adding or Value‐Destroying? Evidence from China

Prior literature provides mixed and relatively little evidence on the economic consequences of related‐party transactions. We examine a hitherto underexplored issue of whether transactions among firms within the same business group increase or reduce firm value. Using a large sample of Chinese listed firms, we find that related‐party sales increase firm value. However, this value enhancement disappears for firms with (i) large percentage of parent directors, (ii) high government ownership, or (iii) tax avoidance incentives that often couple with management's rent extraction activities. Although we find that intragroup sales improve firm value in general, we also find that corporate insiders use intragroup sales to deprive value from minority shareholders. Overall, our findings highlight the interplay between ownership structure and tax avoidance incentives in determining the economic consequences of related‐party transactions.     

Financial reporting fraud and CEO pay-performance incentives

Because prior studies find mixed results on the relation between CEOs’ pay performance incentives and a firm’s likelihood of financial reporting fraud, we restudy their relationship using innovative research methods. First, we concentrate on incentives from granting options rather than equity-based incentives. Second, we emphasize vested options, disregarding unvested option holdings, and take the logarithm transformation of option incentives. Third, we analyse the impact of option incentives on future financial reporting irregularities. Using this innovative approach as well as a full sample and a matched sample, we find that an increase in executives’ option incentives raises the likelihood of financial reporting violations. Moreover, the effect of option incentives on financial reporting fraud is moderated by auditor effort. In addition, we find that another proxy for the measurement of executives’ option incentives, namely, the number of vested options by executives, is highly correlated with the CEO’s vested stock option sensitivity.     

BANK COMPETITION AND FINANCIAL STABILITY: MUCH ADO ABOUT NOTHING?

The theoretical literature gives conflicting predictions on how bank competition should affect financial stability, and dozens of researchers have attempted to evaluate the relationship empirically. We collect 598 estimates of the competition‐stability nexus reported in 31 studies and analyse the literature using meta‐analysis methods. We control for 35 aspects of study design and employ Bayesian model averaging to tackle the resulting model uncertainty. Our findings suggest that the definition of financial stability and bank competition used by researchers influences their results in a systematic way. The choice of data, estimation methodology, and control variables also affects the reported coefficient. We find evidence for moderate publication bias. Taken together, the estimates reported in the literature suggest little interplay between competition and stability, even when corrected for publication bias and potential misspecifications.     

Coping with the Tragedy of the Commons: Game Structure and Design of Rules

Abstract.  The paper provides an assessment of some recent results of the large amount of New Institutional Economics analyses investigating a common-pool resource setting, with a specific focus on game theory models. Most of the studies have used a noncooperative approach in order to explain how under-provision for the resource or its over-use – the so-called Tragedy of the Commons – can be avoided, within given management rules. They show how the characteristics of the game (payoff matrix, repetition) or of the users (group size, wealth, heterogeneity and moral norms) may give incentives for the latter to play in a way that benefits all users. By contrast, much fewer articles have used a formalized approach to assess the possibility for players to design new rules to overcome the initial Tragedy of the Commons. The article ends with some proposals of directions for future research.     

How Strategic Groups Act Competitively Within and Across Markets

Our study analyzes rivalry within and across markets of size‐defined strategic groups in the banking industry. We consider that, owing to group‐level effects, like efficiency and funding, the degree of rivalry of size‐defined strategic groups depends on whether the competitor is acting in the same or in a different market and whether the competing firms are within the same strategic group or in different groups. We estimate the effect of group interactions within and across loans and deposits markets on firm performance in the Spanish banking industry. We find evidences of rivalry as described in our hypotheses. Copyright © 2017 John Wiley & Sons, Ltd.     

High‐commitment HR practices,employee effort,and firm performance: Investigating the effects of HR practices across employee groups within professional services firms

In this study, the authors examine the relationship between high‐commitment HR practices and firm performance in professional services firms through the mediator of employee effort. In addition, they contribute to the debate in the field of strategic HRM on whether high‐commitment HR practices should be used across all employee groups within a firm. Their study's results show that high‐commitment HR practices positively relate to firm performance through employee effort for two employee groups within professional services firms. Further, they found that the relationship between effort and performance is contingent on the value of the employee group to firm competitive advantage, suggesting that companies may only want to expend the effort and resources on building a high‐commitment HR system for employee groups that are clearly tied to creating firm competitive advantage. © 2011 Wiley Periodicals, Inc.     

Multimarket Competition,Mobility Barriers,and Firm Performance

This study develops and tests a theoretical framework which suggests interactive dynamics, with strong performance implications, between the height of mobility barriers surrounding strategic groups and the extent of within‐group multimarket competition. Empirical analysis drawn from a longitudinal sample of pharmaceutical firms indicates that within‐group multimarket competition has strong positive effect on firm performance for strategic groups surrounded by high mobility barriers. As we move lower on the mobility barriers hierarchy, this effect decreases, becoming non‐significant for groups surrounded by moderate mobility barriers and negative for groups surrounded by low mobility barriers. These findings highlight the conditions under which mobility barriers and multimarket competition have significant performance implications. In addition, our results suggest that mobility barriers and multimarket competition are not substitutive but complementary devices promoting mutual coordination within strategic groups. Finally, our findings point to the need to consider multimarket contacts as an aggregate property of strategic groups.     

How to Regulate Heterogeneous Hospitals?

In many areas of health care financing, there is controversy over the sources of cost variability and about the respective roles of inefficiency versus legitimate heterogeneity. This paper proposes a payment system that creates incentives to increase hospital efficiency when hospitals are heterogeneous, without reducing the quality of care. We consider an extension of Shleifer's yardstick competition model and apply an econometric approach to identify and evaluate observable and unobservable sources of cost heterogeneity. Moral hazard can be seen as the result of two components: long‐term moral hazard (hospital management can be permanently inefficient) and transitory moral hazard. The latter is linked to the manager's transitory cost‐reducing effort. For instance, he or she can be more or less rigorous each year when bargaining prices for supplies delivered to the hospital by outside firms. The use of a three‐dimensional nested database makes it possible to identify transitory moral hazard and to estimate its effect on hospital cost variability. Econometric estimates are performed on a sample of 7,314 stays for acute myocardial infarction observed in 36 French public hospitals over the period 1994–1997. We obtain two alternative payment systems. The first takes all unobservable hospital heterogeneity into account, provided that it is time invariant, whereas the second ignores unobservable heterogeneity. Simulations show that substantial budget savings—at least 20%—can be expected from the implementation of such payment rules. The first method of payment has the great advantage of reimbursing high‐quality care. It leads to substantial potential savings because it provides incentives to reduce costs linked to transitory moral hazard, whose influence on cost variability is far from negligible. This payment rule could be extended to other areas of health care financing, such as Adjusted Average Per Capita Cost to calculate Medicare Managed Care reimbursements in the United States.