Debt Maturity and Tax Avoidance

This study proposes and empirically tests the argument that creditors are likely to extend debt with a shorter maturity to tax-avoiding firms so that they can frequently re-evaluate tax-related risk in debt contracting. Using effective tax rates and uncertain tax benefits as a proxy for tax avoidance, I find that tax-avoiding firms have a larger proportion of short-maturity debt compared to other firms. The empirical findings further show that firms with unsustainable tax positions and with subsidiaries in tax-haven countries are more likely to employ short-maturity debt. Collectively, the empirical findings suggest that frequent debt renegotiations increase the exposure of tax-avoiding firms to credit supply shocks, contributing to their higher demand for cash.     

Do Firms Learn from Alliance Terminations? An Empirical Examination

In this paper, drawing from the learning from failure perspective, we argue that firms that have experienced prior terminations are less likely to have their future alliance terminated. Our key argument is that prior terminations will enable firms to design better alliances and adopt more appropriate alliance management strategies to avoid future terminations. We also suggest a more nuanced view of learning by hypothesizing that termination experience will mediate the relationship between alliance formation experience and likelihood of termination. We used the case–control methodology to select a sample of 198 alliances (consisting of 99 terminations and an equal number of surviving alliances) from the global biotechnology industry, and deployed logistic regression analysis to test the hypotheses in a multivariate setting. Our analysis strongly supports both hypotheses.     

Option Contracts in Supply Chains

This paper considers optimal contracts in supply chains that consist of   n ≥ 2  firms and face a potential investment hold-up problem. We show that option contracts may solve the incentive problems. First, we provide case-study evidence for the use of option contracts in the semiconductor industry. As our second contribution, we generalize the earlier option contract approach by introducing continuous quantities. Third, we extend the setting to n parties. For long supply chains, the first-best allocation can be achieved if there is a particular order of renegotiations .     

Collusive Networks in Market‐Sharing Agreements in the Presence of an Antitrust Authority

This paper examines how the presence of an antitrust authority (AA) affects market‐sharing agreements made by firms. These agreements prevent firms from entering each other’s markets. The set of agreements defines a collusive network, which is pursued by antitrust authorities. This paper shows that in the absence of an AA, a network is stable if its alliances are large enough, and in the presence of an AA, more competitive structures can be sustained through bilateral agreements. Antitrust laws may have a procompetitive effect, as they give firms in large alliances more incentives to cut their agreements at once.     

The Transition from Strategic Technology Alliances to Mergers and Acquisitions: An Exploratory Study

This paper studies a number of research topics derived from the basic question: do interfirm alliances change into mergers and acquisitions as companies that were previously co-operating become integrated? The analysis is limited to the group of strategic technology alliances, i.e. those interfirm agreements for which joint technology development or technology sharing is part of the agreement. The paper first explores the literature that refers to the possible transition from strategic technology alliances to mergers and acquisitions. Based on this we formulate a number of hypotheses regarding the change in modes of governance and several dimensions of this process related to the international distribution of transformed alliances, their industry specificity, the size of firms, and the distribution of contractual and equity agreements. The major finding of our research is that the transformation from strategic technology alliance to merger and acquisition hardly ever takes place. This suggests that alliances and mergers and acquisitions are not part of a rather smooth continuum but they are first of all different modes of governance where one mode certainly does not lead to the other     

Internal Resource Allocation and External Alliance Activity of Diversified Firms

Prior research suggests that diversified firms are often unable to match resources to the market needs and opportunities of their divisions due to factors such as influence activities. In this research, we propose that when such internal inefficiencies arise, diversified firms may form alliances to access resources externally to support their divisions in their industries and operations. Using a sample of US firms between 1997 and 2006, we find that, on average, diversified firms form more alliances within industries that they currently operate in when compared to single business firms. The alliancing activity in related industries increases when businesses with diverse growth opportunities exist within the same firm, and it decreases with the intensity of internal control and coordination mechanisms. Our study suggests a link between internal resource allocation processes and external alliancing activity, while highlighting that alliances may play an important role in how diversified firms manage the inefficiencies that arise within their boundaries.     

Endogenous Technological Spillovers: Causes and Consequences

We develop a new approach to endogenizing technological spillovers. We analyze a game in which firms can first invest in cost-reducing R&D, then compete on the human-capital market for their knowledge-bearing employees, and finally enter the product market. If R&D employees change firms, spillovers arise. We show that technological spillovers are most likely when they increase total industry profits. We use this result to show that innovation incentives are usually stronger for endogenous than for exogenous spillovers and that endogenous spillovers may reverse the result that innovation incentives are stronger under quantity competition than under price competition. Finally, we explore the robustness of our results with respect to contractual incompleteness and the number of R&D workers.     

Do SMEs in deprived areas find it harder to access finance? Evidence from the UK Small Business Survey

Encouraging enterprise in deprived places is an important objective of the UK government policy. Evidence on the perceptions of entrepreneurs suggests that access to finance may be harder for firms in deprived areas, who may have fewer contacts, less collateral or worse access to mainstream banks. Yet there is little empirical evidence on whether this is actually the case. This paper investigates whether firms in deprived areas are more likely to find it hard to access finance than other firms, using a sample of around 3500 UK small and medium sized enterprises (SMEs). We find that firms in deprived areas are more likely to perceive access to finance is a problem. However, controlling for SME characteristics, firm growth, credit scores and selection effects, we find no evidence that they actually do find it harder to obtain. The results suggest that geographical disparities in access to finance are unimportant for the average firm.     

Corporate Entrepreneurship Activities through Strategic Alliances: A Resource‐Based Approach toward Competitive Advantage*

abstract Corporate entrepreneurship (CE) activities may significantly benefit from interfirm strategic alliances, although such benefits have not been sufficiently examined in the literature. In this paper, a resource‐based framework is presented to examine how strategic alliances offer entrepreneurial firms needed resources that may not otherwise be available. We argue that CE activities are likely to lead to resource gaps. We compare various options to fill resource gaps, and identify the pros and cons of the alliance approach. We then discuss the resource conditions that provide competitive advantage for a firm, if alliances are properly used to help implement CE. Finally, we examine how different types of alliance (e.g. joint ventures, R&D alliances, and learning alliances) facilitate various CE activities, including innovation, corporate venturing, and strategic renewal.     

A Dependence-Trust Modelm of Export Alliance Performance in Small and Medium Enterprises (SMEs)

Abstract

This paper focuses on the export performance of US environmental technology (EnviroTech) firms, which are predominantly small and medium enterprises (SMEs). We conceptualize and empirically test a model of perceived export performance contingent upon the perceived effectiveness of host country partner (HCP) alliances, dependence, and trust in the HCP. We find that US SME EnviroTech firms contemplating exports need two critical ingredients for success. First, they must forge close, cooperative, long-term strategic alliances with HCPs for mutual benefit. And second, they must pay specific attention to building trust in the HCP in order to achieve greater success with the strategic alliance and exports. Though dependence on a host country partner increases the vulnerability of the exporter and detracts from an effective alliance, trust is the antidote that can neutralize the negative impact of dependence.     

R&D Outsourcing and the Effectiveness of Intangible Investments: Is Proprietary Core Knowledge Walking out of the Door?

Intangible relationship‐specific investments can be double‐edged swords, as they facilitate not only the governance of business relationships but also undesired knowledge transfers. Building on transaction costs theory and the relational view of alliances, we analyse the effectiveness of these investments in R&D outsourcing agreements from the viewpoint of the client. We argue that, when outsourcing to business firms, the safeguards adopted by the clients to prevent spillovers may reduce the effectiveness of the supplier's specialized investments. Using original survey data from 170 European and US technology‐intensive firms, we find that the contribution of these investments to client performance decreases the more a client's core knowledge is required to perform the service, except when outsourcing to non‐profits. This suggests that as the appropriability hazards associated with outsourcing to business firms rise, the client is able to capture less value from the supplier's relationship‐specific investments.     

Why adopt now? Multiple case studies and survey studies comparing small,medium and large firms

While a number of factors have been highlighted in the innovation adoption literature, little is known about whether different factors are related to innovation adoption in differently sized firms. We used preliminary case studies of small, medium and large firms to ground our hypotheses, which were then tested using a survey of 94 firms. We found that external stakeholder pressure and non-financial readiness were related to innovation adoption in SMEs; but that for large firms, adoption was related to the opportunity to innovate. It may be that the difficulties of adopting innovations, including both the financial cost and the effort involved, are too great for SMEs to overcome unless there is either a compelling need (external pressure) or enough in-house capability (non-financial readiness). This suggests that SMEs are more likely to have innovation “pushed” onto them while large firms are more likely to “pull” innovations when they have the opportunity.     

Seeing the Need for ISO 14001

ABSTRACT    Many firms worldwide have adopted environmental management systems, and some have taken the extra step and had their systems certified for the international standard ISO 14001. While institutional pressures and market demand often motivate firms to adopt an EMS, the reasons why they certify for ISO 14001 are less clear. In this study, we interviewed members of the Canadian pulp and paper industry who had either an EMS or ISO 14001 certification to understand why they may have become ISO 14001 certified. We found that task visibility and environmental impact opacity lead to differences in a firm's approach to ISO 14001 certification in the absence of coercive pressures.     

How agglomeration affects alliance governance and innovation performance: The role of cluster size

We investigate how the size of the geographic cluster in which a firm is located influences its governance choice between equity and non-equity alliances and subsequent innovation performance. We argue that firms located in larger clusters tend to form non-equity alliances rather than equity alliances because the communication and control benefits of cluster membership, which increase with cluster size, reduce in-cluster firms' need to form equity alliances. We also claim that the effect of this preferential use of non-equity alliances on innovation becomes stronger when firms are located in larger clusters. Our arguments are supported by a panel analysis of alliances formed by US-listed semiconductor firms.     

Determinants and Consequences of a Voluntary Turn Away from IFRS to Local GAAP: Evidence from Switzerland

Abstract

We examine determinants and consequences of a turn away from International Financial Reporting Standards (IFRS) to local generally accepted accounting principles (GAAP), thereby exploiting a unique feature of the Swiss setting in which listed firms are allowed to switch from IFRS to Swiss GAAP, all else being equal. We posit that net benefits of IFRS are less for small firms with higher insider ownership. In addition, we predict that the net benefits of IFRS are not constant over time because of changes in IFRS and/or changes in firm-specific circumstances. To the extent that the switching firms’ costs of IFRS reporting outweigh its benefits, we do not predict adverse capital-market effects after a switch. Consistent with predictions, we find that (a) small firms with higher insider ownership and fewer foreign investor holdings are more likely to switch, (b) increasing reporting costs as well as changes in firm-specific circumstances affect switching propensity, (c) switching firms substantially reduce their disclosures after they switch, and (d) switching firms neither experience a decrease in liquidity nor negative announcement returns. Overall, our findings are important for standard setters and securities regulators in shaping (future) reporting requirements for listed firms.     

Tapping Deep Pockets: The Role of Resources and Social Capital on Financial Capital Acquisition by Biotechnology Firms in Biotech–Pharma Alliances

Strategic alliances with pharmaceutical firms allow small biotechnology firms to acquire needed financial capital in exchange for sharing new, cutting‐edge technologies. This study draws from aspects of resource‐based view and social capital theory to examine the factors that influence the extent of financial capital biotech firms acquire when forming an alliance with pharmaceutical firms. Using a sample of 184 alliances from the period 1995–2000, we found that alliances where the pharmaceutical firm has greater management control are associated with greater acquisition of financial capital by the biotech firm. We also found that the credibility of the pharmaceutical firm is positively associated with the extent of financial capital acquired by the biotechnology firm and that the number of patents that the biotech firm has is negatively associated to the financial capital the biotech firm receives. We discuss the implications of our findings for theory, research, and management practice.     

The two sides of proximity in industrial clusters: The trade-off between process and product innovation

According to the literature on industrial districts, the proximity of small firms operating in a similar sector can lead to several positive externalities, which enhance collective efficiency. We investigate this assumption by building a microeconomic model in which a set of small firms trades off two opposite effects. First, the closer they are to each other, the more they can share fixed costs or pool risks, and the more they can innovate on more efficient processes. Second, the closer they are, the less diverse is their cognitive environment, and the less they innovate on products. We find that there is a “bell-shaped relationship” between proximity and the firms' performance. Moreover, equilibrium configurations tend to produce too much proximity from the consumers' and the workers' point of view, but too few proximity from the firms' point of view.     

Termination and Coordination in Partnerships

It is common practice for firms to pool their expertise by forming partnerships such as joint ventures and strategic alliances. A central organization problem in such partnerships is that managers may behave noncooperatively in order to advance the interests of their parent firms. We ask whether contracts can be designed so that managers will maximize total profits. We characterize first best contracts for a variety of environments and show that efficiency imposes some restrictions on the ownership shares. In addition, we evaluate the performance of two termination contracts that are widely used in practice: the shotgun rule and price competition. We find that although these contracts do not achieve full efficiency, they both perform well. We provide insight into when each rule is more efficient.     

Strategic alliances: managing complementarity to capitalize on emerging technologies

There are many different ways for firms to enter emerging industries and many possible patterns of rivalry within such industries. Although the literature gives prominence to the pioneering role of small start-ups, the fact is that large firms have often tried to pioneer new industries, by leveraging on the achievements of their central research facilities. Some firms have sought an organizational complement to progressiveness in the R&D lab. This complement is the internal venture. However, internal ventures pose the difficulty of internal diversity. Strategic alliances, on the other hand, permit the firm to exploit new technologies in new industries with a minimum of internal diversity. They have the benefit of speedy access to technology or to market expertise, minimizing risk and financial exposure, and providing a greater focus when bringing resources to bear on innovation. Strategic alliances provide alternatives for collaboration between firms with minimal contamination of the pioneering and entrepreneurial spirit of new technology-based firms.     

Firm and Group Influences on Venture Capital Firms’ Involvement in New Ventures

abstract Drawing on expectancy, equity, and collective effort theories, we argue that the level of involvement of individual firms in multifirm alliances depends on both individual firms’ self‐focused interests and factors stemming from the firms’ membership in the alliance group. We apply our theoretical arguments to the context of venture capital syndicates and test the hypotheses using data about 160 venture capital firms (VCFs) drawn from a survey instrument and a secondary data source. The results show that individual firms’ involvement in a multifirm alliance is somewhat dominated by group effects; specifically, financial stake relative to that of the group and the reputation of the other group members significantly influence the focal firm's involvement. However, focal firms’ involvement relates negatively to their own reputation. We discuss the implications of these findings for future research. Our results imply that firms in multiparty alliances pay attention to the characteristics of their alliance partnership to calibrate their own behaviour. In our specific setting, VCF involvement in syndicates depends more on relative syndicate characteristics than on the focal firm's absolute level of investment. Further, because reputation is negatively associated with involvement, entrepreneurs and potential syndicate entrants should ensure that they fully leverage VCF reputation to achieve their goals.