The 2010 HMGs Ten Years Later: Where Do We Go From Here?

Review of Industrial Organization - In this article, which is part of the Symposium on the Tenth Anniversary of the 2010 Horizontal Merger Guidelines, we suggest a number of improvements that...     

Do Train‐or‐Pay Schemes Really Increase Training Levels?

Reacting to perceived market failures leading to under‐optimal levels of firm‐sponsored training, governments all over the world have stepped in with various policy instruments to alleviate this problem, using incentives such as regulation or co‐financed schemes directed at firms or at individuals. Despite the widespread use of these schemes, rigorous empirical evaluation of such policies is uncommon. In this paper, we provide a careful evaluation of a reform in a train‐or‐pay scheme used in Canada that exempted medium‐sized workplace from the training requirement. Our identification strategy involves comparing changes in training levels in medium‐sized workplaces, before and after the reform, to changes for both smaller and larger workplaces. We also compare relative changes in training intensities to those observed in a neighboring province in which no such changes took place. We find the policy had no impact on training levels but caused firms to change their human capital investments portfolio, substituting informal and formal training.     

Do Different Work Characteristics Have Different Distributional Impacts on Job Satisfaction? A Study of Slope Heterogeneity in Workers’ Well‐Being

This article is an empirical study of slope heterogeneity in job satisfaction. It provides evidence from the generalized ordered probit models that different job characteristics tend to have different distributional impacts on the overall job satisfaction. For instance, standard models tend to significantly underestimate the effects of monthly salary and hours worked at generating the ‘highly’ satisfied workers, while lowering the incidence of the ‘very dissatisfied’ workers. Although our results should be viewed as illustrative, we provide discussions of their potential implications for employers and on how they could help with the design of employment contracts.     

Stage‐to‐Stage Information Dependency in the NPD Process: Effective Learning or a Potential Entrapment of NPD Gates?

The new product development (NPD) process is a sequence of stages and gates. Each stage consists of NPD activities that provide NPD managers with information input about the new product project progression. Information input is used for review decisions at gates. Over the course of an NPD process, managers learn about a new product project as to ensure successful launch. The view is that a new product project is shaped by the path of NPD activities it has traveled. Because learning is assumed to take place over the course of the NPD process, stage‐to‐stage information dependency is an assumption of NPD research. A concern raised is that development activities for each NPD stage are rigorously followed by NPD managers. In other words, stage‐to‐stage information dependency may potentially trap NPD managers rather than create effective learning from end to end of the development process. The purpose of this paper is to explore the assumption of stage‐to‐stage information dependency in NPD. The investigated research questions are whether the selection of NPD activities is linked between stages and whether these information dependencies strengthen NPD gate decisions. For the information dependencies identified in the study, the innovation experience characteristics of NPD managers pursuing them and the influence of information dependencies on NPD gate decisions are analyzed so as to provide insights for a discussion of information dependency versus information independency in the NPD process. The applied research method is an experiential simulation of NPD gate decision‐making—NPDGATES. One hundred thirty‐one NPD managers from international product development strategic business units (SBUs) situated in Denmark participated in the study. Logistic regressions were conducted as the basis for the calculation of stage‐to‐stage information dependency probabilities. Based on the study findings, the assumption about information dependency in the NPD process held by NPD research is found to be flawed. End‐to‐end information paths in the NPD process are rare. Further, market condition changes are found to significantly influence the stage‐to‐stage information dependencies demonstrated by NPD managers. It seems that competition becomes a reassurance of NPD efforts. Also, the results show that NPD experience creates inflexibility in relation to the selection of NPD activities. The need for strict process management is strong among experienced NPD managers. In relation to NPD gates, the results show that information dependencies increase priority given to financial decision criteria at gates and lower priority given to customer and market decision criteria. Overall, stage‐to‐stage information dependency seems to create inflexibility that hinders successful NPD process implementation.     

Fixed Come Hell or High Water? Selection and Prepayment of Fixed‐Rate Mortgages Outside the United States

We examine the decision to prepay a fixed‐rate mortgage in the United Kingdom, Canada, Ireland, Australia and New Zealand. These countries are characterized by having substantial fees which are associated with breaking a fixed‐rate mortgage. We develop a model which allows for fluctuations both in banks’ wholesale rates and credit spreads. We find that households can achieve economically significant benefits both from following an optimal prepayment strategy contingent on the break fee used by their bank and also by selection of fixed interest rate term and (where available) break fee structure.     

Do VCs matter? the importance of owners on performance variance in start‐up firms

Adding to the corporate effect literature, we study the effect of owners on firm performance in a new context, that of venture capital firms (VCs) and the start‐up firms in which they invest. After discussing the effect that VC ownership can have on start‐ups, we estimate that start‐up‐specific, owner (VC), and year effects account for significant variance in performance (26.3 percent, 11.2 percent and 3.7 percent, respectively). The effects of industry and investment stage are not statistically different from zero. We also provide an analysis that separates the owner effect into two components: a selection component—which impacts investment—and a management component—which explains significant variance in performance. By examining the owner effect in a different institutionalized form of governance—that of the start‐up and its relationship to VC owners—our study also contributes to an understanding of the ‘ownership’ effect in the strategy literature more generally. Copyright © 2008 John Wiley & Sons, Ltd.     

Mergers with Differentiated Products: Where Do We Stand?

Review of Industrial Organization - On the occasion of the 10th anniversary of the 2010 U.S. Horizontal Merger Guidelines, this article provides an overview of the state of economic analysis of...     

Do Multi‐Plant Firms Reduce Misallocation? Evidence from Canadian Manufacturing

Using Canadian plant‐level data, this paper shows that, depending on the industry, the differences in the average plant‐level productivity and cross‐plant allocation of resources between multi‐plant and single‐plant firms account for 1 to 15 per cent of the industry‐level TFP. A large part of this contribution stems from more efficient cross‐plant allocation of resources, measured by the covariance between plant size and productivity, in the pool of plants in multi‐plant firms compared to the pool of plants in single‐plant firms. There is less dispersion in the marginal products of the inputs, and thus less misallocation, in industries in which multi‐plant firms account for a larger share of output. The patterns found in the cross‐plant distribution of productivity and size are also consistent with better allocative efficiency among plants in multi‐plant firms than among plants in single‐plant firms.     

‘Shopping for Voice’: Do Pre‐Existing Non‐Union Representation Plans Matter When Employees Unionize?

The transition to unionization in three workplaces with pre‐existing non‐union employee representation plans (NERPs) is contrasted to three matched sites, which had only individual representation. Pre‐existing collective voice arrangements had substantial effects on the process and outcomes of unionization. While the individual representation sites presented a conventional process of mobilization and attachment to the union, the NERP sites revealed a more equivocal outcome. The union was used in an instrumental manner to increase NERP power and to achieve worker demands already articulated by the NERP. NERP leaders became union leaders. There remained significant attachment to the NERP and a reluctance to fully embrace unionization.     

Do Low‐Price Guarantees Guarantee Low Prices? Evidence from Competition between Amazon and Big‐Box Stores

It has long been understood in theory that price‐match guarantees can be anticompetitive, but to date, scant empirical evidence is available outside of some narrow markets. This paper broadens the scope of empirical analysis, studying a wide range of products sold on a national online market. Using an algorithm that extracts data from charts, I obtain a novel source of data from online price trackers. I examine prices of goods sold on Amazon before and after two big‐box stores (Target and Best Buy) announced a guarantee to match Amazon's prices. Employing both difference‐in‐difference and regression‐discontinuity approaches, I robustly estimate a positive causal effect of six percentage points. The effect was heterogeneous, with larger price increases for initially lower‐priced items. My results support anticompetitive theories which predict price increases for Amazon, a firm that did not adopt the guarantee, and are consistent with plausible mechanisms for the heterogeneous impact.     

Do non‐competition agreements lead firms to pursue risky R&D projects?

This study investigates the impact of non‐competition agreements on the type of R&D activity undertaken by companies. Non‐competition agreements, by reducing outbound mobility and knowledge leakages to competitors, make high‐risk R&D projects relatively more valuable than low‐risk ones. Thus, they induce companies to choose riskier R&D projects, such that corporate inventions are more likely to lie in the tails of the inventions' value distribution (as breakthroughs or failures) and be in novel technological areas. This study uses data about U.S. patent applications from 1990 to 2000 and considers longitudinal variation in the enforcement of non‐compete clauses. The results indicate that in states with stricter enforcement, companies undertake riskier R&D paths than in states that do not enforce non‐compete agreements as strictly. Copyright © 2013 John Wiley & Sons, Ltd.     

Do Employee‐Owned Firms Produce More Positive Employee Behavioural Outcomes? If Not Why Not? A British‐Spanish Comparative Analysis

Whether ‘employee ownership’ takes the form of worker cooperatives, co‐ownership or simply employee share ownership plans, there are normally high expectations that a range of positive outcomes will result. Yet many empirically based studies tend to find a much more complex picture. An influential segment of that empirical literature has posited the need for a number of mutually reinforcing workforce management components to be in place alongside co‐ownership. Drawing on detailed case research in two large and successful co‐owned retailers in Spain and Britain this paper examines the role of these wider elements supporting employee ownership. We find that employee ownership can be linked to higher productivity and lower employee turnover, while at the same time being linked to higher absenteeism and mixed effects on attitudes. Expectations held by managers and employees are higher; these expectations are not always fully met. The role of managers was also found to be crucial.     

Pro‐Social or Pro‐Management? A Critique of the Conception of Employee Voice as a Pro‐Social Behaviour within Organizational Behaviour

For many years, the employment relations (ER) literature took the perspective that employee voice via trade unions could channel discontent and reduce exit, thereby improving productivity. In organizational behaviour (OB) research voice has also emerged as an important concept, and a focus of this research has been to understand the antecedents of the decision of employees to engage or not engage in voice. In OB research, however, voice is not viewed as it is in ER as a mechanism to provide collective representation of employee interests. Rather, it is seen as an expression of the desire and choice of individual workers to communicate information and ideas to management for the benefit of the organization. This article offers a critique of the OB conception of voice, and in particular highlights the limitations of its view of voice as a pro‐social behaviour. We argue that the OB conception of voice is at best partial because its definition of voice as an activity that benefits the organization leaves no room for considering voice as a means of challenging management, or indeed simply as being a vehicle for employee self‐determination.     

Do Broad‐based Employee Ownership,Profit Sharing and Stock Options Help the Best Firms Do Even Better?

This article analyses the linkages among group incentive methods of compensation (broad‐based employee ownership, profit sharing and stock options), labour practices, worker assessments of workplace culture, turnover and firm performance in firms that applied to the ‘100 Best Companies to Work For in America’ competition from 2005 to 2007. Although employers with good labour practices self‐select into the 100 Best Companies firms sample, which should bias the analysis against finding strong associations among modes of compensation, labour policies and outcomes, we find that employees in the firms that use group incentive pay more extensively participate more in decisions, have greater information sharing, trust supervisors more and report a more positive workplace culture than in other companies. The combination of group incentive pay with policies that empower employees and create a positive workplace culture reduces voluntary turnover and increases employee intent to stay and raises return on equity.     

Why Do Sellers Hold Out in the Housing Market? An Option‐Based Explanation

In the residential housing market, home owners are reluctant to sell in a declining market. We build a model which focuses on the embedded call option associated with home ownership that allows owners to delay the (irreversible) sale. When prices are low, the (opportunity) cost of a sale, i.e., a higher implied gain from a future sale, likely exceeds its immediate trade benefit and an owner is better off waiting for market conditions to improve. The model also highlights the importance of supply conditions: a more constrained supply is associated with a longer delay. Using state‐level residential housing data, we find evidence consistent with the model. Transaction volume is increasing (decreasing) in the rental growth rate (volatility) in the cross section; their effects are amplified in areas with low supply elasticities, and in times with low market prices. Overall, this paper provides a rational explanation for delayed trading decisions in the housing market.     

Do Tenants Capture the Benefits from the Low‐Income Housing Tax Credit Program?

This article compares the rent savings accrued by recipient households over the life cycle of Low‐Income Housing Tax Credit (LIHTC) projects to their allocated tax credits. A simple two‐stage empirical procedure is developed and implemented for a selected medium‐sized metropolitan statistical area. Using hedonic pricing parameters estimated in the first stage, LIHTC ceiling rents are compared to predicted market rents. The findings indicate rent savings constitute a relatively small fraction of the programs costs, suggesting developers and investors may capture some of the program's benefits. As this finding characterizes only one potential source of benefits of the LIHTC program, a brief discussion of other potential benefits to low‐income households supplements the analysis.     

Do analysts add value when they most can? Evidence from corporate spin‐offs

This article investigates how securities analysts help investors understand the value of diversification. By studying the research that analysts produce about companies that have announced corporate spin‐offs, we gain unique insights into how analysts portray diversified firms to the investment community. We find that while analysts' research about these companies is associated with improved forecast accuracy, the value of their research about the spun‐off subsidiaries is more limited. For both diversified firms and their spun‐off subsidiaries, analysts' research is more valuable when information asymmetry between the management of these entities and investors is higher. These findings contribute to the corporate strategy literature by shedding light on the roots of the diversification discount and by showing how analysts' research enables investors to overcome asymmetric information. Copyright © 2013 John Wiley & Sons, Ltd.     

Status in a strange land? Context‐dependent value of status in cross‐border venture capital

Research Summary: While recent literature has depicted status as an intangible asset that is firm‐specific and mobile, we have a limited understanding of whether status confers advantage in a way similar to other intangible assets. This study examines the macro‐structural contingencies that influence the marginal value of firm status as firms expand to new markets. Building on the literatures on status and social approval assets, as well as globalization and international management, we hypothesize that two conditions influence how valuable home‐country status will be in a given host country: the interconnectedness of the home and host countries, and their relative position in the global network. We test our hypotheses in a study of 187 venture capital (VC)‐backed biotechnology ventures in 19 countries between 1990 and 2006. Managerial Summary: Startups typically prefer high‐status VC investors for endorsements, network connections, and resources. One might expect the benefits of high‐status VCs to be even higher when they invest across borders. Yet, we show that status is ingrained in context, and that the performance advantage of partnering with high‐status cross‐border VC firms depends on the relationship between the country of the VC firm and that of the startup. We find that, when the VC industries in the two countries are more connected, the positive effect of cross‐border VC firm status on successful exit is amplified. However, when the VC firm comes from a more central country than the startup, the benefits of VC firm status are less pronounced and vice versa.     

How does CEO tenure matter? The mediating role of firm‐employee and firm‐customer relationships

While the direct influence of CEO tenure on firm performance has been examined in the strategy literature, the underlying channels of influence have remained largely unexplored. This article draws upon the career seasons paradigm, learning perspectives, and marketing literature to examine whether firm‐employee and firm‐customer relationships are the pathways through which CEO tenure influences firm performance. Results from the analysis of a large data set reveal that: (1) CEO tenure has a positive and linear association with firm‐employee relationship strength but an inverted U‐shaped association with firm‐customer relationship strength; (2) industry uncertainty intensifies these associations; and (3) firm‐employee and firm‐customer relationship strength mediate the effects of CEO tenure on firm performance. These findings have implications for a more balanced and nuanced view of CEO tenure. Copyright © 2013 John Wiley & Sons, Ltd.