Assessing the effects of mergers and acquisitions on firm performance,plant productivity,and workers: newl evidence from matched employer‐employee data

Empirical studies of mergers and acquisitions typically focus on firm‐level financial performance. In contrast, we use human capital theory to model these events as transactions that simultaneously have cross‐level, real effects on workers, plants, and firms. Our empirical analysis is based on longitudinal, linked employer‐employee data for virtually all Swedish manufacturing firms and employees. We find that mergers and acquisitions enhance plant productivity, although they also result in the downsizing of establishments and firms. Firm performance does not decline in the aftermath of these ownership changes. We conclude that such transactions constitute a mechanism for improving the sorting and matching of plants and workers to more efficient uses. Copyright © 2010 John Wiley & Sons, Ltd.     

Entry into new niches: the effects of firm age and the expansion of technological capabilities on innovative output and impact

We provide evidence that young firms systematically differ from older firms in their innovative output when they enter ‘new to the firm’ technological niches. We analyze data from 128 biotechnology firms since their inception and track these firms over time. Our analyses reveal that the organizational age at which the firm branches into new technological niches significantly influences its innovative activity. We refine the focus of the extant literature by separately examining the effects of branching on the quantity of innovative output and the impact that this output has on the technology domain. Subsequent to branching into new niches, we find that older firms have a higher quantity of output than their younger counterparts, whereas young firms tend to outpace their older rivals with higher impact. We discuss the implications of these findings for the literature on dynamic capabilities and entrepreneurship. Copyright © 2011 John Wiley & Sons, Ltd.     

Are Losers Picked? An Empirical Analysis of Capacity Divestment and Production Reallocation in the Japanese Cement Industry

As demand in an industry shrinks, pressure for the reduction of capacity arises. A key issue is whether plants which, from an efficiency perspective, should reduce output in fact do so. Focusing on the Japanese cement industry, we examine whether less efficient plants reduce capacity. We find that less efficient firms are not more likely to reduce capacity than more efficient firms; however, less efficient plants within a multi‐plant firm are more likely to reduce capacity than more efficient plants. In addition, we find that this divestment pattern has led to a substantial drop in industry‐wide allocative efficiency.     

Machine and labor flexibility in manufacturing networks

Many industrial companies today operate under strict employment legislation and work agreements. Since flexible capacity has been widely recognized as an important hedge against uncertain demand, there exist strong efforts to introduce more flexible workforce models. In this paper, we investigate the benefits of such labor flexibility and its interplay with machine flexibility from a network capacity investment perspective.We consider a firm that has to invest simultaneously in labor and machine capacity under uncertain demand and a given network configuration while anticipating the deployment of labor flexibility after demand has been realized. Instruments of labor flexibility range from temporary employment to personnel transfers between plants. The underlying decision problem is formulated as a two-stage stochastic program with recourse.Based on numerical studies and the analysis of a stylized model, we demonstrate the impact of labor flexibility on the optimal levels of machine and labor capacity. We compare the benefits obtained by personnel transfers with those of temporary workers and find that temporary employment always decreases the number of permanent workers, while personnel transfers may even allow for a larger workforce. Our results further indicate that personnel transfers are more effective in larger manufacturing networks although these benefits are decreasing when most plants in the network are capable of producing more than one product (machine flexibility). Finally, we present evidence for the efficiency of a combined usage of personnel transfers and temporary workers.     

Transitions into Permanent Employment in Spain: An Empirical Analysis for Young Workers

This article analyses the transitions into permanent employment of a sample of young temporary employees in Spain for the period 1996–2003. For this purpose, we apply multiple‐spell duration techniques to a longitudinal dataset of temporary workers obtained from Social Security registers. Our main findings are as follows. First, the transitions from a temporary contract into unemployment and into another temporary contract are very high when compared with transitions into permanent employment. Second, the entry into permanent employment — although slightly increasing with tenure at the temporary contract — is very low; the only exception is that of semi‐skilled and unskilled individuals, who are particularly likely to enter into permanent employment at the 24th and the 36th month of tenure (respectively). Third, we find that there exists a substantial proportion of workers with unobservable characteristics that make them show high exit rates from temporary employment and, at the same time, a rapid exit from unemployment — while the remaining individuals exit from unemployment more slowly, particularly those who are receiving unemployment benefits.     

External Churning and Internal Flexibility: Evidence on the Functional Flexibility and Core-Periphery Hypotheses

Functionally flexible systems for organizing work may reduce job instability and insecurity by reducing employers' reliance on job cuts or contingent work to respond to changes in their environments. Related arguments hypothesize that contingent work allows firms to adjust labor while "buffering" their core of permanent workers from job instability. We find evidence that internally flexible work systems are associated with reduced involuntary and voluntary turnover in manufacturing but that contingent work and involuntary turnover of the permanent workforce are positively related regardless of sector, in contrast to the prediction of the core-periphery hypothesis.     

Industry learning environments and the heterogeneity of firm performance

This paper characterizes interindustry heterogeneity in rates of learning‐by‐doing, and examines how industry learning rates are connected with firm performance. Using plant‐level data from the U.S. manufacturing sector, we measure the industry learning rate as the coefficient on cumulative output in a production function. We find that learning rates vary considerably among industries and are higher in industries with greater R&D, advertising, and capital intensity. More importantly, we find that higher rates of learning are associated with wider dispersion of Tobin's q and profitability among firms in the industry. These findings suggest that learning intensity represents an important characteristic of the industry environment that affects the range of firm performance. Copyright © 2009 John Wiley & Sons, Ltd.     

Permanent Jobs,Employment Protection,and Job Content

Using Programme for the International Assessment of Adult Competencies (PIAAC) data for twenty‐one countries, I study the impact of employment protection laws (EPL) on job content. I find that workers’ use of influence, reading, writing, planning, numeracy and information and computer technology skills, and their task discretion, were higher in permanent than in temporary jobs. Moreover, stricter EPL on permanent jobs raised the gap in job content for influence, reading, writing, and planning skills used in permanent jobs versus temporary jobs.     

Are family‐friendly workplace practices a valuable firm resource?

We study the determinants and consequences of family‐friendly workplace practices (FFWP) using a sample of over 450 manufacturing firms in Germany, France, U.K., and U.S. We find a positive correlation between firm productivity and FFWP. This association disappears, however, once we control for a measure of the quality of management practices. We further find that firms with a higher proportion of female managers and more skilled workers, as well as well‐managed firms, tend to implement more FFWP. Conversely, a firm's environment does not have a significant impact on the FFWP it provides. © 2010 The Authors. Strategic Management Journal published by John Wiley & Sons, Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.     

Environmental Regulation, Investment Timing, and Technology Choice

We test whether environmental regulation affects investment decisions, using Census data for individual paper mills. New mills in states with strict environmental regulations choose cleaner production technologies, with differences in air and water pollution regulation also influencing technology choice. Examining investment allocation across existing plants, we find that abatement and productive investment tend to be scheduled together. However, plants with high abatement investment over the entire period spend significantly less on productive capital. This seems to reflect both environmental investment 'crowding out' productive investment within a plant, and firms shifting investment towards plants facing less stringent abatement requirements.     

R&D and product obsolescence

Claims of planned obsolescence have often been made by various consumer groups. Bulow (1986) examined a monopolist's choice of product durability and found that firms who sell their products tend to choose lower durability levels than firms that rent. We argue that the speed of new product development may be a more appropriate proxy for obsolescence than is durability. Reformulating Bulow's model in terms of R&D choice rather than durability choice, we find that sales firms engage in higher levels of R&D than do rental firms. Additionally, we provide an empirical example using data from the copier and computer industries which also suggests a strong positive relationship between the R&D intensity of a firm and the proportion of output sold versus rented.     

Skew and heavy‐tail effects on firm performance

Research summary : Most strategic management studies adopt an average‐centered view that uses the central tendency to explain between‐group variation in performance (i.e., performance differences between business units, firms, industries, and countries). In this study, we explain within‐group variation using a variance‐centered view that focuses on the peripheral characteristics of performance distributions as defined by skew and heavy tails (i.e., variance and kurtosis). Drawing on performance feedback theory, we hypothesize that successful firms tend to develop a positive skew in their performance distributions, which we call a “positive skew effect” in this study, and that heavy tails moderate this effect. Our analysis of the performance of a group of foreign affiliates provides general support for our hypotheses at both the firm and segment (industry and country) levels. Managerial summary : Managers of multi‐business firms use various approaches to improve the aggregate performance of their business units. Some expand the range of upper performance outliers (exploration) or reduce the range of lower outliers (downsizing); others improve the performance of current business units (exploitation). We find that firms with superior performance tend to have a balanced mix of the three approaches. We also find that segments (countries and industries) with higher mean performances provide environments that facilitate the entry of productive firms and the exit of unproductive firms and provide environments in which incumbents can further improve their performance by learning from others. We observe that successful firms and segments have a positive skew in their performance distributions, which we call a “positive skew effect.” Copyright © 2016 John Wiley & Sons, Ltd.     

Temporary Agency Work and Firm Competitiveness: Evidence from German Manufacturing Firms

This paper addresses the relationship between the utilization of temporary agency workers by firms and their competitiveness measured by unit labor costs, using a rich, newly built, dataset of German manufacturing enterprises. We conduct the analysis by applying different panel data models while taking the inherent selection problem into account. Making use of dynamic panel data models allows us to control for firm‐specific fixed effects as well as for potential endogeneity of explanatory variables. The results indicate an inverse U‐shaped relationship between the extent that temporary agency workers are used and the competitiveness of firms.     

A path to value creation for foreign entrepreneurs

Research summary : Firms founded by foreign entrepreneurs constitute an influential and growing part of the world economy. Yet, the existing research has given little consideration to the strategies of foreign entrepreneurs beyond their decisions to start a firm. In this article, we address this gap by examining how foreign entrepreneurs may bring value to their firms as firm managers. We argue that foreign owner‐managers may benefit their firms by having access to home‐country resources. We demonstrate that, compared to hired local managers, foreign owner‐managers reduce firms' operating costs by disproportionately hiring home‐country labor when this labor is more cost‐efficient. This effect is larger for labor‐intensive industries and for entrepreneurs from less wealthy countries. Managerial summary : Foreign entrepreneurs represent an important part of the world economy. Yet, we know little of how foreign entrepreneurs manage their firms. In this article, we examine whether foreign entrepreneurs and domestic managers hire different employees. We find that when foreign entrepreneurs manage their firms personally, they hire a larger number of foreign workers, and such workers are cheaper and more productive than the local labor. Conversely, domestic managers tend to hire local employees, despite their higher relative wages. Foreign owner‐managers are particularly valuable in labor‐intensive industries and when their home‐country labor is inexpensive. Copyright © 2015 John Wiley & Sons, Ltd.     

Budget allocation for permanent and contingent capacity under stochastic demand

We develop a model of budget allocation for permanent and contingent workforce under stochastic demand. The level of permanent capacity is determined at the beginning of the horizon and is kept constant throughout, whereas the number of temporary workers to be hired must be decided in each period. Compared to existing budgeting models, this paper explicitly considers a budget constraint. Under the assumption of a restricted budget, the objective is to minimize capacity shortages. When over-expenditures are allowed, both budget deviations and shortage costs are to be minimized. The capacity shortage cost function is assumed to be either linear or quadratic with the amount of shortage, which corresponds to different market structures or different types of services. We thus examine four variants of the problem that we model and solve either approximately or to optimality when possible. A comprehensive experimental design is designed to analyze the behavior of our models when several levels of demand variability and parameter values are considered. The parameters consist of the initial budget level, the unit cost of temporary workers and the budget deviation penalty/reward rates. Varying these parameters produce several trade-offs between permanent and temporary workforce levels, and between capacity shortages and budget deviations. Numerical results also show that the quadratic cost function leads to smooth and moderate capacity shortages over the time periods, whereas all shortages are either avoided or accepted when the cost function is linear.     

Advance Notification of Plant Closing: Does It Matter?

A review of the literature on the empirical effects of advance notification of plant closings (voluntary and mandated), including the authors' recent study using data drawn from the 1984 Survey of Displaced Workers. suggests that advance notice reduces the probalility that displaced workers suffer any spells of unemployment and may also moderated temporary increases in area unemployment rates. There is little evidence of adverse effects of advance notice, either to workers or to firms. The implications for public policy are discussed.     

Organizational knowledge networks and local search: The role of intra‐organizational inventor networks

Research summary : While firms tend to build on their own knowledge, we distinguish between depth and breadth of local search to investigate the drivers of these behaviors. Given that inventors in a firm carry out the knowledge creation activities, we strive to identify inventors responsible for these behaviors by employing the notion of an intra‐firm inventor network. A longitudinal examination of 14,575 inventors from four large semiconductor firms using patent data supports our hypotheses that the reach of inventors in the intra‐firm network and their span of structural holes have independent and interactive effects on these two types of local search behaviors. These findings have implications for research on exploitation and exploration, organizational knowledge, knowledge networks, and micro‐foundations. Managerial summary : Large amounts of knowledge may reside within firm boundaries, and managers are interested in understanding who may leverage this knowledge to generate novel ideas. We focus on collaborations among knowledge workers to address this question. Using the collaborations among all knowledge workers in a firm, we show that those who have higher reach to all others and those who form bridges to connect unconnected groups of workers tend to leverage not only more organizational knowledge, but also knowledge that is more dispersed in the organization. Managers could use these insights to shape the use of organizational knowledge by firm inventors, and also to make decisions about granting or withholding access to internal knowledge platforms for knowledge workers. Copyright © 2016 John Wiley & Sons, Ltd.     

Competitive drivers and international plant configuration strategies: a product‐level test

We analyze the determinants of the decision to invest abroad and the choice of spatial configurations of overseas plants for 120 Japanese firms active in 36 well‐defined electronic product markets. We find that key competitive drivers at the firm and industry levels have a critical impact on the choice between alternative international plant configurations. Regional configurations focused on Asia are chosen by firms with weaker competitiveness for products with established manufacturing technologies. Plant configurations focused on the United States and the European Union are chosen by technology‐intensive firms facing competitive threats in foreign markets. Global configurations are chosen by firms with a strong competitive position in the Japanese and world market for their core product businesses and are more common in the case of strong oligopolistic rivalry between Japanese firms. Copyright © 2005 John Wiley & Sons, Ltd.     

Long‐Term Earnings Inequality,Earnings Instability and Temporary Employment in Spain: 1993–2000

This article provides a longitudinal perspective on changes in Spanish male earnings inequality for the period 1993–2000 by decomposing the earnings covariance structure into its permanent and transitory parts. Cross‐sectional earnings inequality of male full‐time employees falls over the second half of the 1990s. Such decline was determined by a decrease in earnings instability and an increase of the permanent earnings component. Given the marked decline in temporary employment over the sample period, we also examine the effect of the type of contract on earnings variance components and find that workers on a fixed‐term contract face, on average, more instability than workers on a permanent contract. This evidence suggests that the decline in temporary employment is responsible for the decreasing earnings instability.     

The role of technical expertise in firm governance structure: evidence from chief financial officer contractual incentives

We provide evidence that the presence of technical expertise in firm governance structure reduces reliance on contractual incentives to control the potential agency problem for executives whose responsibilities require specialized knowledge. Specifically, we find that firms with financial expertise in the form of a board finance committee, or a chief executive officer with a financial background, tend to use lower levels of incentive‐based compensation for their chief financial officers. Our findings suggest financial experts provide stronger oversight and/or direction with regard to firm financial policies and strategies, thereby allowing firms to reduce reliance on incentive compensation. Our study provides insight into the role of technical expertise and board committees in firm governance, and into the benefits of common functional expertise within top management teams. Copyright © 2010 John Wiley & Sons, Ltd.