How should firms carry out technological diversification to improve their performance? An analysis of patenting of Korean firms

This research aims to analyze how a firm's technological diversification strategies influence its financial performances, in terms of ‘technological diversification’ in broad technology sectors and ‘technological concentration’ on its own core technology, especially in the case of Korean large firms. The data used in the analysis were panel data encompassing the years between 1990 and 2006, which linked Korean firms’ patent information registered in the United States Patent and Trademark Office to the financial data of those firms collected from Korea Investors Service, Inc. (Kis-Value). For the estimation of the panel data, a fixed effect model, which considers the individual firms’ own effect on the financial performance, was used. Tobin's q was used as a dependent variable representing firm performance, while ‘broad technology diversity’ and ‘core technology diversity’ were used as the focal explanatory variables. The results show that a firm seeking to have more technological assets should invest in a broad technological diversification strategy in its search for new business opportunities; it should likewise concentrate on the core technology in order to maintain its financial performance.     

Firm value and the diversification choice: international evidence from global and industrial diversification

Our study examines the nature of industrial and global diversification for a sample of more than 12?000 firms across 35 emerging and developed countries during the period 1991–2006. Consistent with previous studies, we find that industrial diversification, either alone or combined with global diversification, results in a reduction of firm excess value. Global diversification alone, however, does not exert a significant impact on excess value. In an analysis of the decision to diversify, we find that firms in civil law countries or less developed nations are more likely to diversify, suggesting the greater utility of internal capital markets in economies where it is difficult to raise external capital. We observe that high leverage, larger size, lower levels of growth, R&D, free cash flow, profitability and Tobin's q encourage firms to diversify industrially. Higher values of q, firm size, R&D expenditures, free cash flow and liquidity, but reduced growth rates and profitability are associated with global diversification.     

A currency preferential approach to international equity investment

We propose a Timex strategy for reducing the foreign exchange risk associated with international equity investment, pertaining to countries with currencies correctly or undervalued by the standard of PPP. The performance of Timex is examined from the perspectives of eight developed nations with long histories of free-floating currencies. Based on the data from 1986:Q1 to 2014:Q4, we find unambiguous evidence for the superior performance of Timex in the foreign exchange market. Compared with the passive diversification strategy and the Morgan Stanley Capital International (MSCI) World index, Timex offers higher total returns and risk-adjusted total returns when rebalanced every 6 or 12 months for investors based in all eight countries under study. When rebalanced at a 3-year interval, Timex outperforms the passive diversification and the MSCI World index for five and all eight countries, respectively.     

Real assets, financial assets, liquidity and the lemon problem

Return obtained by diversification is based on average quality. Similarly, under asymmetric information, the price at which an asset can be sold reflects the average quality of assets. Therefore, 4under some conditions, sale of an asset under asymmetric information is a useful alternative to diversification. This idea is developed with a model that incorporates a liquidity shock. One key result is that investment in real assets is higher under asymmetric information than under symmetric information. The model can explain why the ratio of real assets to financial assets is higher in emerging economies than in developed countries.     

Financial integration and the ASEAN-5 equity markets

The existence of long-run relationships among the ASEAN-5 equity markets is empirically investigated. This study utilized weekly data spanning January 1988 to August 1999. The results of Granger noncausality test due to Toda and Yamamoto (Journal of Econometrics,66, 225–50, 1995) reveal that the Singapore equity market was not affected by other markets except by the Philippines in the long run. This result shows that there exist opportunities for beneficial international portfolio diversification within the context of the Asean-5 equity markets.     

Understanding the divergence of manufacturing enterprisesʼ profitability in China

ABSTRACT

The transition of the Chinese economy is placing increasing pressure on manufacturing enterprises to become more profitable. In this article, we first calculate and analyze the profitability of Chinese manufacturing enterprises based on data from the 2015 Chinese Enterprises–Employees Survey (CEES 2015), and find that there is an obvious profitability divergence tendency of manufacturing enterprises. We then analyze the different actions and strategies that may cause the profitability divergence and find that aggressive strategies in innovation, diversification, market development, and conservative strategies in production expansion tend to result in a good profitability, while the opposite strategies in each action lead a poor profitability. The different adoption of strategies in diverse actions may the possible causes of profitability divergence.

Abbreviations: CEES: China Employer-Employee Survey, PGR: Profit growth rate, SME: Small and medium-sized enterprise     

Management Behaviour in Vietnamese Commercial Banks

This study identifies managerial behaviour in Vietnamese banks between the years 2000 and 2014, based on the managerial framework of banks, as identified by Rossi et al. ( 2009 ). This framework is built on the interrelationships between efficiency, risk, capital and diversification. This study uses the Z‐score to measure insolvency risk, the SFA to estimate cost efficiency, the ratio of total equity to total assets to capture bank capital and the HHI index to measure the diversification of revenue and earning assets. The results from the 3SLS estimator indicate that revenue diversification has an insignificant impact on insolvency risk, capital ratio and cost efficiency, but earning assets diversification has a negative effect on these three variables, supporting ‘classical diversification’, ‘economic capital’ and ‘monitoring’ behaviours. Moreover, a decline in cost efficiency leads to a rise in insolvency risk, implying ‘bad management’ behaviour; an increase in risk results in a reduction in cost efficiency, indicating ‘bad luck’ behaviour; and a reduction in capital ratio in the poorly capitalised banks leads to a growth in risk, suggesting ‘moral hazard’ behaviour. The results remain strongly robust when using an alternative risk measurement (the loan loss provision ratio) and an alternative SFA model.     

An Evolutionary Interpretation of Mixed-Strategy Equilibria

A convincing interpretation of mixed-strategy equilibria describes them as steady states in a large population in which players use pure strategies but the population as a whole mimics a mixed strategy. I study the conditions under which an evolutionary, stochastic learning process converges to the appropriate distribution over pure strategies in the population. I find that not all mixed equilibria can be justified as the result of an evolutionary process even if the equilibrium is unique. For symmetric 2 × 2 and 3 × 3 games I give necessary and sufficient conditions for convergence, which are related to the concept of an ESS, and forn × ngames I give a sufficient condition.Journal of Economic LiteratureClassification Numbers: C73, D83.     

Financial diversification before modern portfolio theory: UK financial advice documents in the late nineteenth and the beginning of the twentieth century

Abstract

The paper offers textual evidence from a series of financial advice documents in the late nineteenth century and the early twentieth century of how UK investors perceived of and managed risk. In the world's largest financial centre of the time, UK investors were familiar with the concept of correlation and financial advisers’ suggestions were consistent with the recommendations of modern portfolio theory in relation to portfolio selection strategies. From the 1870s, there was an increased awareness of the benefits of financial diversification – primarily putting equal amounts into a number of different securities – with much of the emphasis being on geographical rather than sectoral diversification and some discussion of avoiding highly correlated investments. Investors in the past were not so naïve as mainstream financial discussions suggest today.     

Private monitoring in auctions

We study infinitely repeated first-price auctions in which a bidder only learns whether or not he won the object. While repetition of the stage-game equilibrium is the unique Nash equilibrium in public strategies, with patient bidders there are simple Nash equilibria in private strategies that improve on bid rotation. Sequential rationality is appropriately captured by essentially perfect Bayesian equilibrium (EPBE), which ignores behavior after irrelevant histories. Our main result is the construction of EPBEa that improve upon bid rotation. Assuming symmetry, the exclusionary schemes of Skrzypacz and Hopenhayn [Tacit collusion in repeated auctions, J. Econ. Theory 114 (2004), 153–169], including asymptotically efficient ones, are supported as EPBEa.     

Profiteering from the Dot‐Com Bubble,Subprime Crisis and Asian Financial Crisis

The paper explores the characteristics associated with the formation of bubbles that occurred in the Hong Kong stock market in 1997 and 2007, as well as the 2000 dot‐com bubble of Nasdaq. It examines the profitability of technical analysis (TA) strategies generating buy and sell signals, with and without our proposed trading rules. The empirical results show that, by applying long and short strategies during the bubble formation and a short strategy after the bubble burst, it not only produces returns that are significantly greater than buy‐and‐hold strategies, but also produces greater wealth compared with TA strategies without trading rules. We conclude that these bubble detection signals help investors generate greater wealth from applying appropriate long and short moving average (MA) strategies.     

The Impact of Deregulation during 1990–1997 on Banking in Austria

The operating environment for banking in Austriachanged substantially during 1990–1997. The changes during the periodcan be seen as a gradualadjustment towards adherence to European banking standards, which becamea legal requirement on Austria's entry, in 1995, into the European Union. Inthis paper, we investigate the relative performance of Austrian banksduring this period and thereby test the hypothesis of increasedcompetition. The study reveals that Aktiengesellschaften hadconsistent productivity improvement over the period, Sparkassen,and Volksbanken exhibited a turnaround in productivity in 1997,and Raiffeisenbanken experienced consistent productivity decline.Overall, Austrian banks experienced a decline in average efficiencyand productivity until 1996 with slight improvements in 1997. Thestudy reveals evidence of product diversification rather thanincreased price competition; a decrease in the spread of prices paidfor inputs indicates increased competitiveness over the period, whichcan be attributed to deregulation brought about by EU-membership.     

A review of biopsychosocial strategies to prevent and overcome early-recognized poor adherence in growth hormone therapy of children

Abstract

Background:

Adherence to growth hormone (GH) therapy among children is variable and remains a problem, possibly affecting growth outcomes and future health, and having economic consequences.

Objective:

To provide a review of the issues related to poor adherence to GH therapy in children and describe integrative strategies that may improve adherence.

Results:

Poor adherence may be caused by various factors, affecting both the children and their families. The key reasons for adherence difficulties are psychological/emotional problems, social/everyday problems and technical handling issues of the drug delivery device. Correspondingly a broad range of strategies to address adherence to GH therapy often revolve around counseling and education, not just for the patient but also for the family giving care.

Limitations:

This review is intended as a general survey of strategies which could help, in clinical practice, to overcome poor adherence to growth hormone therapy in children; it summarizes the representative literature but it does not aim to be a rigorous database literature search in every aspect.

Conclusions:

If poor adherence is recognized early on during treatment, appropriate steps may be taken to identify barriers that are amenable to change for encouraging the child to adhere to the treatment regimen. A preventative approach may also be considered; for example, doctors could address adherence issues early and train families of children treated with GH to recognize the resources as well as the barriers to adherence. The broad range of different causes for poor adherence demands a great variety of interventions, making it important to individualize optimal treatment behavior. Additionally, economic studies are required to quantify the cost of poor adherence to GH therapy and to show the financial benefits of good adherence.     

Green technological diversification of European ICT firms: a patent-based analysis

ABSTRACT

This paper investigates whether and how diversified firms in the Information and Communication Technology (ICT) sector innovate in green technologies and assess the potential impact of these innovations on firm performance. The analysis relies on a balanced panel dataset of European ICT firms in the period 2009–2013. The results suggest an inverted u-shaped relationship between the extent of technological diversification and the likelihood to develop green technologies. Technological diversification generally increases the likelihood of green innovations, but too high a dispersion of resources across a large variety of different technologies decreases the intensity of green innovations. The results show also that the development of green technologies is positively associated with firm performance: ICT firms involved in green patenting activity perform better than ICT firms with no green patents.     

AFTER THE FALL: AN EX POST CHARACTERIZATION OF HOUSING PRICE DECLINES ACROSS METROPOLITAN AREAS

Housing prices have plummeted across the United States. This article examines differences in the magnitude of housing price decreases across metropolitan areas. A small number of housing market variables observable before the fall are capable of explaining over 70% of the considerable variation in price declines. An additional non‐parametric analysis suggests that exceeding particular thresholds for some of the key predictors is associated with much larger price drops. These findings are consistent with historical price patterns, which raises questions about the validity of mortgage pricing policy and risk diversification norms in the United States. The analysis points to a set of stylized facts concerning the housing price bubble that need to be explained and suggests fruitful hypotheses for understanding the dramatic housing price declines. (JEL R31, R21, R11, G21)     

Learning by trial and error

A person learns by trial and error if he occasionally tries out new strategies, rejecting choices that are erroneous in the sense that they do not lead to higher payoffs. In a game, however, strategies can become erroneous due to a change of behavior by someone else. We introduce a learning rule in which behavior is conditional on whether a player experiences an error of the first or second type. This rule, called interactive trial and error learning, implements Nash equilibrium behavior in any game with generic payoffs and at least one pure Nash equilibrium.     

Scope economies in the pharmaceutical sector

The paper’s objectives are twofold: to propose an experimental simulation to measure scope economies between pairs of submarkets and to point out the role of submarkets in explaining the concentration level in the pharmaceutical market. We simulate scope economies consistent with the diversification choices of large international companies in the years 1987 and 1997. Our results suggest that: i) the random diversification (that is no scope economies hypothesis) is rejected, and ii) scope economies are significant. (JEL: C15, D21, L11, L65)     

Adaptive Learning and Iterated Weak Dominance

This article addresses the idea that rational players should not play iteratively weakly dominated strategies by showing that when a particular type of adaptive learning process converges, then players must have learned to play strategy profiles equivalent to those that survive iterated nice weak dominance and, for certain games, equivalent to those that survive iterated weak dominance. For games satisfying the weak single crossing condition, the set of strategies that survive iterated weak dominance is small in that its bounds are pure strategy Nash equilibria. The results hold regardless of the order in which dominated strategies are eliminated.Journal of Economic LiteratureClassification Number: C72.     

A NONCOOPERATIVE SHIPPING COURNOT DUOPOLY WITH LINEAR‐QUADRATIC TRANSPORT COSTS AND CIRCULAR SPACE*

The mixed strategy equilibria in a location quantity duopoly model with circular markets are investigated. We find that a continuum of equilibria exists when the transport cost function is linear. However, if costs are strictly concave or convex, most strategies fail to qualify as equilibria. For any integer n, there are nondegenerate mixed strategy equilibria in which each firm locates at n possible locations with equal probability. This result explains possible outcomes in which firms’ on‐path locations are not minimally or maximally differentiated.     

The extent of the market and stages of agricultural specialization

Abstract This paper provides empirical evidence of an U‐shaped causal relationship between the extent of the market (size of the relevant urban market) and the pattern of crop specialization in a village economy. We use the recent two‐stage estimator developed by Lewbel (2012) and exploit heteroscedasticity for identification. The results suggest that the portfolio of crops in a village economy becomes more diversified initially as the extent of the market increases. However, after the market size reaches a threshold, the production structure starts to specialize again. This evidence on the stages of agricultural diversification is consistent with the stages of diversification identified in the recent literature for the economy as a whole and also for the manufacturing sector.