State enforceability of noncompete agreements: Regulations that stifle productivity!

Noncompete agreements (also known as covenants not to compete [CNCs]) are frequently used by many businesses in an attempt to maintain their competitive advantage by safeguarding their human capital and the associated business secrets. Although the choice of whether to include CNCs in employment contracts is made by firms, the real extent of their restrictiveness is determined by the state laws. In this article, we explore the effect of state‐level CNC enforceability on firm productivity. We assert that an increase in state level CNC enforceability is detrimental to firm productivity, and this relationship becomes stronger as comparable job opportunities become more concentrated in a firm's home state. On the other hand, this negative relationship is weakened as employee compensation tends to become more long‐term oriented. Results based on hierarchical linear modeling analysis of 21,134 firm‐year observations for 3,027 unique firms supported all three hypotheses.     

Essential tools of supply chain management

At a recent conference, the keynote speaker provoked an incredulous response when he said, "Today, competition among individual firms is dead." He then went on to explain that today, competition is supply chain against supply chain. Whichever firm has the superior supply chain will win out in the marketplace. Given the global marketplace in which we all operate, most of us would agree that his statements are true. How does a firm establish a world-class supply base? What kinds of contracts and agreements are necessary to support the diverse requirements of today's firms? How should a firm select from among the available contract types? These are foundation questions for supply chain management.     

Survival is for the fittest: Export survival patterns in Georgia

This paper analyzes the determinants of export flow survival in Georgia. The paper uses a unique Georgian firm-level dataset, in which firm characteristics and output dynamics are matched with their customs export transactions, for the period 2006–2012. We adopt a discrete survival model to explore the role of firm-level characteristics, diversification strategies and network effects on the survival rates of export flows. Low survival rates at the product level limit the ability of Georgian firms to consolidate new products in international markets. The analysis finds that it is production efficiency, rather than size, that boosts export survival chances, that firms’ diversification strategies matter for the prospects of survival, and that there is strong evidence of network effects in export survival. We also find that ratified foreign trade agreements contribute to increase the survival of export flows by reducing policy-induced trading costs and increasing information about destination markets.     

Firm heterogeneity and wages in unionised labour markets: Theory and evidence

In many countries wages are set in two stages, where industry-level collective bargaining is followed by firm-specific arrangements determining actual paid wages as a mark-up on the industry wage floor. What explains the wage set in each of these stages? In this paper we show that both the industry wage floor and the average wage cushion are systematically associated with the degree of firm heterogeneity in the industry: The former (latter) is negatively (positively) associated with the productivity spread. Furthermore, since the response of the wage floor dominates that of the wage cushion, workers in more heterogeneous industries tend to get lower actual paid wages. These conclusions are reached in a model of Cournot oligopoly with firm productivity heterogeneity and a two-tiered wage setting system. They are then confirmed by administrative data covering virtually all workers, firms and collective bargaining agreements of the Portuguese private sector for the period 1991–2000.     

The glass ceiling in context: the influence of CEO gender,recruitment practices and firm internationalisation on the representation of women in management

This study examines macro‐level organisational determinants of women in management. Specifically, we examined organisational characteristics and strategies, including firm levels of internationalisation, firm foreign ownership, chief executive officer gender and the active recruitment of women, as predictors of an organisation's level of representation of women in management. Results from a survey of 278 firms indicated that the presence of a female chief executive officer and an organisation's active recruitment of women are positively associated with a firm's percentage of women in management while firm internationalisation and firm foreign ownership are negatively associated with the representation of women in management. Overall, these findings suggest that although firms exercise discretion with respect to hiring and promoting women, they are also constrained by the external environment and organisational characteristics. For example, firms with higher levels of firm internationalisation and that are foreign‐owned may limit their efforts and investment in the advancement of women into management.     

Customer and Supplier Collaboration in Green Product Innovation: External and Internal Capabilities

Firms collaborate in green product innovation to develop products with less environmental impact. These products typically use less energy, have lower emissions and incorporate more environmentally friendly materials. In an industrial setting, firms often collaborate along the supply chain with customers and suppliers. This paper focuses on external and internal capabilities that firms need when collaborating in green product innovation. The paper builds on data from five large industrial firms in ten case studies, in which these firms collaborate with customers and suppliers to innovate green products to an industrial market. External and internal capabilities are investigated. The study points to the importance of finding a suitable partner. Partners need to have environmental expertise and contribute knowledge or technology that is new to the firm. Firms need to combine relational capabilities, such as trust, with contractual agreements in collaborative innovations. The findings point to the importance of knowledge management with the partner as well as internally in the firm. The study shows that no partner collaboration operates in isolation but is situated in a network context. Copyright © 2018 John Wiley & Sons, Ltd and ERP Environment     

Entrepreneurial orientation in family firms: the moderating role of technological intensity and performance

This paper examines how socio-emotional factors can influence family firms’ commitment to entrepreneurially- oriented activities, and how their level of commitment is moderated by the technological intensity of the sector and firm performance. We find that, while family firms are less entrepreneurially-oriented than non-family firms, this gap closes with increasing technological intensity of the sector. We find no evidence, however, to suggest any change in entrepreneurial orientation in family firms resulting from a drop in firm performance.     

Ownership structure,information asymmetry and growth of the firm: Implications from nonfinancial firms listed in S&P500

This paper investigates the association between growth of the firm and ownership structure under conditions of information asymmetry. The objective is to show the effects of information asymmetry (favorable vs. adverse selection) on the choice of the ownership structure that helps firms grow. Our sample includes nonfinancial firms listed in the S&P500 over the period 2000 to 2016. The dependent variable is growth of the firm measured by growth in sales. The independent variables are proxies for changes in ownership structure, individual investors, investment managers, and brokerage firms. Observations are grouped according to level of information asymmetry (high or low) using three proxies for information asymmetry: beta of return on equity (ROE), probability of default of ROE, and q ratio. The results conclude that (a) changes in ownership structure affect growth of the firm positively and (b) the effect of ownership structure is more significant and consistent at low level of information asymmetry. The contribution of the paper is threefold. First, it extends the arguments of corporate governance by showing the impact of ownership structure on growth of the firm. Second, the paper offers robust evidence that growth of the firm is associated with low level of information asymmetry. Third, the paper shows that fundamental financial information can help lessen the level of information asymmetry and thus help firms grow.     

The effects of free trade agreements on regional wages in China

We empirically study the effects of free trade agreements on regional wages in China using Redding and Venables’ (2004) extended model and manufacturing firm-level data in China from 2000 to 2007. We show that although free trade agreements can, in general, increase firms’ average wage level, they also contribute to increasing the wage gap in China. We also find that free trade agreements can have different effects on firms’ wages across China. In particular, they have stronger effects on average wage levels in land border regions than in coastal regions. Moreover, although firms in land border regions may be located closer to the partner countries of free trade agreements, they may still prefer to use shipping to transport goods. Our findings have important policy implications. In particular, we suggest that free trade agreements with China’s western neighbors should be accompanied by the development of appropriate land transportation networks. Moreover, income tax policy regimes should be differentiated across regions in China.     

Environmental,social and governance initiatives and wealth creation for firms: An empirical examination

This study examines the effect of environmental, social, and governance (ESG) activities on firm performance of 4,887 global companies. Mean difference test shows that firms with a high level of ESG activities are different from their low-ESG counterparts. The two-stage least square results suggest that ESG activities on (a) the welfare for internal stakeholders and best corporate governance practices are beneficial for firm performance and (b) antitakeover mechanisms (pollution control) adopted by firms are negatively (positively) valued by market players. Overall, this is the first study to examine the effects of ESG on the market-based and accounting-based performance of global firms.     

Riskiness,endogenous productivity dispersion and business cycles

In the data, cross-sectional productivity dispersion is countercyclical at both the plant level and the firm level, see e.g. Bloom (2009). I incorporate a firm׳s choice of risk level into a model of firm dynamics with real business cycle features to explain this empirical finding both qualitatively and quantitatively. In the model, in every period, each firm chooses the investment amount and the risk level associated with a production project every period. All projects available to each firm have the same expected flow return, determined by the aggregate and idiosyncratic shocks to the firm׳s productivity, and differ from one another only in their risk. The endogenous option of exiting the market and the limited funding for new investment jointly play an important role in motivating firms׳ risk-taking behavior. The model predicts that, in each period, relatively small firms are more likely to take risk and hence exhibit a higher exit rate, and that the cross-sectional productivity dispersion, measured as the standard deviation of the realized individual component of productivity, is larger in recessions.     

Broad Cross‐License Negotiations

In many industries, broad cross‐license agreements are considered a useful method to obtain freedom to operate and to avoid patent litigation. In this paper, I study firm incentives to sign a broad cross‐license as well as the duration of broad cross‐license negotiations. I develop a model of bargaining with learning, which predicts that two firms will enter a broad cross‐license agreement only if their capital intensities are large enough. The model also predicts faster negotiations when firms have high capital intensities and when the frequency of future disputes is low. I confirm these predictions empirically using a novel data set on cross‐licensing and litigation in the US semiconductor industry.     

Does corporate environmental responsibility engagement affect firm value? The mediating role of corporate innovation

This paper aims to construct a comprehensive corporate environmental responsibility (CER) engagement measurement to examine the relationship between CER engagement and firm value as well as explore the mediating effect of corporate innovation on this relationship based on a sample of 496 China's A‐share listed companies from 2008 to 2016. The results show that when firms start to adopt environmental regulations, CER would have a negative effect on firm value; however, at a specific level, CER would start to enhance firm value positively. In addition to this, corporate innovation plays a mediating role in the relationship between CER and firm value. Corporate innovation promotes firm value of firms with CER more than firms without CER. Overall, the findings of this paper are extremely relevant for the government, investors, and firm's managers and can be utilized for policy and investment decision making. Also, the findings encourage firms to enhance their sense of environmental responsibility in order to enhance their competitive advantages, enhance corporate innovation capabilities, and thus enhance firm value.     

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.     

Do firms share the same functional form of their growth rate distribution? A statistical test

We propose a hypothesis testing procedure to investigate whether the same growth rate distribution is shared by all the firms in a balanced panel or, more generally, whether they share the same functional form for this distribution, without necessarily sharing the same parameters. We apply the test to panels of US and European Union publicly quoted manufacturing firms, both at the sectoral and at the subsectoral NAICS level. We consider the following null hypotheses about the growth rate distribution of the individual firms: (i) an unknown shape common to all firms, with all the firms sharing also the same parameters, or with the firm variance related to its firm size through a scaling relationship, and (ii) several functional shapes described by the Subbotin family of distributions. Our empirical results indicate that firms do not have a common shape of the growth rate distribution at the sectorial NAICS level, whereas firms may typically be described by the same shape of the distribution at the subsectorial level, even if the specific shape may not be the same for different subsectors.     

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.     

Option introduction and insider trading in the NASDAQ/NMS equity market

This paper investigates and supports the hypothesis that insiders have an incentive to shift their informed trading activities when options initially are listed for a firm. Firm size is found to be related to the level of insider trading activity. There is a significant decrease in insider equity-market volume for the smallest third of firms, a significant increase in insider-equity market volume for the middle third of firms, and a significant decrease in insider equity-market volume for the largest third of firms. This supports the hypothesis of a difference in the degree of impact on equity volume upon option introduction based upon firm size. This research provides additional evidence of informed trading activities when option introduction, insider trading, and firm size are considered simultaneously.     

Flexible collective bargaining agreements: Still a moderating effect on works council behaviour?

We analyse the interaction between different labour market institutions in Germany, namely, industry‐level bargaining and firm‐level codetermination by works councils. In particular, we are interested in the moderating effect of flexibility measures on the link between the existence works councils and collective agreements on wages and productivity. In presence of institutional changes, the question is whether works councils in covered plants still generate rather than redistribute rents, given recent decentralisation processes in the German system of industrial relations. We augment a theoretical model to provide hypotheses, which are then tested using empirical analysis of representative German plant level data. We find that the existence of flexibility provisions in collective bargaining agreements does not alter the effect of works council on firms' wages. We find, however, that with flexibility provisions works council presence is associated with higher productivity levels than without such provisions. These findings, however, depend on the level of collective bargaining: they can only be observed in plants covered by industry‐level contracts, but do not hold in plants covered by firm‐level contracts.     

Does Competition Make Firms More Flexible? A Study of Limited Managerial Cognition

A model of procedural decision making in firms is combined with an oligopoly model to study the effect of limited managerial cognition on firm flexibility. It is argued that a firm may vary its flexibility, and, hence, that there exists a trade-off between decision-making costs and costs due to imperfect adjustment to the environment. The main conclusions are the following: (1) The level of flexibility chosen by firms tends to be too low, from a social welfare point of view. (2) Entry reduces firm flexibility. Aggregated flexibility in the market may, however, increase in which case consumers are unambiguously better off. (3) Integration of isolated markets increases firm flexibility and consumer welfare.     

Investment timing decisions under threat of potential competition: Why firm size matters

We study the value of the option to wait when other firms are looking at similar opportunities and may enter while one firm is waiting for uncertainty resolution. There are two important results. First the value of an investment project is affected by a firm’s assets-in-place, giving some firms a comparative advantage in competitive situations. Second, when two firms with different sized assets-in-place are looking at similar investment decisions, in the unique sub-game perfect equilibrium, the smaller firm invests earlier and also exits before a competing firm with larger assets-in-place. This makes an otherwise identical investment more valuable for the smaller firm. The larger firm optimally foregoes first-mover advantage because of higher expected exit costs.