Coefficient of determination in a simultaneous equation model: A pedagogic note

The simultaneity of the market for securities has been recognized by a number of finance authors. Simkowitz and Jones [10] advocate the use of a simultaneous equation system to capture some of the relationships among the securities in a homogeneous set. Simkowitz and Logue [11], and Jones and Simkowitz [6], have performed studies using a simultaneous equation system in a capital asset pricing framework. Marcis and Smith [9] call for the use of the simultaneous methodology when there is a strong residual correlation between securities. Simultaneous equation systems have been used in other areas of finance by authors such as Barnea [1], Herbst [5], and Logue and Lindvall [8]. This note explores how anomalies concerning the coefficient of determination (R²) mentioned in previous research could have occured. Conditions under which the (R²) does not have its usual properties and an example is given.     

Does Private Label Quality Influence Consumers’ Decision on Where to Shop?

When consumers decide where to shop, they take several criteria into account. It is not yet clear whether private label (PL) quality is one of these criteria. It is the intention of this study to shed light on this issue because many retailers have invested heavily into the quality of their PLs. They assume that PLs differentiate a store's assortment and image, which should attract customers to the store. This study examines this assumption by use of a simultaneous equation model that links PL‐specific quality evaluations to perceptions of the image of the associated store as well as to the category‐specific share of store visits. Empirical results for 10 product categories show that PL quality positively affects store image perception, and influences consumers in the decision of where to shop.     

The impact of introducing a customer loyalty program on category sales and profitability

The authors propose and empirically investigate the effect of category-specific attributes as important factors associated with the change in pre-versus post-loyalty program introduction category sales and profits. Category penetration and frequency are positively correlated with loyalty program success with an increase in sales and profits, whereas impulse buying and ability to stockpile show negative correlations. Furthermore, although introducing a loyalty program generates immediate spikes in sales and profits in most categories; its impact is generally short-lived. It results in an initial redistribution of category expenditures during the program launch, where consumers seemingly shift consumption from lightly purchased categories to heavily purchased categories. But the effect soon erodes. Nevertheless, by modeling the diffusion process of loyalty program performance, this paper finds that penetration rate and private label share are key drivers of a category's sustainable growth. The evolution of consumer price elasticities and promotion sensitivities are tracked pre- and post-loyalty program introduction, and profit-driving categories are identified according to their category characteristics. New insights are offered on category management and long-term program planning.     

A Bayesian multivariate Poisson regression model of cross-category store brand purchasing behavior

The availability of cross-category transaction data in the retailing industry has enabled the investigation of interdependence in consumer purchase behavior across product categories. In this paper, we develop a multivariate count model to uncover and predict the pattern of cross-category store brand purchasing behavior. The proposed multivariate Poisson regression model, which we estimate using a Bayesian approach, provides flexibility in capturing cross-category correlations for sparse multivariate purchase data associated with infrequently purchased categories or purchasing in retail outlets such as warehouse clubs. We compare the goodness-of-fit of the proposed Poisson regression model with alternate benchmark models using customer purchase records across five product categories from a national warehouse club and find that the proposed model provides a superior fit. We also carry out a profitability analysis to illustrate the use of the model in planning cross-promotions.     

How category characteristics affect the number of store brands offered by the retailer: a model and empirical analysis

Our research examines why retailers offer, not one, but multiple store brands in some product categories. More specifically, we are interested in how certain product category characteristics affect the number of store brands. We model a product category consisting of two incumbent national brands that may differ in strength. The retailer may introduce one or two store brands depending on which maximizes category profits. Our analysis suggests that the retailer is likely to carry two store brands in categories where (i) the national brands are similar in strength; and (ii) the price sensitivity between the national brands is low. Interestingly, the conditions that support the introduction of more than one store brand are quite different than the conditions that would facilitate the introduction of additional national brands. We provide empirical evidence that support our model-based predictions.     

The temporal relationship between derivatives trading and spot market volatility in the U.K.: Empirical analysis and Monte Carlo evidence

This article examines empirically the dynamic relationship between spot market volatility, futures trading, and options trading in the context of a trivariate simultaneous equations model. The empirical analysis provides strong evidence that significant simultaneity, in addition to feedback, characterizes the relationship between the proxy for time-varying spot market volatility and derivative trading. Also, futures trading and options trading are found to affect spot market volatility in opposite directions in the structural model proposed. The results, corroborated by Monte Carlo evidence, suggest that the failure to account for any contemporaneous interaction between the variables under consideration, as well as the omission of any of the two derivatives trading activities examined in this study, may generate serious misspecification and ultimately produce misleading estimation results and statistical inference. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 245–270, 1999     

Price and its Relation to Objective and Subjective Product Quality: Evidence from the Austrian Market

The correlation between price and product quality is usually found to be low, but still, consumers use a rule of thumb that higher prices indicate higher quality. In the present study, data from the Austrian consumer magazine Konsument from 2004 to 2007 were analysed, and price–quality correlations were computed. Results confirm former studies as the overall price–quality relation was positive and statistically significant but small (r = .30). It was especially small in the food and beverages sector as well as for cosmetics and for inexpensive products generally. Consumers' subjective beliefs about a price–quality link and product complexity were also analysed. Results show that consumers believe that a high price signals high quality, but that these beliefs are not well calibrated, i.e., not corresponding to the product categories where actually higher price–quality correlations can be found. In sum, the results confirm for the Austrian market that price is a poor signal of quality, and that consumers are hardly aware of the particular product sectors where this signal is more valid.     

Determinants of Bribery in International Business: The Cultural and Economic Factors

Corruption Perceptions Index (CPI) scores for 47 countries reported by Transparency International were used to ascertain determinants of bribe taking in international business. Two sets of independent variables – economic and cultural – were used in a multiple regression analysis. Results indicate that bribe taking was more likely to be prevalent in countries with low per capita income and lower disparities in income distribution. Cultural factors such as high power distance and high masculinity in a country were also likely to be associated with high level of bribe taking. Both economic and cultural factors were important explanatory factors of bribery. Implications of the findings for combating bribery are discussed. Rajib Sanyal is an American Council of Education Fellow at George Mason University for 2004–2005, on leave from The College of New Jersey, where he is a professor of management. Dr. Sanyal has published widely, and is the author of a textbook on International Management.     

A multi-category customer base analysis

Customer base analysis is an essential tool to measure and develop relationships with customers. While various models have been proposed in a noncontractual setting, they focus primarily on analyzing transactional patterns associated with a single product category or a firm-level activity, such as the times at which purchases are made at a particular retailer. This research proposes a modeling framework for customer base analysis in a multi-category context. Specifically, we model the time between a customer's purchases at the firm and the product categories that comprise her shopping basket arising from multi-category choice decisions. The proposed model uses a latent space approach that parsimoniously captures the dynamics of multi-category shopping behavior due to the interplay between purchase timing and shopping basket composition. We also account for interdependence among multiple categories, temporal dependence across category choices, and latent customer attrition. Using category-level transaction data, we show that the proposed model offers excellent fit and performance in predicting customer purchase patterns across multiple categories. The forecasts and inferences afforded by our model can assist managers in tailoring marketing efforts across categories.     

Imperfections and Shortcomings of the Stakeholder Model’s Graphical Representation

The success of the stakeholder theory in management literature as well as in current business practices is largely due to the inherent simplicity of the stakeholder model––and to the clarity of Freeman’s powerful synthesised visual conceptualisation. However, over the years, critics have attacked the vagueness and ambiguity of stakeholder theory. In this article, rather than building on the discussion from a theoretical point of view, a radically different and innovative approach is chosen: the graphical framework is used as the central perspective. The major shortcomings of the popular stakeholder framework are systematically confronted with the graphical scheme to illustrate their visual impact. The graphical illustrations of the imperfections help explain the sometimes-oversimplified generalisation inherent to every graphical model. They also make some interrelationships easier to understand. The analysis demonstrates that, with the tacit but implicit acceptance of simplification of the discussed explanatory elements, Freeman’s framework remains a rather good approximation of reality. Only a few minor changes to the stakeholder model are consequently proposed.     

Nurturing the Whole Person: The Ethics of Workplace Spirituality in a Society of Organizations

In a world which can be increasingly described as a “society of organizations,” it is incumbent upon organizational researchers to account for the role of organizations in determining the well-being of societies and the individuals that comprise them. Workplace spirituality is a young area of inquiry with potentially strong relevance to the well-being of individuals, organizations, and societies. Previous literature has not examined ethical dilemmas related to workplace spirituality that organizations might expect based upon the co-existence of multiple ethical work climates, nor has previous literature accounted for the relevance of the cosmopolitan (external, societal) source of moral reasoning in the ethical treatment of workplace spirituality. The purpose of this paper is to address these gaps by articulating two such ethical dilemmas related to workplace spirituality: the “quiet desperation” dilemma and the instrumentality dilemma. Moreover, I propose two theoretical contexts that foster “both-and” rather than “either-or” thinking, thereby mitigating (moderating) the relationships between climate combinations and conflictual aspects of the ethical dilemmas. For the “quiet desperation” dilemma, I propose a person–organization fit perspective to emphasize diversity of individual preferences instead of a managerially prescribed uniformity of spirituality. For the instrumentality dilemma, I propose a multiparadigm approach to workplace spirituality research to avoid the privileging of one research interest over another (e.g., instrumentality, individual fulfillment, societal good). I conclude with suggestions for future research.     

Reconciling Corporate Citizenship and Competitive Strategy: Insights from Economic Theory

Neoclassical and Austrian/evolutionary economic paradigms have different implications for integrating corporate social responsibility (corporate citizenship) and competitive strategy. Porter’s “Five Forces” model implicitly rests on neoclassical theory of the firm and is not easily reconciled with corporate social responsibility. Resource-based models of competitive strategy do not explicitly embrace a particular economic paradigm, but to the extent their conceptualization rests on neoclassical assumptions such as imperfect factor markets and profits as rents, these models also imply a trade-off between competitive advantage and corporate social responsibility. Differences in Austrian/evolutionary economic model’s assumptions about equilibrium, profits, and other economic concepts allow this paradigm to embrace alternative views of strategy such as the activities or dynamic capabilities views. These alternative views of strategy focus on learning and adaptation; they align more easily with corporate social responsibility. In practice this alignment comes about because social engagement facilitates the learning and adaptation that are a source of competitive advantage. Among the many business arguments for CSR such as improved employee morale/productivity or brand differentiation, this view prioritizes innovation.     

Corporate Governance and Firm Value: The Impact of Corporate Social Responsibility

This study investigates the effects of internal and external corporate governance and monitoring mechanisms on the choice of corporate social responsibility (CSR) engagement and the value of firms engaging in CSR activities. The study finds the CSR choice is positively associated with the internal and external corporate governance and monitoring mechanisms, including board leadership, board independence, institutional ownership, analyst following, and anti- takeover provisions, after controlling for various firm characteristics. After correcting for endogeneity and simultaneity issues, the results show that CSR engagement positively influences firm value measured by industry-adjusted Tobin’s q. We find that the impact of analyst following for firms that engage in CSR on firm value is strongly positive, while the board leadership, board independence, blockholders’ ownership, and institutional ownership play a relatively weaker role in enhancing firm value. Furthermore, we find that CSR activities that address internal social enhancement within the firm, such as employees diversity, firm relationship with its employees, and product quality, enhance the value of firm more than other CSR subcategories for broader external social enhancement such as community relation and environmental concerns.     

On the Extendibility of Brands with Subordinate versus Basic Category Concepts

In this paper, we use a series of experimental studies to show that consumers’ response to the extension of a brand associated with a basic versus a sub-category depends on the closeness of the brand's parent and extension categories. When the two categories are close, consumers respond more favorably to the extension of a brand with a basic category concept, but the pattern reverses when the categories are far apart. However, a brand with a basic category concept can mitigate its disadvantage in a distant category by first launching an intervening line extension. Our results suggest that brands with sub-category concepts are not limited in their ability to extend, and can help retailers meet the twin objectives of leveraging the high growth of specialized categories and rationalizing their brand portfolio. They also suggest that managers should aim to extend brands with sub-category concepts into distant categories where the modifier in the brand concept is relevant rather than into close categories.     

Hedging performance of shrimp futures contracts with multiple deliverable grades

The performance of the black tiger and white shrimp futures contracts traded in the Minneapolis Grain Exchange (MGE) is considered. These two futures contracts have suffered low trader participation[fn100] since their inception despite the underlying multibillion-dollar cash shrimp market. The article tries to find answers for such lack of interest in the context of the multiple deliverable category character of both contracts. In particular, the hedging effectiveness and the adequacy of the premiums/discounts are measured for the various shrimp size categories traded in each contract. The analyses indicate that the hedging effectiveness of both contracts is relatively modest. Part of the explanation for the performance of the contracts resides in high deliverable category exchange option values, which stem from volatility in the price differentials between size categories. The fixed premiums/discounts are not able to provide a remedy to the alternation in the cheapest to deliver category. There is also a liquidity problem that could result from the peculiarities of seafood trade. It is concluded that the lack of trader interest may be influenced by initial high deliverable category exchange option values. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 957–990, 1999     

Challenges for Corporate Ethics in Marketing Genetic Tests

Public discussions of ethical issues related to the biotechnology industry tend to treat “biotechnology” as a single, undifferentiated technology. Similarly, the pros and cons associated with this entire sector tend to get lumped together, such that individuals and groups often situate themselves as either “pro-” or “anti-” biotechnology as a whole. But different biotechnologies and their particular application context pose very different challenges for ethical corporate decision-making. Even within a single product category, different specialty products can pose strikingly different ethical challenges. In this paper, we focus on the single over-arching category of “genetic testing” and compare tests for disease susceptibility and drug response. We highlight the diversity of ethical challenges – grouped under the broad categories of “truth in advertising” and “protecting intellectual property” – raised by the commercialization and marketing of these technologies. By examining social and technical differences between genetic tests, and the associated corporate ethics challenges posed by their commercialization, our intent is to contribute to the nascent business ethics literature examining issues raised by the development and marketing of genetic tests. Bryn Williams-Jones is Assistant Professor in the Département de médecine sociale et préventive and a member of the Groupé de recherche en bioéthique at the Université de Montréal, Canada. An interdisciplinary scholar, Bryn employs analytic tools from applied ethics, health policy and the social sciences to deconstruct the complexity of new technologies and analyse the embedded ethical, social, and political values. Current research focuses on commercial genetic testing (disease susceptibility, pharmacogenetics), biotechnology and intellectual property rights, and conflicts of interest arising with the commercialization of university research and development of industry partnerships. Vural Ozdemir is Director of the Biomarker and Clinical Pharmacology Unit, VA Long Beach Medical Center at the School of Medicine, University of California, Irvine and Co-Chair (together with Bryn Williams-Jones) for the Ethics and Science Policy Committee of the Pacific Rim Association for Clinical Pharmacogenetics. A clinical pharmacologist, Vural’s scientific research focuses on genetic and environmental determinants of inter-individual and inter-ethnic variations in drug safety and effectiveness. Ongoing socio-ethical analyses examine, for example, the role of Mertonian standards in university knowledge-commons and resolution of conflicts arising from the dual role of academic scientists as both actors and narrators in university-industry relationships.     

ELECTRE TRI for Groups with Imprecise Information on Parameter Values

ELECTRE TRI is a well-known method to assign actions to predefined ordered categories, considering multiple criteria. Using this method requires setting many parameters, which is often a difficult task. We consider the case where a group of Decision Makers (DMs) is unsure of which values each parameter should take, which may result from insufficient, imprecise or contradictory information, as well as from lack of consensus among the group members. In a framework where DMs provide constraints bounding and interrelating the parameter values, rather than fixing precise figures, we discuss the problem of finding the best and worst category that each action may attain.