Bankruptcy as a deliberate strategy: Theoretical considerations and empirical evidence

Bankruptcy and bankruptcy reorganizations have been identified as remedies for financial distress, but there is little agreement on their value to firms, managers, and the general economy. This paper provides a brief review of proposed bankruptcy strategies and some alternative views about their costs and benefits followed by an empirical study of the outcomes of 73 bankruptcies and subsequent reorganization efforts. The evidence suggests that there are few successful reorganizations, bankruptcy is a costly response to financial distress, and managerial choice in bankrupt firms is highly constrained by forces external to the firm. The diversity of stakeholder interests limits the value of global judgements about success or failure of bankruptcy strategies. Firm size dominates all other factors in predicting success in completing the reorganization process. Delayed filings primarily reflect failed efforts to avoid bankruptcy, not deliberate strategies. Reasons for the use of bankruptcy in spite of its high costs are discussed.     

Selective entry and auction design

This article examines how different auction designs perform when entry is endogenous and selective, by which we mean that bidders with higher values are more likely to enter. In a model where potential bidders are symmetric, we show that three alternative designs can significantly outperform the ‘standard auction with simultaneous and free entry’ when entry is selective. When bidders are asymmetric, we show that level of bid preference that maximizes a seller’s revenues is significantly affected by the degree of selection. We also describe recent empirical and econometric work that shows that the degree of selection can be identified and estimated using standard types of auction data.     

Joint ventures: Theoretical and empirical perspectives

This paper compares the perspectives of transaction costs and strategic behavior in explaining the motivation to joint venture. In addition, a theory of joint ventures as an instrument of organizational learning is proposed and developed. Existing studies of joint ventures are examined in light of these theories. Data on the sectoral distribution and stability of joint ventures are presented.     

Spectrum auction design: Simple auctions for complex sales

Following the successful PCS Auction conducted by the US Federal Communications Commission in 1994, auctions have replaced traditional ways of allocating valuable radio spectrum. Spectrum auctions have raised hundreds of billion dollars worldwide and have become a role model for market-based approaches in the public and private sectors. The PCS spectrum was sold via a simultaneous multi-round auction, which forces bidders to compete for licenses individually even though they typically value certain combinations. This exposes bidders to risk when they bid aggressively for a desired combination but end up winning an inferior subset. Foreseeing this possibility, bidders may act cautiously with adverse effects for revenue and efficiency. Combinatorial auctions allow for bids on combinations of licenses and thus hold the promise of improved performance. Recently, a number of countries worldwide have switched to the combinatorial clock auction to sell spectrum. This two-stage auction uses a core-selecting payment rule. The number of possible packages a bidder can submit grows exponentially with the number of licenses, which adds complexity to the auction. For larger auctions with dozens of licenses bidders cannot be expected to reveal all their valuations during such an auction. We analyze the impact of two main design choices on efficiency and revenue: simple “compact” bid languages versus complex “fully expressive” bid languages and simple “pay-as-bid” payment rules versus complex “core-selecting” payment rules. We consider these design choices both for ascending and sealed-bid formats. We find that simplicity of the bid language has a substantial positive impact on the auction?s efficiency and simplicity of the payment rule has as a substantial positive impact on the auction?s revenue. The currently popular combinatorial clock auction, which uses a complex bid language and payment rule, achieves the lowest efficiency and revenue among all treatment combinations.     

Managerial perceptions of global pioneering advantage: Theoretical framework and empirical evidence in the U.S. and Korea

Managers form mental models of their business environment, and make strategic decisions based on these perceptions of reality. We study managerial perceptions of the competitive advantage gained by a pioneering firm. We expect that managers will make pioneering entry decisions based on their perceptions of pioneering advantages. Due to cross-national cultural and business environment differences, managers from different countries will employ different mental models and thus perceive the relative advantage of pioneering differently.Drawing from the literature on cultural influence on decision-making, we build a theoretical framework of perceived pioneering advantage in different cultural environments. From this framework, and from cultural differences that exist between the United States and South Korea, we derive hypotheses regarding expected cross-cultural perceptual differences. We test these hypotheses using samples of senior product managers from both countries. We find that some, but not all, of the principles of pioneering advantage empirically verified in North America are generalizable to the culturally-different South Korean business environment.     

Valuation of venture capital investments: empirical evidence

Using the valuation data of 421 US venture capital transactions and 176 initial public offerings, we test a simple binomial valuation model in modelling the risk‐return profiles of venture capital investments. We find that the model is consistent with the previous knowledge on the risk‐return profile of venture capital investments. The results also confirm the hypotheses that early‐stage ventures have higher implied risk and implied volatility of the returns than more established ones.
Additionally, we analyse the predictive power of the binomial pricing model and compare it to corresponding 'traditional' models that utilize risk‐adjusted rates of return. We construct one‐step ex post return forecasts for the sample ventures and compare the results to the actually realized returns. The findings indicate that the fit of the binomial model is better than the fit of the corresponding 'traditional' models.
The results imply that option‐based methods have empirical relevance in the pricing analysis of privately held companies and projects. Furthermore, practitioners can benefit from using these methods when analysing the risk‐return structure of private companies and R&D projects.     

Measuring and modelling changes in strategy: Theoretical foundations and empirical directions

Confronted by increasingly turbulent and complex environments, general managers have become more interested in understanding the conditions and forces that enable or disable successful changes in organizational strategies. Yet, largely because of their tendency to use fuzzy definitions and inadequate methodologies, empirical studies of changes in strategy have not provided practitioners with a set of well-tested theories. To provide a basis for circumscribing, evaluating, and directing future research, this paper begins by developing a framework for assessing and modelling changes in strategy. After discussing the forces that influence their occurrence and performance outcomes, the paper reviews a representative sample of empirical studies in terms of two major questions: (1) how are changes in strategy conceptualized and modelled? and (2) what methods of observation and analysis are employed? This review concludes with a report of important patterns and concerns followed by suggestions for future research.     

Sector innovation capacity determinants: modelling and empirical evidence from Spain

Studies about the variables that determine the ability to innovate at sectoral level are scarce and present a series of limitations. This paper tries to bridge this gap by building a model of sector innovation capacity based upon existing approaches related to the study of sectoral innovation (lifecycles of industries, evolutionary theory and the sectoral innovation systems approach) and a model of determinants for national innovation capacity. The empirical analysis is based upon data from the Survey on Innovation of Firms for Spain and the methods used comprise the application of panel data, factor analysis and ordinary least squares regression analysis. The main findings of the paper are the confirmation of the relevance of all the variables in determining sector innovation capacity, the formulation of the sector innovation capacity determinants model, the consistency of the proposed model confirming both the validity and appropriateness of the variables identified and, therefore, the value of using the variety of approaches selected.     

Non-farm entrepreneurship in rural sub-Saharan Africa: New empirical evidence

We report on the prevalence and patterns of non-farm enterprises in six sub-Saharan African countries, and study their performance in terms of labor productivity, survival and exit, using the World Bank’s Living Standards Measurement Study - Integrated Surveys on Agriculture (LSMS-ISA). Rural households operate enterprises due to both push and pull factors and tend to do so predominantly in easy-to-enter activities, such as sales and trade, rather than in activities that require higher starting costs, such as transport services, or educational investment, such as professional services. Labor productivity differs widely: rural and female-headed enterprises, those located further away from population centers, and businesses that operate intermittently have lower levels of labor productivity compared to urban and male-owned enterprises, or enterprises that operate throughout the year. Finally, rural enterprises exit the market primarily due to a lack of profitability or finance, and due to idiosyncratic shocks.     

The drop and collect survey among industrial populations: theory and empirical evidence

This paper examines the effectiveness of drop-and-collect-survey (DCS) method in improving response rates among organisations. It proposes a theory for its effectiveness and advances a number of propositions relating to its usage among organisations. Subsequent analyses, using empirical evidence from two separate DCS-based studies in Nigeria and Germany, suggest that the DCS results in significantly higher response rates among organisational respondents compared to mail questionnaires. These improved response rates are more likely to be achieved among smaller organisations and through direct, face to face, contact with the target key informant. Combining DCS with prenotification showed only a small, but positive effect. Support was also found for the hypothesised greater effectiveness of the DCS among high-technology firms relative to their low-technology counterparts. Based on the proposed theory and the empirical findings, a DCS decision and implementation framework is presented and directions for future research suggested.     

Transaction cost implication of private branding and empirical evidence

Branding and transaction cost economics represent two research streams that rarely cross paths in the literature. In this study, I explore the transaction cost implication of private branding, a practice whereby products supplied by unaffiliated manufacturers are sold under private brands owned by retailers. The main thesis is that private branding can preempt a special case of asset specificity called brand specificity, where retailers also invest in the marketing of an outsourced product, but subsequent reputation effects (positive or negative) are specific to the manufacturer who brands the product. Retailers, thus, will not be fully motivated to optimize their investment in product marketing unless they take over the branding right. With potential barriers to private branding being controlled, data obtained from a national chain reveal that the retailer deploys its marketing resources according to the branding status of a product, implying that private branding can deflect the transaction cost of solving the brand specificity problem. The results offer new theoretical insights into branding and transaction cost analysis. This efficiency‐based approach to private branding also provides practitioners with useful guidelines for crafting a branding strategy that will facilitate cooperation between manufacturers and retailers. Copyright © 2009 John Wiley & Sons, Ltd.     

Pioneering advantages in manufacturing and service industries: empirical evidence from nine countries

Although one might expect differences between manufacturing and service firms in pioneering advantages, the extent of these differences has not yet been investigated. This is the first cross‐national study that compares such differences in nine countries/regions: the United States, the United Kingdom, Germany, Japan, China, Taiwan, Hong Kong, South Korea, and Singapore. We develop several hypotheses concerning the perceptions of managers of manufacturing firms and service firms regarding the benefits and post‐entry risks of pioneering, and the cost and differentiation advantages accruing to the pioneering firm. We test the hypotheses with data from 2,419 firms representing all nine countries and both industrial sectors. We find that: (1) managers from all countries perceive pioneering to be associated with higher market share and/or profitability; (2) manufacturing firm managers perceive pioneering risks to be significantly more important than do service firm managers; (3) cost and differentiation advantages of pioneering are, for the most part, more significant to manufacturing than to service firm managers; (4) Western manufacturing firm managers perceive the cost advantages to be more important than Asian Pacific manufacturing firm managers. We conclude by presenting the managerial implications of our findings. Copyright © 1999 John Wiley & Sons, Ltd.     

Food demand studies in Sub-Saharan Africa: a survey of empirical evidence

The recent empirical food demand studies on Sub-Saharan Africa show significant advances in demand specification and methodology, especially in the application of less restrictive and theoretically consistent flexible functional forms. The findings to date establish some broad patterns on effect of income, household demography and life cycle, location, and prices on food demand patterns. However, the numerical values of the demand estimates are less generalizable because of an insufficient number of data points to separate the true demand component from other confounding factors, which are linked to differences in modeling and estimation of demand relations. The priority for future research is to generate sufficiently detailed demand estimates that have a high utility for disaggregated policy analysis, but are based on a theoretically consistent and comparable methodology.     

First-mover advantages from pioneering new markets: A survey of empirical evidence

Market pioneers can develop first-mover advantages that span decades. The most general first-mover advantage that helps explain higher pioneer market share levels is a broad product line or brand proliferation. In markets for experience goods, pioneers tend to shape consumer tastes and preferences in favor of the pioneering brand. While the preliminary results vary by industry, they indicate that market pioneers donot tend to perish more often than later entrants. Accounting profits for market pioneers generally are lower in the first four years of operation, but higher thereafter. Overall, market pioneers follow innovative strategies that have high initial costs and risks, but yield high potential returns.     

An empirical test of arbitrage equilibrium with skewed asset returns: Australian evidence

Barone-Adesi (1985) has formulated a multivariate test (likelihood ratio) of an arbitrage equilibrium model, based on a quadratic specification of the process generating returns, that can be related to a three-moment CAPM. Australian equity returns are used to replicate this approach over the period 1963 to 1987. Furthermore, a generalised method of moments test of the Barone-Adesi model is also conducted. The results are favourable with regard to the arbitrage model. In addition the quadratic market model performs well against its traditional counterpart. This latter conclusion is robust with respect to allowing for monthly seasonal regularities in Australian returns. However, evidence regarding the three-moment CAPM is largely inconclusive.The author is a senior lecturer in the Department of Accounting and Finance, Monash University, Clayton, Australia. The author is pleased to acknowledge the helpful comments of Tim Brailsford, two anonymous referees, the participants of the Seminar Series at Monash University, and participants of the Second International Conference on Asian-Pacific Financial Markets, Hong Kong, 1991, the 1992 Annual Conference of the Accounting Association of Australia and New Zealand and the Fifth Annual Australasian Finance and Banking Conference, Sydney, 1992.     

On tailoring a strategic planning system to its context: Some empirical evidence

Based on a survey of 111 senior executives this study finds that tailoring a firm's strategic planning system to its context is not a popular practice, despite its presumed importance. Moreover, the lack of fit between a firm's strategic planning system and its context appears to be inconsequential to how managers rate their planning systems. Implications of the findings are discussed.     

Technical trading system performance in the Australian share market: Some empirical evidence

This study incorporates Australian All Ordinaries Share Price Index time series data over the period 1987–1991, and firstly considers the ability of technical trading systems to generate returns greater than a Buy-Hold control. Secondly it aims to test for the weak-form efficiency of the Australian Share Market. Efficiency is considered in both the statistical context and in terms of the trading system's net returns. Statistical test results provide the Australian share market to be weak-form efficient. In confirmation of this result, none of the trading systems employed were able to earn a return greater to the Buy-Hold control strategy once transactions costs were taken into consideration.The authors are Senior Lecturer and Associate Lecturer respectively, at the Department of Economics and Finance, University of Western Sydney — Macarthur, P.O. Box 555, Campbelltown, NSW 2560, fax: 61-46-266683. The authors would like to gratefully acknowledge the valuable comments received from M. Aiken and participants at the Third International Conference on Asian-Pacific Financial Markets.     

The trusted general manager and business unit performance: empirical evidence of a competitive advantage

Employee trust for the general manager is proposed as an internal organizational characteristic that provides a competitive advantage for the firm. This paper empirically examines the relationship between trust for a business unit's general manager and organizational performance. Trust was found to be significantly related to sales, profits and employee turnover in the restaurant industry. Managers who were either more or less trusted differed significantly in perceptions of their ability, benevolence and integrity. Copyright © 2000 John Wiley & Sons, Ltd.     

An empirical assessment of metaphor use in the design studio: analysis, reflection and restructuring of architectural design

This investigation was concerned with the use of metaphors in architectural design education. Reasoning by means of metaphors helps to understand a design situation in terms of a remote concept normally not associated with it. By juxtaposing the known with the unknown in an unusual way, metaphors can enhance design problem solving. The goal of this study was to research empirically the use of metaphors in the design studio as perceived by students. By analyzing relations between metaphorical reasoning and design, we explored metaphor factors that have a major contribution to the design process. Results showed that ‘Restructuring design problems’ and ‘Delving into design solutions’ are the main factors of design problem solving. Furthermore, ‘Innovative design based on personal beliefs’ and ‘Analysis and reflection on design problems’ are the two factors associated with metaphor use. The latter was found to be a significant predictor with a contribution to ‘Restructuring of design problems’. Findings have implications for design education, particularly for intervention programs that seek to improve reasoning and reflection skills in the architectural design studio.     

Socioeconomic impacts of school feeding programmes: empirical evidence from a South Indian village

Tamil Nadu a poverty-stricken rural community in South India, funds a school feeding program with about 10% of the state budget. Comparisons of nutrition and literacy show that they are significantly related. No studies have yet been performed to analyse the effect of the feeding programs on aspects of a household's economic and social welfare. The feeding program in Tamil Nadu extends throughout the year, 7 days a week. It provides not only a reason for children to attend school, but also employment opportunities for those who wish to cook. 455 households were surveyed from 1 village using. A Gini coefficient of inequality to determine inequality levels of nutrition, food, and consumption expenditure. Sen's index of poverty was used to calculate the reduction in poverty levels. 3 household groups were defined: the agricultural labor, the silk weaver, and the cultivator. Linear program modelling utilized these 3 groups to study the total effect of nutrition on education. Linear regression was then used to determine the effect of the feeding program on participation in school. At the village level, a reduction of inequality in consumption and intake, an increase in energy intake, and a decrease in poverty level were found. In agricultural labor and silk weaver households, most of the money was spent on cereal food grains and children were mostly uneducated. If modelled to assume that children must be educated and are educated in schools providing food, results suggest that the increase in nutrition helps retain the children in the schools. Cultivator household response to the food programs was poor, since they usually have enough money to meet nutritional needs. Household income and school nutrition, but not adult literacy affect school participation. In general, nutrition offered in school caused a subsequent increase in household purchases of non-cereal items in the first 2 household types.