Quantitative Evaluation of the Determinants of Export and FDI: Firm‐level Evidence from Japan

Using firm‐level data for Japan, this paper examines the determinants of the export and foreign direct investment (FDI) decision. We contribute to the literature by employing a mixed logit model, i.e. a multinomial logit model with random intercepts and random coefficients, to incorporate any unobserved firm heterogeneity and by paying special attention to the quantitative significance of the determinants. We find that while the impact of productivity on the export and FDI decision is positive and statistically significant, it is economically negligible. The effect of firm size, credit constraints and information spillovers from experienced firms is also small in magnitude. A quantitatively dominant determinant of the export and FDI decision is instead the prior status of firms in terms of internationalisation. In addition, the use of the mixed logit model enables us to find a substantial role of unobserved firm characteristics in internationalisation of the firm. These findings suggest that entry costs to foreign markets, which substantially vary in size across firms, play an important role in the export and FDI decision. In addition, given that the negligible effect of productivity and the dominant effect of prior status appear to be more prominent in Japan than in some other countries, this study helps highlight the uniqueness of Japanese firms.     

Industrial groupings and foreign direct investment

We explore worldwide foreign direct investment (FDI) location decisions by Japanese manufacturing firms from 1985 through 1991. Our conditional logit estimates provide evidence that firms' location decisions are affected by membership in either vertical or horizontal keiretsu. Consistent with previous studies that stress agglomeration effects on firms' location decisions, we find that the stock of investment in a region by a firm's vertical keiretsu partners increases the probability of location. Further, we find that the recent flow of investment into a region by a firm's horizontal keiretsu partners increases the probability of investment to the region, providing evidence of networking effects.     

Organizing Corporate Social Responsibility in Small and Large Firms: Size Matters

Based on the findings of a qualitative empirical study of corporate social responsibility (CSR) in Swiss MNCs and SMEs, we suggest that smaller firms are not necessarily less advanced in organizing CSR than large firms. Results according to theoretically derived assessment frameworks illustrate the actual implementation status of CSR in organizational practices. We propose that small firms possess several organizational characteristics that are favorable for promoting the internal implementation of CSR-related practices in core business functions, but constrain external communication and reporting about CSR. In contrast, large firms possess several characteristics that are favorable for promoting external communication and reporting about CSR, but at the same time constrain internal implementation. We sketch a theoretical explanation of these differences in organizing CSR in MNCs and SMEs based on the relationship between firm size and relative organizational costs.     

Comparing Attitudes Toward Ethical Dilemmas in Small Business

Abstract

This paper presents a comparative analysis of attitudes between Russian and U.S. undergraduate students on ethical issues in managing Russian small firms engaged in business transactions with U.S. firms. Based on the real life situations, Russian and American respondents were asked to select decision alternatives dealing with ethical dilemmas. Significant differences were found between the two groups. Russians do not recognize significant differences between various alternatives, despite the disparity in the severity of these alternatives for resolving business problems. Russians, compared to Americans, tend to prefer more forceful decision alternatives resorting to business practices that would be considered unethical in the U.S. This is attributable to differences in the countries' history, political, legal, and cultural environment. The transitional nature of the Russian economy affects decision-making and business ethics.     

One cost of the Chilean capital controls: Increased financial constraints for smaller traded firms

There is growing support for taxes on short-term capital inflows in emerging markets, such as the encaje adopted by Chile from 1991 to 1998. This paper assesses whether the Chilean capital controls increased financial constraints for different-sized, publicly-traded firms. It uses an Euler-equation framework and shows that during the encaje, smaller traded firms experienced significant financial constraints. These constraints decreased as firm size increased. Both before and after the encaje, however, smaller firms did not experience significant financial constraints, and there is no relationship between firm size and financial constraints. Although Chilean-style capital controls may yield some benefits, any such benefits should be weighed against this cost of increasing financial constraints for small and mid-sized firms.     

Firm exit after distress: differentiating between bankruptcy, voluntary liquidation and M&A

This paper examines firm-level determinants of mature firm exits after economic distress. Using nested logit models and a sample of 6,118 distress-related exits in Belgium, we analyze the type of exit that distressed firms experience. We show that 41% of the firms in our sample exit through a court driven exit procedure (mainly bankruptcy), 44% are voluntarily liquidated and 14% are acquired, merged or split (hereafter M&A). Distressed firm exit follows two distinct stages. First, a firm either decides to exit voluntarily or is forced into bankruptcy, which is the least efficient exit strategy. Compared to bankruptcy, the probability of a voluntary exit increases with higher levels of cash, lower leverage, holding no secured debt and being embedded in a group. If a firm exits voluntarily, it enters a second stage and decides either to exit through voluntary liquidation or through a M&A. Conditional on not going bankrupt, the likelihood of voluntary liquidation compared to M&A increases with higher levels of cash or secured debt, with smaller size and with an absence of group relations. We contribute to the firm exit literature by jointly analyzing three exit types and showing that bankruptcy and voluntary liquidation are fundamentally different exit routes. While voluntary liquidation is an important exit route for distressed firms, most previous studies have failed to distinguish between bankruptcy and liquidation. We hence contribute to the exit literature by showing that bankruptcy, voluntary liquidation and M&A are fundamentally distinct exit routes for distressed firms, driven by different firm level characteristics and following a two-stage process.     

Keiretsu centrality — profits and profit stability: A power dependence perspective

Prior studies compare keiretsu member firm and independent firm performance. Here, we use historical and power dependence perspectives to theorize that the Japanese keiretsu system primarily benefits the most central firms. We test this by examining the performance of two types of keiretsu firms (central firms and other member firms) within two types of keiretsu (horizontal and vertical). We hypothesize and find that: (1) central vertical keiretsu firms are more profitable than central horizontal keiretsu firms; (2) central horizontal keiretsu firms have greater profit stability than central vertical keiretsu firms; (3) central vertical keiretsu firms are more profitable than non-central vertical keiretsu firms; and (4) central horizontal keiretsu firms have greater profit stability than non-central horizontal keiretsu firms. Implications for managers and future research directions are discussed.     

Licensing versus direct investment: implications for economic growth

We develop a symmetric two country model of foreign direct investment (FDI) that captures the internalization decision and its implications for both the rate and magnitude of innovations. When mode choice (licensing versus FDI) is fixed, a subsidy to multinational production increases the rate but decreases the size of innovations. When mode can switch, the rate and size of innovations both increase, provided the subsidy is not too large. Although innovation size decreases for industries where firms already were choosing FDI, innovation size increases for industries where firms switch from licensing to FDI because multinationals choose larger innovations than licensors.     

Franchising proportion and network failure

This paper investigates the relationship between franchising proportion of a network and firm failure. Drawing from resource scarcity and agency theories, we show that franchising firms that overfranchise and do not structure their networks in congruence with these two theories have lower survival prospects. We test our arguments with extensive data from nearly 5000 franchising firms listed in Entrepreneur magazine. The findings suggest that franchising proportion has a U-shape relationship with network failure. Additional analysis shows that firm size and geographic scope moderate the relationship between the squared term of franchising proportion and network failure. For franchisors, our results highlight the importance of maintaining an appropriate mix of franchised and firm-owned outlets within a network.     

Setting prices in mixed logit model designs

We investigate different procedures to set prices in designs for choice-based conjoint analysis using the mixed logit model which captures latent consumer heterogeneity. Besides discrete attributes, we include a linear price term in the deterministic utility function thereby treating price as continuous variable. We consider two different price intervals and several price sets which contain either two or three prices. We compare these alternatives to set prices by simulating choices for different constellations on the basis of the mixed logit model. Furthermore, we generate ten designs simultaneously instead of just one. Using these simulated choices, we estimate the parameters of the mixed logit model in the next step. To reduce the needed sample size and computation time caused by accounting for latent consumer heterogeneity, we apply Halton draws and set a minimum potential design for prior draws. ANOVA with root mean squared error between estimated and true price coefficient values of individual consumers as dependent variable shows that using more extreme prices as interval bounds and one intermediate price positioned to the right of the interval performs best.     

Entry and exit in disequilibrium

Most entrepreneurship theory depicts disequilibrium as the most common state for entrepreneurial activity and yet remarkably very little empirical research investigates the role of entry and exit in this type of external environment. Drawing on economics and organizational ecology we outline reasons why the interrelation between entry, exit and incumbent firms is likely to vary when the actual number of firms is higher or lower than the number that a market can sustain. We also introduce a new empirical methodology to explain entry and exit levels in two different types of disequilibria comprising situations when markets under and over shoot carrying capacity. Using a data set on the retail industry, we find that in undershoots a lack of competition between incumbent firms restores equilibrium by creating room for new-firm entry. In contrast, in overshoots competition induced by new firms (in particular strong displacement) restores equilibrium. We also find that equilibrium-restoring mechanisms are faster in over than undershoots. The results highlight that the behaviour and impact of entry and exit varies depending on the type of disequilibrium.     

Financing patterns in transition economies: Privatized former SOEs versus ab initio private firms

We employ 37,987 firms in 30 transition economies to investigate the relation between the origins of private firms and their financing patterns. We find that relative to ab initio (from the beginning) private firms, privatized former state-owned enterprises (SOEs) finance a higher proportion of their fixed assets from bank finance (especially from state-owned banks) and supplier credit. We argue that privatized former SOEs continue to benefit from the political and financial connections established during their SOE era. We document that country governance, financial development and legal origins play an important role in the financing patterns of privatized versus private firms.     

Information Spillovers and the Choice of Export Destination: A Multinomial Logit Analysis of Spanish Young SMEs

Does having more firms around exporting to a particular destination improve the chances of exporting to that destination (e.g. through information spillovers)? We answer this question implementing a multinomial logit model of whether a firm exports to a particular country. To identify the source of information spillovers, we construct indicators of geographical concentration of exporters selling to a specific destination: within industry, multinationals and across industries. In our application with data for Spanish new small sized firms, only within-industry agglomeration of exporting domestic firms significantly affects the probability of small sized firms exporting to the same destination. The significance of localisation economies is robust to a barrage of controls including destination specific characteristics, gravitational factors (distance and level of development), firm heterogeneity (size) and regional differences.     

Internationalisation of technology-oriented firms in Germany and the UK

Based on longitudinal data, this article examines empirically the long-term export behaviour of German and British technology-oriented firms founded between 1987 and 1996. Applying logit models, the results show that firms can overcome high entry costs by acquiring firm-specific assets. Similarly, firm-specific resources prevent high-tech companies from exiting the international market. The strategic role of investment in R&D is stressed in particular by the data.

The effect of corporate governance on firm value and profitability: Time-series evidence from Turkey

We study the corporate governance practices of Turkish public firms from 2006 to 2012, relying on hand-collected data covering the vast majority of listed firms. We build a Turkey Corporate Governance Index, TCGI, composed of subindices for board structure, board procedure, disclosure, ownership, and shareholder rights. TCGI predicts higher market value (with firm fixed effects) and higher firm-level profitability with firm random effects. The principal subindex which predicts higher market value and profitability, and drives the results for TCGI as a whole, is disclosure subindex. We also study the determinants of firms' governance and find that most firm-specific factors have little effect on firms' governance choices.     

The determinants of foreign giving: An exploratory empirical investigation of US manufacturing firms

To date, there is ample evidence on the determinants of domestic charitable contributions made by US firms. However, to the best of our knowledge, no one has investigated the determinants of foreign charitable contributions made by US firms. Using the Socrates KLD database and the US M&A data for the 2004–2010 period, we find evidence that foreign giving by US manufacturing firms is linked to certain key variables. Specifically, we find evidence that variables found significant in the domestic giving literature (pre entry return on assets, size, debt to asset ratio, market to book ratio, and research and development expense as a function of sales) are also found significant for foreign giving. However, and notably, cultural distance and foreign sales percentage have been found to be important discriminators between manufacturing firms who give abroad and those who do not. It appears that high international business experience (proxied by the foreign sales ratio) and operations in culturally distant countries motivate foreign giving. Finally, subsample analysis involving developed and developing countries suggests that cultural distance matters for developing countries, but does not for the developed country subsample. Firm level profitability matters for developed countries, but not for developing countries. Future research may be expanded to include the dollar amounts of giving and a bigger sample size. Differences in foreign giving patterns between manufacturing and non-manufacturing firms, and by firms in countries other than the US, may also be explored.     

Is the Optimism in CEO’s Letters to Shareholders Sincere? Impression Management Versus Communicative Action During the Economic Crisis

In this study, we explore the sincerity of the rhetorical tone of 664 annual letters to shareholders (CEO letters). Prior studies adopt Impression Management theory to predict that firms obfuscate failures and emphasize successes to unfairly enhance their image and maintain organizational legitimacy. Yuthas et al. (J Bus Ethics 41:141–157, 2002) challenged such a view, showing that firms reporting earnings surprises engage in ethical discourse with shareholders. We adopt the methodology of Yuthas et al. (J Bus Ethics 41:141–157, 2002) to explore the association between firm performance and the rhetorical features of CEO letters in a large sample of Fortune 500 firms in the wake of the global economic crisis. In contrast to most prior research, we find that optimistic tone is congruent with both past and future performance. We conclude that under tough macroeconomic conditions, incentives to distort public information strategically are low. Rather, firms tend to engage in communicative action aimed at dialoguing with shareholders through sincere disclosure. However, in our conclusions, we warn about the impact of accounting and rhetorical manipulation on the congruence between optimistic tone and financial performance.     

Venture capitalists at work: A diff-in-diff approach at late-stages of the screening process

In this paper we use a new methodology aimed at identifying only the venture capitalists (VC) treatment effect: we compare a representative sample of firms financed by private VC in the period 2004–2014 with a sample of firms rejected by VC at the very late-stages of the screening process. These firms narrowly lost the contest and are hence very similar, before VC financing, to the VC backed firms; self-selection is specifically taken into account. In line with previous results, Italian startups financed by VC reach a larger size and become more innovative than other startups. On the contrary, sales growth is similar and profitability is worse than firms in the control group. VC-backed companies experience larger rise in labor costs, while the commercialization of their innovative projects takes longer: this explains their worse profitability and the deterioration in their credit score. Both effects tend to disappear after four years from VC financing, when sales increase for VC-backed firms at the same pace as for the control group. Unlike other studies, no differences are detected for the survivorship rates of VC-backed firms in Italy. We also provide new evidence on the impact of VC on firms’ financial structures: VC-backed firms show a much larger increase in equity; this rise is however only half the increase in total assets that is hence not only explained by the injection of VC equity. Another result in this direction is that the effects on firms’ size and innovation hold when we restrict the control group to firms that also increase their equity from investors different from VC; this suggests that VC effects on size and innovation might also be linked to their managerial expertise and network connections. Finally, in line with previous evidence, the effects found in the paper are exclusively driven by independent VC investors compared with captive VC.