Managerial compensation and incentives in for-profit and nonprofit hospitals

Differential economic behavior of for-profit and nonprofit institutionscan be manifest in both output and input markets. When behaviorin output markets is difficult to observe, behavior in inputmarkets can be useful proxies. We examine monetary compensationand its composition between base salary and bonus, and the associatedincentive structures, in the U.S. hospital industry. Our datapermit controlling for interinstitutional differences in thescope and complexity of jobs having the same titles, as wellas differences in organization size and other variables. Wefind (1) total monetary compensation for the two top executivejobs is substantially higher in the for-profit sector; and (2)the composition of compensation as between base salary and bonusdiffers materially across forms of organization, bonuses beingabsolutely and relatively greater in the for-profit sector.Particularly noteworthy is the finding that for-profit hospitalsutilize compensation mechanisms that, by involving larger contingentcomponents, provide stronger incentives - greater rewards -as compared with nonprofit hospitals, for performance that ismore easily monitored. While our findings are consistent withmore than one model of comparative organizations differ in theirgoals and, hence, in the kinds of managers they demand and thereward structures they offer. Nonprofit organizations may pursueobjectives that reflect greater concern about collective goodsor other outputs that are more difficult to measure and reward.Alternatively, nonprofits, confronted by a nondistribution constrainton the payout of profit to managers, may lack incentives forefficiency, and so may pursue other goals such as a quiet life.Such differential objective functions, together with the differentialconstraints on the distribution of profit to managers, havetwo kinds of implications. (1) Nonprofit and for-profit organizationsmay attract different kinds of managers, especially at the toplevels, because nonprofits prefer working for a nonprofit organizationand, hence, may offer a lower supply price to them. (2) Thetwo types of organizations can be expected to offer differentialcomposition of compensation as between base salary and performance-basedbonus, providing different incentives for managers. Our analysisis positive in character, the goal being to identify systematicdifferences in organization behavior.     

Coexistence of nonprofit, for-profit and public sector institutions

If nonprofit organizations are superior institutions in resolving informational asymmetry and resulting contract failure, why do nonprofit (NPs), for-profit (FPs) and government/public institutions (GPs) survive in the same industry? This article explicitly models the nonconvex budget set for the consumer that arises through the juxtaposition of the inefficiencies and contract failures that occur in the three sectors. Because the consumer is willing to trade quality for efficiency and price, varying market shares for NPs, FPs and GPs can exist in the same industry. The theory offered complements the functionalist explanation of the existence of nonprofits advanced by Weisbrod and Hansmann using a micro-analysis.     

Precautionary savings and the governance of nonprofit organizations

We present a model of nonprofit governance built on two assumptions: (1) organizations wish to hold precautionary savings in order to smooth expenditures; and (2) it is relatively easy for managers to divert these funds for personal use. Hence, donors face a trade off between expenditure smoothing and donation dissipation. We examine the model's predictions using panel data on U.S. nonprofits. We show that organizations in states with poor government oversight have managerial compensation that is more highly correlated with inflows of donations and allocate a smaller percentage of donations to the endowment for future expenditures relative to organizations in strong oversight states.     

Structure, conduct, and performance: evidence from the Indonesian food and beverages industry

This article employs the Structure–Conduct–Performance (SCP) paradigm to investigate the simultaneous relationship between industrial concentration, price rigidity, technical efficiency, and price-cost margin in the Indonesian food and beverages industry. This research extends the SCP framework by including price rigidity and technical efficiency as additional key variables. The results suggest that there is a simultaneous relationship between industrial concentration, price rigidity, technical efficiency, and price-cost margin with a positive bi-directional relationship between industrial concentration and price-cost margin. These findings imply that an appropriate course of action for the regulator in this highly concentrated industry is to reduce industrial concentration in order to increase competition, reduce upward price flexibility, and increase technical efficiency in the long run.     

Product quality and competition: evidence from the broadband industry

Access to high-quality broadband internet is important in many different respects such as in communication, education, commerce and information acquisition. We investigate the relationship between the number of broadband providers in an area and the quality of broadband service provided where download speed is used as a proxy for quality. We find that increased competition in an area positively affects the access to fast download speeds. This finding is robust to three different top download speeds tested. Additionally, a theoretical model is provided which shows that competition can decrease the profits associated with offering slow speeds; this gives an incentive for providers to offer higher speeds as a way to increase profits.     

Competition,product line length,and firm survival: evidence from the US printer industry

Adjusting product line length is one major strategy that firms employ to sustain their market position in competitive environments. This study extends extant literature on product line length by adding empirical results on the relationship between competitive intensity and product line length, and by examining the performance of firms that follow the suggested product line strategies. The analysis of data on 1849 printer products introduced by 342 manufacturers from 1983 to 2002 shows an inverted U-shaped relationship between competitive intensity and product line length, and firms following this pattern have a significantly lower hazard ratio of exit. These results confirm those discussed in the previous literature and provide evidence of the positive impacts of following such product strategies on firm survival.     

Multi-product firms,heterogeneous quality and exporting behaviour: product-level evidence from the movie industry

This article examines how quality affects heterogeneous multiple-product firms’ exporting behaviours. We develop a structural model of the global movie market, including both consumers’ movie demand choices and firms’ exporting decisions. A movie studio is a multi-product firm that releases many movies within a year. We model movie quality as a combination of firm-level appeal and product-level attractiveness. We find that both studio-level and movie-level heterogeneity affect demand for movie, and movie-level heterogeneity is relatively more important. We also explore the counterfactual effects of quality improvement and trade liberalization on trade. Our results show that improvement of quality increases both intensive margin and extensive margin of trade. By elimination of quota, we find that trade liberalization increases movie exports to a foreign market by 19%. The results of our study can also help improve understanding of trade in the service industry. For instance, we do not find a positive correlation between the foreign entry costs and the geographic distance, as in the case of manufacture goods.     

Analysis of interregional industry linkage and economic distance in China: evidence from the mining industry

The mining industry is an important sector of the national economy, which provides essential support for energy and other resources for economic development. Industrial linkage and economic distance are two different concepts in measuring the correlationship of different industries, in this article, we apply the model that combines both of them to analyse the industries significantly influence the mining industry. We find that electricity and heating industry, and the mining industry itself from forward linkages have greatly influenced the mining industry, and the industries from backward linkages affect mining industry are changing with industrial economic transformation. We also find resources can flow across several regions only after 2007, which means the role of geographical factors limiting long-range transportation of resources is weakening after 2007. And we explain how resources flow among various regions during 1997 ~ 2007. Based on the findings above, policy implications from the empirical results obtained are discussed.     

Conjoint analysis of industry location preferences: evidence from the softwood lumber industry in the US

Conjoint Analysis (CA) was used to study location preferences among members of the softwood lumber industry in the southern and western regions of the US. This industry was selected as an example of a resource-based industry to test several hypotheses derived from location theory. Decision-makers, owners and managers, identified price of logs and distance to sources for logs as the most important location factors. A secondary category included wages and energy costs. Other variables such as cost of land, quality of access roads and distance to markets are less important. There were statistically significant differences in the part-worth estimates of raw materials and wage costs among decision-makers but not between regions in an ordered model for site preference. Marginal analysis of the price of logs stressed its importance as the major location factor in the softwood lumber industry.     

Technological races and stock market value: evidence from the pharmaceutical industry

We provide estimates of the abnormal stock market returns associated with pharmaceutical firms’ announcements of technological and regulatory successes in drug development. On the basis of these estimates, we find empirical support for two key features of technological race models. First, we observe that leaders in the innovation race record higher abnormal returns than do latecomers when they announce a success. Hence, firms should indeed be racing to complete the innovation process before their rivals. Second, pharmaceutical firms are adversely affected by the technological and regulatory success of their rivals, implying that interfirm spillovers in drug development are not sufficient to offset technological rivalry. Additional results are also produced regarding the impact of competition on R&D racing and the extent of therapeutic competition.     

Collaboration and firm size: some evidence from the UK defence industry

This paper presents evidence on the relationship between collaboration and firm size derived from an empirical study of the UK defence industry. The results indicate that size has a positive impact on collaboration and, in particular, with the propensity to collaborate with overseas firms. However, size has no impact on the propensity to collaborate with UK partners. This lends support to theories which emphasize the resource constraints facing small firms in developing international collaboration. There is a need for a policy debate concerning mechanisms to promote collaboration to assist small firms to realise the benefits of international collaboration.     

Innovation,product development and market value: evidence from the biotechnology industryinnovation in biotechnology industry

The subject of the paper is financial valuation of firm's knowledge assets and returns to innovation in the biotechnology industry, where such assets appear to play key role in the commercial success of a product. The biotechnology industry is extremely research-intensive, and successful R&D drives profitability. Further, the pharmaceutical product development advances in a number of well-defined stages that allow relatively precise measurement of product development outcomes. The study reports recent biotechnology R&D statistics, and provides estimates of private returns to innovation and product development activity in the biotechnology industry. The conclusions indicate that the financial market recognizes the value of drugs in product development stage, as it expects the innovative knowledge embodied in drug development projects to become marketable products in the future.     

Threshold effects in the regulation-innovation nexus: evidence from the telecommunications industry

Journal of Regulatory Economics - This study empirically tests the relationship between regulation and innovation in the telecommunications sector by deploying an efficient panel threshold model....     

Implications of manager replacement: evidence from the Spanish mutual fund industry

We analyse the financial consequences of manager replacement in a sample that includes all domestic and European equity funds in Spain. Specifically, we examine a total of 104 funds of the sample that experience manager turnover over the period 1999–2009. We find that underperforming funds in the pre-replacement period experience a significant improvement in the excess returns and performance after the manager change, an improvement that lasts over time for domestic equity funds. The analysis of the risk profile indicates that funds experiencing a manager change do not show significantly different levels of risk before the replacement dates although they tend to show an increase in the level of total risk after the change. Finally, the pool-regression analysis of the investment flows confirms that manager changes tend to impact negatively on subsequent flows of those funds with manager turnover.     

Growth of new start-up firms: evidence from the Japanese manufacturing industry

This study investigates firm growth as the post-entry performance of new start-up firms. Using data on Japanese manufacturing firms founded during 1992–1996, the determinants of growth are identified among new start-up firms. The effect is examined, not only of firm-specific characteristics but also of entrepreneur-specific, industry-specific and local characteristics on firm growth. It is found that younger and small-sized firms are more likely to grow among the start-ups. It is also found that entrepreneur's age and educational background affect the growth of start-ups. It is not shown, however, that industry specialization induces the growth of start-ups.     

Trade liberalization and capacity utilization: New evidence from the Turkish rubber industry

This study empirically tests the hypothesis that trade liberalization increases capacity utilization. It calculates capacity utilization for the Turkish rubber industry by using a production theory framework. More specifically, plant-level capacity utilization levels are calculated using a Generalized Leontief cost function system. Capacity utilization levels were low but improved when the trade regime shifted from a restrictive to a more liberalized one. The size and location of plants were two significant factors which created capacity utilization differences within the industry. However, capacity utilization levels appeared to improve primarily because of trade liberalization.Also, a scholar-in-residence, Department of Economics, Duke University. My particular thanks go to Patrick Conway, Marjorie McElroy, Edward Tower, participants of the International Economics Workshops at Duke University, and the anonymous referee for helpful suggestions. Any errors are mine.     

Perceived trustworthiness and inter-firm governance: empirical evidence from the UK printing industry

The paper describes six representative theoretical positionsregarding the impact of trustworthiness on the organisationof inter-firm relations. The positions are then assessed onthe basis of a survey of 184 buyer–supplier relationshipsin the UK printing industry. The widely accepted transactioncost argument for trust as a parameter reducing hierarchy isdismissed. Instead, the so-called triadic forces argument basedon Bradach, J. L. and Eccles, R. G. (1989. Price, authorityand trust: from ideal types to plural forms, Annual Review ofSociology, vol. 15, 96–118) receives the strongest support.Market, hierarchy and trust represent alternative mechanismsthat can be combined in a variety of ways. This pluralisticmodel is enriched further by the acknowledgement of variableroles for contracts and a sceptic stance regarding rationalityin practice.     

Vertical integration,escalating commitment and technological performance: evidence from firms in the US computer industry

We set out in this study to analyse the impact on the technological performance of firms arising from their vertical integration, along with their escalating commitment to capital investment. Our findings reveal a positive relationship between vertical integration and the technological performance of such firms. A positive correlation is also found to exist between vertical integration and escalating commitment to capital investment; in other words, a firm's rising commitment to its capital investment may well strengthen the positive effects of vertical integration on the technological performance of the firm. More importantly, the interactive effects on technological performance will tend to differ, largely dependent on the type of vertical integration. The findings of this study also indicate that vertical integration can effectively neutralise the threat to exit barriers resulting from a firm's escalating commitment to its prior investment.