THE ADOPTION OF STATE ELECTRICITY REGULATION: THE ROLE OF INTEREST GROUPS*

This paper examines the adoption of state electricity regulation around the beginning of the 20th century. I model this decision as a hazard rate to determine what influenced the adoption of state regulation. I find that adoption is positively correlated with capacity shortages, greater wealth and lower residential electricity penetration rates. These results suggest that state regulation responded to regulatory inefficiencies and residential consumer interests. In addition, adoption rates were higher in states that had a strong industrial and coal mining presence. These results are consistent with the interest group and contracting theories of regulation.     

THE SEEKING OF STRATEGY WHERE IT IS NOT: TOWARDS A THEORY OF STRATEGY ABSENCE: A REPLY TO BAUERSCHMIDT

In this issue Bauerschmidt critiques a recent Strategic Management Journal paper dealing with the absence of strategy. In this paper (Inkpen and Choudhury, 1995), we argued that strategy absence should be viewed as a legitimate phenomenon of interest. Bauerschmidt maintained that we failed to instill a new strategy paradigm and challenged our arguments as a rhetorical ploy. Unfortunately, Bauerschmidt misinterpreted our intended message. Although we challenged the conventional wisdom that every firm must have an articulated strategy, instilling a new paradigm was not our objective. Our main argument was that the concept of absence may help strategy researchers better understand existing paradigms.     

A RENT EXTRACTION THEORY OF RIGHT OF FIRST REFUSAL*

When a seller encumbers a property with a right of first refusal, whenever a third party offers to purchase the property, the right‐holder can acquire the property by simply matching the third party's offer. I model the right as a modified auction where the right‐holder gets to observe the third party's bid before making his own. I show that, compared to the standard auctions, the right increases the joint profit of the seller and the right‐holder by reducing the third party's profit. This result is independent of whether the third party is aware of the right's existence and whether the right creates a welfare loss.     

AN EMPIRICAL TEST OF THE RESOURCE-BASED THEORY: STRATEGIC REGULATION IN THE DUTCH AUDIT INDUSTRY

The resource-based view of the firm is a recent strategic management theory that seeks to identify the resources that may provide firms with a sustainable competitive advantage. This paper has two purposes. First, the paper relates strategic management arguments to parallel lines of reasoning in industrial organization theory and argues that strategic regulation is a major source of sustainable competitive advantage. The second purpose of the paper is to report the results of an empirical test of the resource-based theory on the basis of a longitudinal data set on the postwar history of the Dutch audit industry. A key determinant of this history proves to be strategic regulation, which stimulates demand for audit services and protects rent-producing resources.     

THE IMPACT OF INITIAL FINANCIAL STATE ON FIRM DURATION ACROSS ENTRY COHORTS*

Recent theories of industry dynamics emphasize the role of financial frictions in determining post entry performance of firms. Testing these theories has been difficult because of the lack of financial data on small, young and private firms. Using a unique data set, T2LEAP, this paper considers the survival of new firms in Canadian manufacturing from a financial perspective. Duration analysis quantifies the effects of firm, industry and aggregate factors. Findings show that nonlinear effects are found with firm leverage. Finally, likelihood decompositions offer insights into the contributing factors to firm hazard for nine entry cohorts during the period 1985–1997.     

ESTIMATING THE COST OF EQUITY FOR CORPORATIONS THAT REPURCHASE: THEORY AND APPLICATION

The standard discounted dividend model provides flawed estimates of the cost of equity when corporations repurchase shares, which many now do. A simulation model shows that the discounted dividend model, as customarily applied, will lead to cost of equity estimates that are too low. A corrected model is developed, and illustrated with actual data.