A note on causality and the structure-performance controversy

Interindustry, cross-sectional studies of structure and performance assume, according to the market power doctrine, that structural variables are exogenous to performance, though this notion has been questioned at different times by a number of industrial organization economists. This study uses a time series approach to test the validity of this notion at the line of business level. Sims' causality tests were performed for three separate firms and the interrelationships over time between the firm's market share and rate of return were estimated (i.e., do changes in a firm's market share occur prior to changes in the firm's rate of return or do changes in the firm's rate of return occur prior to changes in a firm's market share). Two of the three firms examined failed to exhibit the unidirectional causality assumed by the conventional structure-performance paradigm. These results, even though derived from a limited number of undiversified firms, suggest that the issue of causality must be settled before the functional form of the model can be specified.     

Industrial exhibitors' resource commitment to booth personnel: A study of select predictors and consequences

Within the context of industrial exhibitions, few researchers have explored how booth staffing decisions affect the booth personnel's reactions and conduct at trade shows. In the current study, Narver and Slater's market orientation dimensions are considered as the predictors of exhibitor's booth personnel commitment. Besides, this study explores the impacts of exhibitor's booth personnel commitment on booth worker's role clarity, goal acceptance, and work effort. Finally, the influences of work effort on three forms of booth staff's information behavior are tested. The data collected from five different B2B exhibits in Taiwan support eleven of the twelve hypotheses. Based on the analytic results, the present research adds theoretical and managerial implications to the existing literature of industrial exhibitions. In particular, it highlights three issues for exhibitors to consider, which include process ambiguity, interaction adaptation, and informational paradox.     

Self‐selection,endogeneity, and the relationship between CEO duality and firm performance

This study focuses explicitly on the methodological implications of the endogenous theory of governance as applied to firm performance. In particular, if firms choose their governance structures as part of a constrained performance maximization process, then application of an appropriate empirical methodology should reveal statistical evidence of such behavior. In this study we take advantage of the endogenous switching regression model framework to determine whether such predicted optimizing behavior can be corroborated by the data. The model allows us to test explicitly for selection behavior in accordance with comparative advantage and, concomitantly, the presence of selectivity bias, in estimating the impact of CEO duality on firm performance. The selection and performance equations are modeled in accordance with the extant accounting, economics, and management literature on the impact of the dual governance structure on firm performance. Overall, we tested four performance measures for the entire sample of firm‐year observations as well as for the largest three industries in terms of sample sizes. The major finding, robust in all cases, is that there is no evidence to support a contention that CEO duality is a structure purposefully chosen for optimizing performance. If firms are indeed choosing the dual leadership structure, they are doing so for reasons other than improving performance from what it would be otherwise. In fact, for performance measured as market return and earnings per share, there is evidence of a significant selectivity bias that acts to lower performance below what it would have been under random assignment. For performance measured by Tobin's q and return on assets, we found neither evidence of selectivity bias, nor any significant marginal performance impacts of CEO duality. Such findings are inconsistent with an endogenous governance theory, at least when applied to firm performance. Copyright © 2009 John Wiley & Sons, Ltd.     

Global Financial Integration and Real Estate Security Returns

Have globalization and increasing economic and financial integration affected the rates of return of publicly traded real estate companies around the world? Using a set of multifactor models for annual data for 946 firms from 16 countries over the sample period, 1995–2002, we estimate the impact of a country's economic openness on returns of publicly traded real estate firms, controlling for the effects of global capital markets, domestic macroeconomic conditions and firm‐specific variables. We find that a country's real estate security excess (risk‐adjusted) returns are negatively related to its openness. The results are robust across different multifactor model specifications and are a testament to increasing global financial integration and its interplay with the real estate sector.     

The role of supplier performance evaluations in mitigating risk: Assessing evaluation processes and behaviors

Given the level of outsourcing, supplier performance evaluation (SPE) is a critical supply chain process. SPEs are used to record supplier performance levels to inform future supplier selections, and thus mitigate the risk of adverse selection. Numerous weaknesses associated with industrial buyers' collection and use of supplier performance information call SPE effectiveness into question. The risk-related factors affecting SPE effectiveness have not been empirically explored, including misuses of the tool. This research identifies the factors affecting SPE risk mitigation effectiveness. It employs a mixed method of qualitative interviews of buyers and suppliers in order to develop a model of SPE risk mitigation effectiveness using structural equations modeling of survey data from a rare sample of 131 performance assessors. Findings implicate the importance of a thoroughly defined scope of work, an accurate SPE, and documented rating justifications. Additionally, dissonance among several performance evaluators and the fear of a supplier's dispute detract from SPE risk mitigation effectiveness. Finally, this research unveils how SPEs are weaponized, pursuing short-term gains and clouding the view of the supplier's performance thereby hindering the long-term, risk-mitigating purpose of SPEs. Two separate forms of opportunism - threat and debt - are discovered and have differing effects.     

Evaluation of Nonconventional Projects: GIRR and GERR vs. MIRR

This article considers evaluation of nonconventional projects and projects with cash outflows occurring not only at the beginning of project. It has been proved that, being a monotonically increasing function of a discount or finance rate, the modified internal rate of return (MIRR) fails to characterize the rate of return of such projects. We showed how to eliminate the MIRR's dependence on a finance rate and proved that in this case the MIRR becomes the “equivalent rate of return” proposed by Solomon. The generalized internal rate of return (GIRR) and generalized external rate of return (GERR) indices based on the generalized net present value (GNPV) approach are considered as alternatives to the MIRR. Several nonconventional projects have been evaluated using the MIRR, GIRR, and GERR rules. In order to verify the estimates, we drew up a simple project balance sheet, which demonstrated correctness of the results based on the GIRR and GERR rules and errors inherent in the MIRR application.     

中水源热泵地板供暖运行策略分析

为研究中水源热泵地板供暖系统的节能策略,以石家庄市某实际运行小区的中水源热泵地板辐射供暖系统为对象,引入室外综合温度的概念,综合考虑室外气温、太阳辐射热与风速等环境因子的影响,推导得出了地板辐射供暖系统质调节情况下,保证热用户舒适度的二次网供、回水温度调节公式。经实际运行测试,由该调节公式计算得出的二次网供、回水温度作为地板辐射供暖系统分时段质调节的依据,可以在满足热用户舒适度要求的情况下,取得良好的节能效果。中水源热泵系统与地板辐射供暖系统的结合及推广为城市集中供热提供了新思路。     

Innovation Process and Outcomes for Large Japanese Firms: Roles of Entrepreneurial Proclivity and Customer Equity

The authors investigate the structural relationships among entrepreneurial proclivity, innovation process characteristics (technological strength, marketing strength, and marketing–R&D integration), and customer equity in achieving business growth and financial return in the Japanese context. Following field interviews and a pilot test, survey data are collected from 207 pairs of marketing and R&D executives from strategic business units (SBUs) of large manufacturing companies in Japan. Based on the partial least squares analysis of data, the authors find nuanced effects of organizations' entrepreneurial proclivity on the critical organizational process, resource, and business performance. The study theorizes and empirically supports the idea that customer equity is a potent intermediary outcome that contributes to both top‐line (growth) and the bottom‐line (ROI) of a business. Specifically, the study shows that: (1) entrepreneurial proclivity directly and positively influences technology strength, marketing strength, and marketing‐R&D integration; (2) entrepreneurial proclivity's effect on business growth and financial return is positive and mediated by customer equity; (3) marketing–R&D integration has a moderating effect on the positive impact of technology strength on customer equity; and (4) customer equity is a strong driver of business growth and financial return. There is a dearth of research on entrepreneurship in Asia; very few empirical studies have been reported from Japan in particular. This study contributes to boundary testing of the theoretical relationships. Although entrepreneurial proclivity appears to be an inspirational concept, its actual adoption remains an important question for many Japanese companies. Those Japanese firms that aspire to be entrepreneurial need to be mindful what innovation processes and resources it takes to fulfill the positive influences of entrepreneurship.     

A review of: “COST ACCOUNTING,ROBOTICS, AND THE NEW MANUFACTURING ENVIRONMENT” by Robert Capettini and Donald K. Clancy,Editors, American Accounting Association,Sarasota, FL, 1987, 220 pp., No ISBN Number. Paperback. List $5.00.

Inventors, who are considering the commercialization of their inventions,-can often avail themselves of evaluations and advice provided by government supported programs. In Canada, such a service is provided by the Canadian Industrial Innovation Centre (CIIC), through its inventor's assistance program (IAP). In its 20 years of operation, the IAP has evaluated more than 11,000 inventions. The fee (in Canadian [Cdn.] dollars) charged for an invention evaluation was Cdn. $262 in 1995, and these fees cover about half the program's expenses. We compute the social rate of return of the Canadian IAP under different assumptions. The most plausible estimate is a social rate of return between 36% and 70%.     

Estimation of the Rental Adjustment Process

Rental adjustment equations have been estimated for a quarter century. In the United States, models have used the deviation of the actual vacancy rate from the natural rate as the main explanatory variable, while in the United Kingdom, drivers of the demand for space have dominated the estimation. The recent papers of Hendershott (1996) and Hendershott, Lizieri and Matysiak (HLM 1999) fall into the former category. We reestimate these equations using alternative formulations and present evidence that changes in real interest rates were not capitalized into Sydney and London real land prices. We then derive a model incorporating supply and demand factors within an Error Correction framework and show how the U.S. and U.K. traditions are special cases of this more general formulation. We next estimate a two-equation variant with a separate vacancy rate equation using data from the City of London office market. This model allows calculation of the underlying price (rent) and income (employment) elasticities and explains the data marginally better than the HLM model. Importantly, our model passes standard modern econometric requirements for unit roots and cointegration.     

Genetic Algorithms and Engineering Design

Viewing the future value of a cash flow stream as a polynomial in the compounding factor (being one plus the interest rate), this article uses Ruffini's rule in the synthetic division of a polynomial to provide insight linking several discounted cash flow analysis concepts. We use the polynomial remainder theorem to relate the concepts of divisor, quotient, and remainder to concepts in cash flow analysis—future value, present value, interest rate, account balance, and internal rate(s) of return—establishing a remainder theorem for the future value of a cash flow. Our exposition suggests that future value analysis is perhaps more direct and mathematically more transparent than attention paid to examining present value. This article extends previous work on the resolution of multiple rates of return when the interest rate used in our analysis equals an internal rate of return of the cash flow.     

Human milk supply in Australia

This paper aims to place a monetary value on the actual and potential supply of human milk in Australia. It estimates the quantity of milk produced in 1992. It considers different bases for determining a `shadow price' for breastmilk, and uses the method established by Oshaug and Botten (Food Policy 19(5), (1994), 479–482). It also calculates scenarios for different prevalences of breastfeeding, looking at the implications on the human milk supply of Australia achieving its National Health Targets, of all mothers breastfeeding according to the optimum regime recommended by the WHO and UNICEF in the Innocenti Declaration of 1990, or of a return to the `human milk famine' of the early 1970s. It concludes that Australian women supplied 33 million kg of breastmilk in 1992, compared to 16 million kg in 1972. Valued at A$67 per litre (the price of expressed human milk) the 1992 production level was worth $2.2 billion. This is around 0.5% of GDP, or 6% of private spending on food. Achieving international standards for `optimal' levels of breastfeeding, with breastfeeding continuing up to age two and beyond, would nearly triple the supply of human milk.     

Average Internal Rate of Return and Investment Decisions: A New Perspective

The internal rate of return (IRR) is often used by managers and practitioners for investment decisions. Unfortunately, it has serious flaws: (1) multiple real-valued IRRs may arise; (2) complex-valued IRRs may arise; (3) the IRR is, in general, incompatible with the net present value (NPV) in accept/reject decisions; (4) the IRR ranking is, in general, different from the NPV ranking; (5) the IRR criterion is not applicable with variable costs of capital. The efforts of economists and management scientists in providing a reliable project rate of return have generated over the decades an immense bulk of contributions aiming to solve these shortcomings. This article offers a complete solution to this long-standing unresolved issue by changing the usual perspective: the IRR equation is dismissed and the evaluator is allowed to describe the project as an investment or a borrowing at his discretion. This permits showing that any arithmetic mean of the one-period return rates implicit in a project reliably informs about a project's profitability and correctly ranks competing projects. With such a measure, which we call average internal rate of return, complex-valued numbers disappear and all the above-mentioned problems are wiped out. The economic meaning is compelling: it is the project return rate implicitly determined by the market. The traditional IRR notion may be found as a particular case.     

RANKING MUTUALLY EXCLUSIVE PROJECTS: THE ROLE OF DURATION

This paper develops a new measure of cash-flow timing called “return duration.” Numerically quite close to Macaulay duration, return duration is a straightforward function of a project's net present value (NPV) and internal rate of return (IRR). When comparing mutually exclusive projects, differences in return duration can explain ranking conflicts between NPV and IRR. The paper also clarifies the conditions under which a manager should consider duration or generalized NPV before making investment decisions when faced with such ranking conflicts.     

Satisfactory listening: The differential role of salesperson communication in (co)creating value for B2B buyers

The importance of communication skills of the salesperson (SP) on buyer satisfaction is fait accompli. However, how various facets of listening, along with the core components of SP's communication (i.e., content and diligence) contribute to the value creation process is poorly understood. The current research presents a conceptual framework to explain these effects and tests the model empirically. The authors conceptualize a framework for how critical aspects of SP's communication with customers differentially influence imagery versus transactional value creation. This process is explained with an application of the dual process theory. Partial least squares structural equation modeling (PLS-SEM) is employed to examine the theorized pathways within a sample of buyers of a large manufacturing firm in the United States. Results exhibit that while various facets of listening differentially contribute to the two value types, the core aspects of SP's communication mainly affect transactional value creation. Theoretical contributions and managerial implications are discussed.     

PERPETUITY RATE OF RETURN ANALYSIS

This paper introduces a new method of capital project analysis called the perpetuity rate of return (PRR). As implied by its name, the PRR is found by transforming a project's cash flow stream into a perpetuity and then relating this value to the required investment outlay. The PRR method is essentially a compromise between the NPV and IRR techniques. Like the NPV, the PRR correctly values a project's cashflows by using the market-determined cost of capital as the discount rate; like the IRR, the PRR is a rate of return that is appropriately compared to the cost of capital to determine a project's acceptability. The new yield-based method fares well in comparison with the IRR on a conceptual level and appears to have practical potential.     

Depreciation,investor compensation,and welfare under rate-of-return regulation

Depreciation schedules allocate capital expenditure over time. Investors are properly compensated under any full depreciation schedule, when the allowed rate of return plus inflation adjustments to the rate base just equal the investors' nominal discount rate. Whether changes in this nominal rate are reflected in adjustments to the rate base or the rate of return, depreciation schedules can be chosen to generate efficient time paths of output prices. Practical limits on depreciation schedules, nominal rates, or information may affect the choice between adjusting the rate base or rate of return for temporal changes in capital cost.     

Double vision: Insights about the origin and interpretation of multiple IRRs

The ability of a project's internal rate of return (IRR) to quantify its economic return has been questioned by many scholars over the past 60 years, most recently by Magni (2010 Magni, C.A. (2010) Average internal rate of return and investment decisions: a new perspective. The Engineering Economist, 55(2), 150–180. [Google Scholar], 2013 Magni, C.A. (2013) The internal rate of return approach and the AIRR paradigm: a refutation and a corroboration. The Engineering Economist, 58(2), 73–111. [Google Scholar]). Although IRR is a plausible—albeit imperfect—measure of a project's economic return when the cash flow stream is conventional, IRR can be an untenable measure of an unconventional project's economic return. The goal of this article is to identify a simple, intuitive explanation of IRR, one that can be applied to any cash flow pattern. To do this, the article shows how a project's IRR systematically changes when it first crosses from the conventional into the unconventional realm (i.e., a small cash outflow is appended to a conventional cash flow stream) and then as it becomes progressively more unconventional. This process reveals that the most robust economic interpretation of IRR—for both conventional and unconventional projects—is that a project's IRRs are external benchmarks that divide the set of all plausible discount rates into positive and negative net present value (NPV) ranges, rather than internally generated returns. Because it can be difficult to estimate a project's cost of capital with precision, this information can help guide the sensitivity analysis of a project.     

The IRR of a project with many potential outcomes

This article shows that the internal rate of return (IRR) of a project's expected cash flow stream is a weighted average of the IRRs offered by the project's (many) possible future outcomes, where the weights are calculated using the outcome probabilities and invested capital balances. Because the invested capital associated with a particular realization is a function of the Macaulay duration of the cash flows in that outcome, the weights depend on the outcome probabilities and the effective length of each cash flow stream.