Regulatory risk, market uncertainties, and firm financing choices: Evidence from U.S. Electricity Market Restructuring

Based on the universe of rate-regulated electric utilities in the U.S., we examine why firms alter their financing decisions when transitioning from a regulated to a competitive market regime. We find that the significant increase in regulatory risk after the passage of the Energy Policy Act, state-level restructuring legislations, and divestiture policies have reduced leverage by 15 percent. Policies that encouraged competition, and hence increased market uncertainty, lowered leverage by another 13 percent on average. The ability to exercise market power allowed some firms to counter this competitive threat. In aggregate, regulatory risk and market uncertainty variables reduce leverage between 24.6 and 26.7 percent. We also confirm findings in the literature that firms with higher profitability and higher asset growth have lower leverage, and those with more tangible assets are more levered. Firms with greater access to internal capital markets and those with a footloose customer segment use less debt, while those actively involved in trading power in the wholesale market use more debt.     

Corporate diversification and innovation: Managerial myopia or inefficient internal capital markets?

Which is more innovative: the decentralized, diversified firm, or the centralized, more narrowly focused firm? The economics and finance literatures argue that diversified firms have innovation advantages as their operating units have access to an internal capital market. In contrast, the strategy and entrepreneurship literatures argue that managers of these firms suffer from “managerial myopia,” discouraging them from investing in projects with long-term, uncertain payoffs. We take a fresh look at the relationship between innovation and diversification using a comprehensive sample of diversified and nondiversified firms and a novel approach that teases out the mechanisms influencing the relationship between diversification and innovation. Consistent with conceptual and empirical work in strategy, we find a robust negative correlation between diversification and R&D intensity, suggesting that diversification reduces innovation by discouraging investment. However, our analysis suggests that internal capital market inefficiencies, rather than managerial myopia, is responsible for this observed negative relationship.     

Follow the Crowd or Follow the Trailblazer? The Differential Role of Firm Experience in Product Entry Decisions in the US Video Game Industry

Firms take cues from their external environment under uncertainty and imitate the actions of others. However, a firm’s own experience may either substitute for these external clues because the firm can evaluate uncertain situations more accurately, or it may complement them because the firm can act more successfully on the external cues. We argue that the type of external cues determines which of the two holds in the context of product entry decisions into market niches. If firms observe a large wave of entrants, own experience conveys more information than the imprecise signal of a mass of other firms. Conversely, if firms observe trailblazers, i.e., highly successful and influential products in a niche, own experience can help firms develop a strategy as a fast follower in a growing niche. We expect the supporting role of own experience in following trailblazers to be especially pronounced in niches that have not been discovered by a large mass of other firms. We study and test our hypotheses in the context of the US PC video game industry between 1991 and 2010 and find support for both the substitutive relationship between own experience and niche popularity and the complementary relationship of own experience and niche trailblazers. However, support for the complementary relationship is limited to less populated niches.     

Doing more and doing better are two different entities: Different patterns of family control and environmental performance

Family firms bear two types of agency costs, including type I and type II agency problems, in corporate environmental practices: (1) Outside executives at family firms hesitate to engage in environmental strategies, which can lead to drops in profits; (2) Controlling families employ opportunistically environmental management to achieve their interests. We argue that a primary cause for the agency problems lies on ineffective internal corporate governance at family firms, which can cause loss of managerial (or power) balance between outside executives and family executives. Our findings show that family firms with ownership and strategic control (FSC), which family executives and outside executives monitor and constrain each other, can achieve the highest environmental performance. Moreover, external controls, including product market competition and provincial environmental regulations, substitute effective internal control of FSC. The environmental performance premium of FSC is more prevalent when the production market competition is lower. Family firms with ownership, operational, and strategic control (FOSC) can achieve higher environmental performance within a province with more stringent environmental regulations.     

Director co-option and future market share growth

This paper examines the effect of director co-option on product market outcomes. We find that future market share growth declines as executives co-opt more of the board. Co-opted directors also inhibit the product market benefits from cash reserves. These findings hold in a variety of robustness tests, sustaining the view that director co-option reduces product market performance. Our results further show that co-option leads to lower market share gains among firms whose industry rivals intensely change products and have higher borrowing capacity. Compared to their competitors, firms with more co-opted directors also allocate less internal resources to potential product differentiation strategies, but award executives more cash-based pay. Overall, our findings support the agency theory supposition that firms with co-opted boards lose market share ex-post.     

Partner Type Diversity in Alliance Portfolios: Multiple Dimensions,Boundary Conditions and Firm Innovation Performance

Our research extends the current knowledge based view on the configuration of alliance portfolios and their deployment in different external knowledge environments. We study these alliance portfolios in a longitudinal sample (1996–2010) for over three thousand firms that operate in a large number of industries in the Netherlands. Our findings indicate that partner type variety and partner type relevance, as different dimensions of partner diversity in alliance portfolios, both have an inverted U‐shaped association with firm innovation performance. However, alliance portfolios characterized by both high partner type variety and high relevance cause inferior innovation performance. Different external knowledge environments, characterized by different levels of industry modularity and scope of knowledge distribution, moderate the inverted U‐shaped associations of partner type variety and relevance in alliance portfolios with firm innovation performance in opposing directions. While for partner type variety, a high level is found to be optimal in environments with greater modularity or broader scope of knowledge distribution, for partner type relevance it turns out that a low level is optimal under more modular industry conditions.     

Internal Resource Allocation and External Alliance Activity of Diversified Firms

Prior research suggests that diversified firms are often unable to match resources to the market needs and opportunities of their divisions due to factors such as influence activities. In this research, we propose that when such internal inefficiencies arise, diversified firms may form alliances to access resources externally to support their divisions in their industries and operations. Using a sample of US firms between 1997 and 2006, we find that, on average, diversified firms form more alliances within industries that they currently operate in when compared to single business firms. The alliancing activity in related industries increases when businesses with diverse growth opportunities exist within the same firm, and it decreases with the intensity of internal control and coordination mechanisms. Our study suggests a link between internal resource allocation processes and external alliancing activity, while highlighting that alliances may play an important role in how diversified firms manage the inefficiencies that arise within their boundaries.     

Green innovation and knowledge: The role of size

This paper reports research on relationship between firm's knowledge sourcing strategy and green innovation. The data are taken from Spanish Technological Innovation Panel survey during 2007–2011. The study contributed to the literature by focusing on the moderating role of firm size on the relationship between knowledge sources and green innovations. Results from over 5,000 firms indicate a shift in the focus from internal knowledge to external knowledge when developing green innovations as firms grow in size. Despite benefits from broad knowledge search on green innovations, the relationship has an inverted U shape. The diminishing returns of knowledge breadth on green innovations are present for smaller firms and disappearing as firms get larger. Government policies promoting more coordination and knowledge complementarity between private and public sector will help to influence more knowledge transfer, ensuring a more sustainable and green economy.     

The determination of wages of newly hired employees: Survey evidence on internal versus external factors

This paper reports findings on the relative importance of internal versus external factors in the setting of wages of newly hired workers. The evidence, from a rich firm-level survey on wage and price-setting procedures in 15 European Union countries, suggests that external labour market conditions are less important than internal pay structures in determining hiring pay, with internal pay structures binding even more often when there is labour market slack. When explaining their choice firms allude to fairness considerations and the need to prevent a potential negative impact on effort. Cross-country differences are found to depend on institutional factors: countries in which collective agreements are more prevalent and collective agreement coverage is higher report more often internal pay structures as the main determinant of hiring pay. Within-country differences are found to depend on firm and workforce characteristics: there is a strong association between the use of external factors in hiring pay, on the one hand, and skills (positive) and tenure (negative) on the other.     

The impact of open innovation on firm performance: The moderating effects of internal R&D and environmental turbulence

Researchers have identified open innovation as two dimensions, external technology acquisition and external technology exploitation. This study explores the direct and interactive effects of these two dimensions on firm performance and further examines the moderation effects of two factors (i.e., internal R&D and environmental turbulence) on the relationship between both types of open innovation and firm performance. Based on Chesbrough's open innovation model, multi-item scales were developed to measure two dimensions of firm-level open innovation. Survey results of 176 Taiwanese high tech manufacturing firms provide support for most hypotheses. The result shows that external technology acquisition positively affects firm performance, whereas external technology exploitation does not. This study also finds that external technology acquisition strengthens the relationship between external technology exploitation and firm performance. Both external technology acquisition and external technology exploitation are positively related to firm performance under high internal R&D investment and a turbulent market environment. However, technological turbulence only positively affects the relationship between external technological acquisition, but not external technology exploitation, and firm performance. The findings contribute to enhanced understanding of how the degree of leveraging open innovation dimensions depends on their complementarity, internal R&D, and environmental turbulence.     

产品市场竞争强度对公司现金股利分配的影响

作为一种外部治理机制,产品市场竞争的强度对公司现金股利分配具有显著的影响。本文所建立的理论模型表明,两者的关系呈倒U形：在产品市场竞争强度达到某一临界值之前,现金股利分配倾向随之提高;但是,在该临界点之后,现金股利分配倾向随之降低。采用迭代主因子法构建了一个合成变量来度量产品市场竞争强度,针对中国上市公司样本数据的实证检验支持了理论分析的结论。     

卖空机制具有治理作用吗？——基于内控质量的经验证据

以2014年至2018年我国A股上市公司为样本,以解除卖空限制这一事件为研究情境,系统考察了卖空制度执行对企业内控质量的影响。研究发现,解除卖空限制显著促进了企业内部控制水平的提高,并且在资本市场外部监督机制较宽松的情况下,卖空机制对企业内部控制质量的促进作用更加明显。内控质量改善动因分析表明低质量内控行为引起卖空势力的聚集,导致企业面临较大的卖空压力。卖空压力的存在是企业完善内控体系、提升内控质量的重要动因。经济后果分析表明解除卖空限制以内控质量改善为途径,促进了企业财务报表真实可靠、经营效率效果及合法合规等内控目标的实现。研究结果提供了卖空机制与内控质量间因果关系的经验证据,对于理解资本市场监督机制对企业内控制度影响的经济后果具有重要意义。     

Estimation of market power in the presence of firm level inefficiencies

“The quiet life hypothesis” (QLH) by Hicks (1935) argues that, due to management’s subjective cost of reaching optimal profits, firms use their market power to allow inefficient allocation of resources. Increasing competitive pressure is therefore likely to force management to work harder to reach optimal profits. Another hypothesis, which also relates market power to efficiency is “the efficient structure hypothesis” (ESH) by Demsetz (1973). ESH argues that firms with superior efficiencies or technologies have lower costs and therefore higher profits. These firms are assumed to gain larger market shares which lead to higher concentration. Ignoring the efficiency levels of the firms in a market power model might cause both estimation and interpretation problems. Unfortunately, the literature on market power measurement largely ignores this relationship. In the context of a dynamic setting, we estimate the market power of US airlines in two city-pairs by both allowing inefficiencies of the firms and not allowing inefficiencies of the firms. Using industry level cost data, we estimate the cost function parameters and time-varying efficiencies. An instrumental variables version of the square root Kalman filter is used to estimate time-varying conduct parameters.     

The association between continuing professional education and financial performance of public accounting firms

This study investigates the relationship between continuing professional education (CPE), a mechanism of professional training, and financial performance of public accounting firms. Both training subject (partner and assistant) and training location (internal and external) are included. Public accounting firms are categorized as big, medium, and small-sized ones. Empirical data are obtained from the 1992–1995 Survey Report of Public Accounting Firms in Taiwan, published by the Financial Supervisory Commission, Executive Yuan, Taiwan, ROC. Univariate test and multiple-regression model are employed to examine the financial performance effects of CPE. Main results indicate that both professional training of assistants and external professional training are positively related to financial performance in big-sized firms. Next, we document a significantly positive association between internal training of assistants and financial performance in either big-, medium-, or small-sized firms. Finally, both external professional training of partners in big-sized firms and external professional training of assistants in small-sized firms are positively related to financial performance. Few prior studies investigate professional training of public accounting firms by a regression model due to availability of empirical data. Accordingly, evidences obtained in this study provide useful information to partners for decision-making in public accounting firms under the considerably competitive audit market.     

Co-operation and co-opetition as open innovation practices in the service sector: Which influence on innovation novelty?

This study aims to identify the influence of co-operation practices and the use of internal and external information sources on the propensity of firms to introduce new to the market innovations in the service sector. Data come from the 4th Community Innovation Survey, which covers the years 2002-2004. A logistic regression model is applied with the degree of novelty of good/service innovation as dependent variable. The analysis of the parameter estimates shows that firms provided with information from market sources and from internal sources as well as firms involved in science-based collaboration for their product innovations are more likely to introduce new to the market innovations, whereas information coming from competitors seems to have a negative influence on the degree of novelty of innovation.     

Unshrouding for Competitive Advantage

In a market with hidden product details and systematic consumer biases, firms have the possibility to unshroud and thereby to rectify such market obliquities. While the classical view was that firms will have an incentive to unshroud, Gabaix and Laibson (2006) show that there exist constellations in which firms prefer to leave the market shrouded. Building on that model I introduce a more strategic and long‐term dimension of unshrouding which turns out to fundamentally alter the underlying incentives to unshroud. In particular, I show that there exists an incentive to unshroud that stems from differences in add‐on profitability and that it is dependent on parameter constellations whether a more profitable or a less profitable firm will want to unshroud.     

Endogenous mergers under multi-market competition

This paper examines a simple model of strategic interactions among firms that face at least some of the same rivals in two related markets (for goods 1 and 2). It shows that when firms compete in quantity, market prices increase as the degree of multi-market contact increases. However, the welfare consequences of multi-market contact are more complex and depend on how two fundamental forces play out. The first is the selection effect, which acts to increase welfare, as shutting down the relatively more inefficient firm is beneficial. The second opposing effect is the internalisation of the Cournot externality effect; reducing the production of good 2 allows firms to sustain a higher price for good 1. This works to increase prices and, therefore, decrease consumer surplus (but increase producer surplus). These two effects are influenced by the degree of asymmetry between markets 1 and 2 and the degree of substitutability between goods 1 and 2.     

The Internationalisation Process of Danish Firms -Gradual Learning or Discrete Rational Choices?

Abstract

The Uppsala Internationalisation model has greatly influenced Nordic research on the internationalisation process of firms. In this article, the Uppsala model is tested on Danish empirical material. The Danish firms largely follow a sequential development as regards the geographical dimension, where, typically, they set up in culturally close markets first and later set up in the more distant markets. On the other hand, the firms seem to follow to a less extent a pattern of sequential expansion of market commitment on the single foreign markets, just as a surprising number of establishments are set up without previous activity on the market. Crucial differences cannot be found between the establishment pattern abroad of large and small firms. The Uppsala model in itself cannot explain the internationalisation pattern of the Danish firms, which is why the article advocates that the internationali-sation process should be understood as an interaction between internal conditions in the firm (“learning” processes), external competitive conditions and more basic economic factors (assessment of market potential).     

Creating innovative opportunities through research collaboration: An evolutionary framework and empirical illustration in engineering

This paper analyses the creation of innovative opportunities through research collaborations. It contributes by (i) providing an evolutionary conceptual framework for the formation and exploitation of innovative opportunities through research collaboration; and by (ii) providing an empirical illustration of this framework by applying it to a case study of firms׳ research collaboration taking place in university–industry research centers in engineering. The evolutionary framework developed specifically focuses on the generation of novelty and variety and on selection pressures as key for the creation of opportunities. It also emphasizes the differences between small and large firms when it comes to role of research collaboration for opportunity creation. Empirically, we illustrate that firms in general focus more on the generation of variety in the form of (fundamental) knowledge, than on research collaboration leading directly to the formation and exploitation of opportunities. For large firms, the focus is rather to transfer this created variety back to the firm, to use for inputs into the in-house creation of opportunities. In contrast, small firms focus instead on using research collaboration to generate and develop knowledge about customer needs in order to create market opportunities, especially through networking with large firms participating in the collaboration.     

The role of environmental innovation through the technological proximity in the implementation of the sustainable development

This paper explores the relationship between a firm's knowledge sourcing strategy and green innovation. The data are taken from Organisation for Economic Cooperation and Development REGPAT database, February 2016, relative to the European Patent Office firms' patent applications published up to December 2015. The study contributes to the literature by focusing on the moderating role of integration between different activities related to environmental performance on the relationship between knowledge sources and green innovations. The results from 240 firms indicate a shift in the focus from internal knowledge to external knowledge when developing environmental innovations. Government policies promoting more knowledge complementarity and coordination between environmental fields will help to promote more knowledge transfer, allowing more sustainable development.