Organisational capabilities and internationalisation of the small and medium-sized information and communications technology firms

Especially in changing and unpredictable global environments where small knowledge-intensive information and communications technology (ICT) firms often operate, knowledge-based organisational capabilities are seen to contribute most to the performance. In this paper we explore the internationalisation process of small knowledge-intensive firms by studying the effects of a firm’s organisational capabilities on internationalisation and performance. We use a sample of 124 (of which 55 operate internationally) Finnish small and medium-sized firms. International experience is confirmed to be a significant determinant of internationalisation and international performance. In addition, financial capabilities prove to be a significant indicator of the degree of internationalisation: excellent investment expertise, connections with venture capitalists and good financial management are important capabilities for a small firm with high international growth aspirations.     

Is banking competition beneficial to SMEs? An empirical study based on Italian data

Using a large panel of Italian firms, spanning the years from 1995 to 2003, this study investigates the relationship between bank debt and non-financial SMEs’ performance, evaluating whether and to what extent this link is affected by the degree of competition characterising the local credit market where firms operate. Controlling for inertia, unobserved heterogeneity and the endogeneity of some performance determinants, we find that the (negative) impact of bank debt on firms’ performance is weaker for firms running in more competitive banking markets. We interpret this result as evidence that a more intense banking competition may lead to better credit conditions for small and medium-sized firms.     

Technological Regimes and Firm Survival: Evidence Across Sectors and Over Time

In addition to the usual variables representing firm- and industry-specific features that impact the firm’s survival, this paper uses three R&D related variables to reflect two Schumpeterian technological regimes: creative destruction (the entrepreneurial regime) and creative accumulation (the routinized regime). After controlling for age, size, entry barriers, capital intensity, the profit margin, the concentration ratio, the profit-cost ratio and entry rates, the empirical results confirm the theoretical relationship between technological regimes and the survival rate of new firms: new firms are more likely to survive under the entrepreneurial regime. Moreover, this effect is larger within the younger cohorts of firms than within the older ones.      

Advertising to a social network

Direct advertising—sending promotional messages to individual customers—is increasingly used by marketers as a result of the recent improvements in consumer reachability. Most current methods to calculate optimal budgets for such advertising campaigns consider customers in isolation and ignore word-of-mouth communication (WOM). When the customer base forms a network (as is the case in telecom or social network databases) ignoring WOM clearly leads to suboptimal advertising budgets. This paper develops a model to help address this challenge. We assume that firms know the network structure formed by customers but do not know (or are not allowed to use) data on individuals’ connections. Under this scenario, we compare the optimal campaign of a monopolist to that of firms competing in simultaneous-move or sequential-move games. The analysis provides two key insights: (i) we show that ignoring the existence of WOM leads to significant profit loss for firms and this is more so under competition. In particular, knowing the “density” of consumer connections is crucial for the design of optimal campaigns. (ii) Competition in direct advertising exhibits strong first-mover advantages and, even in a simultaneous-move game between identical firms, highly asymmetric outcomes are possible. The paper also explores two extensions. First, we study the nature of the trade-off between increasing network size versus increasing the connectivity between existing network members. Second, we investigate how firms’ advertising activity may endogenously grow the membership base.     

The role of the science park in innovation performance of start-up firms: an empirical analysis of Tsinghua Science Park in Beijing

This study empirically analyses the determinants of start-up firms in the Tsinghua Science Park in Beijing using survey data. More than 50% of firms are software and Internet related with CEOs has a strong technological background. It is found that firms that have their internal innovations grounded in their own competitive advantage show better innovation performance, while formal research and development collaboration with Tsinghua University plays only a marginal role. However, they benefit from informal connections with faculty members and access to students. Human resource management services by the Science Park management company are highly appreciated by tenant businesses. Finally, networking activities among tenants are found to be weak.     

Entrepreneurial orientation,commitment to the Internet and export performance in small and medium sized exporting firms

This paper investigates links between entrepreneurial orientation, commitment to the Internet and export performance in small and medium sized firms. The central argument is that entrepreneurs are more likely to use the Internet to develop export market opportunities, and to have better export performance than less entrepreneurial firms. In testing this proposition, a measure of ‘commitment to the Internet’ was developed and used in a mail survey of UK exporters. The results show that firms with high entrepreneurial orientation are more committed to the Internet and have better export performance than firms with low entrepreneurial orientation.     

Determinants of Managerial Values on Corporate Social Responsibility: Evidence from China

This article empirically investigates how Chinese executives and managers perceive and interpret corporate social responsibility (CSR), to what extent firms’ productive characteristics influence managers’ attitudes towards their CSR rating, and whether their values in favour of CSR are positively correlated to firms’ economic performance. Although a large proportion of respondents express a favourable view of CSR and a willingness to participate in socially responsible activities, we find that the true nature of their assertion is linked to entrepreneurs’ instincts of gaining economic benefits. It is the poorly performing firms, or rather, firms with vulnerable indicators – smaller in size, State-owned, producing traditional goods and located in poorer regions that are more likely to have managers who opt for a higher CSR rating. Managers’ personal characteristics per se are not significant in determining their CSR choice. Moreover, controlling for other observed variables, we find that managers’ CSR orientation is positively correlated with their firms’ performance. The better-off a firm is, the more likely its manager is to get involve in CSR activities. Firms with better economic performance before their restructuring would sustain higher post-restructuring performance.     

Do Lenders Value Corporate Social Responsibility? Evidence from China

Drawing on risk mitigation theory, this article examines whether the improvement of firms’ social performance reduces debt financing costs (CDFs) in China, the world’s largest emerging market. Employing both the ordinary least square (OLS) and the two-stage instrumental variable regression methods, we find that improved corporate social responsibility (CSR) reduces the CDF when firms’ CSR investment is lower than an optimal level; however, this relationship is reversed after the CSR investment exceeds the optimal level. Firms with extremely low or extremely high CSR are subject to a higher CDF. The results also suggest that the optimal CSR level for small firms is higher than that for large firms. This study is the first to document a U-shaped relationship between CSR and CDF and also the first to investigate this relationship within an emerging market context.     

Strategic Risk-Taking Propensity: The Role of Ethical Climate and Marketing Output Control

In the wake of the current financial crises triggered by risky mortgage-backed securities, the question of ethics and risk-taking is once again at the front and center for both practitioners and academics. Although risk-taking is considered an integral part of strategic decision-making, sometimes firms could be propelled to take risks driven by reasons other than calculated strategic choices. The authors argue that a firm’s risk-taking propensity is impacted by its ethical climate (egoistic or benevolent) and its emphasis on output control to manage its marketing function. The firm’s long-term orientation is argued to moderate the control–risk propensity relationship. The authors also extend research on risk and performance and argue that the association of risk-taking propensity and firm performance is contingent on the ownership (publicly traded versus privately held) structure of the firm. Based on survey data from a sample of manufacturing industries in the United States, the results show significant impact of ethical climate and marketing output control on a firm’s risk-taking propensity; also risk-taking propensity shows a stronger association with firm performance in privately held firms than in publicly traded firms.     

Erratum to: Beyond Acclamations and Excuses: Environmental Performance,Voluntary Environmental Disclosure and the Role of Visibility

Some researchers have argued that firms with favorable environmental performance are more likely to provide voluntary environmental disclosure, while others have argued that firms with poor environmental performance are most likely to disclose. The authors propose a curvilinear relation between environmental performance and environmental disclosure that is moderated by visibility. Data were obtained from S&P 500 firms queried by Ceres’ Climate Disclosure Project. Results show a U-shaped environmental performance–environmental disclosure relation and a main effect for visibility but no moderating effect for visibility on the U-shaped environmental performance–environmental disclosure relation. The authors discussed the implications of these results for future research and practice.     

Do Credible Firms Perform Better in Emerging Markets? Evidence from China

Prior research suggests that corporate credibility is associated with firm financial performance in developed countries. This article examines whether corporate credibility is related to firm performance using Economic Observer’s rating of corporate credibility in China, the largest emerging market in the world. Based on a four-stage valuation model, we find that more reputable and credible firms outperform those with low ratings by almost 20% in 3-year stock returns and have better 3-year net profit margins, return on equity, and sales growth. This study is the first to directly examine the relationship between corporate credibility and firm performance in emerging markets such as China, and our results confirm that firms with high credibility exhibit better financial and market performance at least in the following 3 years.     

Strategic Trade Policies Under Monopsony and Uncertainty: The Exporter’s Non-Linear Responses Based on the Organization of Its Industry

Players’ access to information, their market power, and the timing and rationale of their decisions are important but often neglected in the making of strategic trade policies. I examine optimal decisions in a monopsonistic market with asymmetric information to determine an exporting country’s policy strategies. The large importing country first sets a producer subsidy and later imposes an import tariff after learning about the welfare-maximizing exporter’s reactions to the subsidy. I assume that at the time of their decisions, the n exporting firms have incomplete information and rely only on noisy signals from their own domestic market to account for the uncertainty in the international market. I find that import tariff and producer subsidy can be substitute rather than exclusively independent policies. Results also show that the exporting country’s optimal reaction is non-linear and is based on the structure of its export industry; the exporting country’s government facing a large importer subsidizes (or taxes) its export when the number of exporting firms is low (or high) relative to a threshold number of firms. More important, before giving out subsidies, the exporting country’s government requires more collusion of its firms especially when the large importer targets a fixed domestic price.     

Bank Work Experience Versus Political Connections: Which Matters for Bank Loan Financing?

This paper examines how bank lending decisions are affected either by executives’ connections with banks, through their former banking experience, or by their political connections with governments, using a sample of bank loans granted to Chinese listed non‐state‐owned enterprises (SOEs) from 2003 to 2010. We find that bank loans are more closely related to profitability for firms with bank connections, while firms’ political connections weaken this relationship. We further find that the influence of bank connections is more significant for firms from less supported industries or less developed regions. Furthermore, firms with bank connections are less likely to become financially distressed after the initiation of their bank loans and experience higher future stock returns, while firms with political connections experience the opposite outcome. Overall, our results indicate that in the context of a relationship‐based economy like China, firms’ connections with banks create value by alleviating information asymmetry and improving banks’ lending decisions, while political connections result in capital misallocation and subsequent deterioration in performance.     

Technology strategy and performance: a study of information technology service providers from selected Asian countries

The provision of information technology (IT) services to support a wide range of information and communication technology (ICT) products has experienced rapid growth in recent years, particularly in less developed countries in Asia. This paper develops a conceptual model to test the impacts of the technology strategy of IT service providers on two measures of performance based on the experience of a sample of 98 IT firms from Korea, China, Thailand and the Philippines. It is found that technology strategy related to the adoption and diffusion of technology contributes positively to both performance measures. While the technology capabilities of firms, both internal and external, are important for financial performance, internal technological capabilities are more effective for the firm’s response to market changes. The technology competence of employees reflected by their education levels and the availability of in-house training are also found to be crucial for financial performance. The overall results suggest that technology strategy contributes significantly towards the performance of IT service providers but the impacts of different strategies on the financial and strategic performance of firms vary markedly.

Pricing Policy and Partial Collusion

We study the pricing policy equilibria emerging in a partial collusion duopolistic framework where firms in the first stage of the game choose non-cooperatively the pricing strategy (perfect price discrimination or uniform pricing), and from the second stage onward collude on prices. We show that for intermediate discount factors and high firms’ asymmetry, the unique equilibrium is characterized by only the smaller firm choosing price discrimination. In the case of intermediate discount factors and low firms’ asymmetry, there are two possible equilibria: both firms price discriminate or no firm price discriminates. When the discount factor is particularly high or particularly low both firms price discriminate in equilibrium.     

Multimarket contact and firm performance: The moderating effect of Confucian culture

This paper examines the effect of Confucian cultural value on the relationship between multimarket contact and two dimensions of firm performance, i.e., firms’ innovation and profitability. It is hypothesized that firms with a high level of multimarket contact are more likely to show mutual forbearance towards their competitors, which in turn influences their innovative behavior and financial performance. Taking into account the possible moderating effects of Confucian cultural value, we also hypothesize that the effect of multimarket contact is more pronounced among firms from the Confucian culture. In other words, it is argued that firms from the Confucian culture are more likely to innovate and obtain better financial performance. Empirical tests were conducted after the hypotheses, and the findings support the arguments on multimarket contacts and mutual forbearance hypotheses. Through facilitating tacit collusion, multimarket contact does seem to help create superior economic performance.     

Gibrat’s law and persistence of growth in Greek manufacturing

This study makes use of a sample of Greek manufacturing firms during 1995–2001 in order to analyze Gibrat’s law. We find Gibrat’s law is rejected for the total sample of firms, since persistence of growth plays a key role. The classification of firms in size and age groups, however, yields more interesting results: Gibrat’s law is rejected for micro, small, and young firms, since an inverse relationship between firm growth and initial firm size is found along with a persistence of growth rates in subsequent periods. In contrast, Gibrat’s law is accepted for medium, large, and old firms, implying that the growth patterns of these categories follow a random walk and do not tend to persist in subsequent periods.     

The Effect of Enhancing Workers’ Employability on Small and Medium Enterprises: Evidence from Spain

In this paper, we analyse the effect of promoting workers’ employability on labour productivity. To this end, we adapt a simple efficiency-wage model that includes the employer’s decision on the provision of opportunities for enhancing workers’ employment prospects in a context of job insecurity. We show that (i) by facilitating workers’ employability, the firm increases its labour productivity; and (ii) the higher the job uncertainty the higher the productivity gains due to the increase in employability. One of the advantages of our model is that it is simply enough to allow us to formulate two testable hypotheses, namely (i) the increase of jobs’ potential to enhance workers’ employability results in higher level of workers’ effort, and (ii) the provision of employability is more profitable for small and medium enterprises (SMEs) than for large firms. More precisely, SMEs should obtain higher effort levels from employees by fostering workers’ employability than large firms. We provide some evidence supporting these hypotheses from a highly representative sample of Spanish manufacturing firms. This research has been funded by the Spanish Ministry of Education and Science, project SEJ2004-07242-C03-02.     

Corporate Social Responsibility in Western Europe: An Institutional Mirror or Substitute?

In spite of extensive research on corporate social responsibility (CSR) and its link with economic and social performance, few studies have investigated the institutional determinants of CSR. This article draws upon neo-institutional theory and comparative institutional analysis to compare the influence of different institutional environments on CSR policies of European firms. On the basis of a dataset of European firms, we find that firms from the more liberal market economies of the Anglo-Saxon countries score higher on most dimensions of CSR than firms in the more coordinated market economies (CMEs) in Continental Europe. This result lends support to the view of voluntary CSR practices in liberal economies as being a substitute for institutionalized forms of stakeholder participation. Meanwhile, CSR tends not to mirror more institutionalized forms of stakeholder coordination. Instead, in CMEs, CSR often takes on more implicit forms. Our analysis also shows that national institutional and sectoral-level factors have an asymmetric effect – strongly influencing the likelihood of firms adopting ‘minimum standards’ of CSR, but having little influence on the adoption of ‘best practices’.