Informal firms in developing countries: entrepreneurial stepping stone or consolation prize?

The potential dynamic benefits of a firm having the option to adopt informal status are analysed. Informality may be a stepping stone, without which formality may never be achieved. This result is obtained for a broad range of realistic parameter values, suggesting a potential dynamic case for government support of informal firms. Informality may alternatively play a converse role as a consolation prize, with a firm only entering an industry (formally) because it recognizes that if profitability is disappointing, it can switch to informality. However, this result is obtained for a range of parameter values so narrow as to be of no practical significance.     

Which firms are more prone to stock market manipulation?

This study empirically investigates which firms are more susceptible to successful manipulation. For this purpose, a unique data set consisting of manipulation cases from 1998 to 2006 from the Istanbul Stock Exchange (ISE) was collected and firm-specific variables are used to explain these manipulations. Probit regression results show that small firms, firms with less free float rate and a higher leverage ratio are more prone to stock price manipulation. Dynamic probit analysis concludes that the probability of manipulation of a stock is significantly higher for stocks that have been previously manipulated.     

Bank finance for private firms in China: Does political capital still pay off?

This paper investigates whether political connection can help private firms in China gain access to commercial bank loans. Based on data from the 2012 Nationwide Survey of Private Enterprises in China, it finds that: (i) politically connected firms were more likely to have access to commercial bank loans; (ii) the mechanism for this better access might be that, on the one hand, political connection was used by private firms as a tool to overcome discrimination and/or information asymmetry in the loan market; on the other hand, political connection was seen by banks as a signal of creditworthiness; and (iii) the importance of political connection seems to lie in the connection to the power to govern rather than the mere opportunity to influence policy.     

New firms and labor market entrants: Is there a wage penalty for employment in new firms?

In this paper, we explore the role of new firms as an entry point to the labor market. Because the vast majority of new firms are short-lived, it is a risky decision to accept employment in a new venture. It can be argued that individuals with little (or no) labor market experience are more willing to accept the high risks associated with employment in new firms. Hence, new firms may work as an entry point to the labor market. Nevertheless, some research concludes that one disadvantage of employment in a new firm is that new firms pay less (Shane in Small Bus Econ 33:141–149, 2009). However, this empirical conclusion is primarily based on literature on the wage penalty of small firms. In this paper, we study whether the wage penalty of employment in a new firm persists if we focus solely on labor market entrants. In the empirical analysis, we employ an employer-employee matched dataset that covers the Swedish population during the period from 1998 to 2008. We use the propensity score matching method to study the wage differences between labor market entrants employed in new and incumbent firms. We find an average wage penalty of 2.9 % for labor market entrants employed in new firms over the studied period.     

Gain or pain? New evidence on mixed syndication between governmental and private venture capital firms in China

I investigate the performance of mixed syndication involving both governmental and private venture capital firms (GVCs and PVCs) in the context of China. Using the data on the investments in start-ups between 1995 and 2011, I find that start-ups backed by mixed syndication in their initial financing round are less likely to survive to the next round to obtain refinancing, compared to those backed by syndication solely among PVCs. I present evidence consistent with two possible explanations of the underperformance of firms backed by mixed syndication: a potentially lower criterion of selecting portfolio companies when led by PVCs and less complementary resources but higher coordination cost in mixed syndication. The empirical results continue to hold when using instrumental variables, propensity score matching analysis and the quasi-maximum likelihood estimation method for mitigating the potential selection bias and endogeneity problems.     

Do stock prices undervalue investments in advertising?

Under the efficient market hypothesis, the stock price incorporates the full value of a firm’s advertising. If so, advertising spending should not be associated with future abnormal stock returns. Nevertheless, from 1995 to 2015, advertising spending often leads to abnormal stock returns the following year. The strongest results surface for consumer goods and services where advertising used to build brand equity can carryover from one year to the next. No significant differences arise for healthcare, industrial goods, or retailer advertising. Healthcare and industrial goods advertising is often modest. Retailer advertising that builds traffic should have little if any carryover into the following year. These results may help marketing managers defend an advertising budget whose benefits carryover into the following year, but hurt current profits. Having more investment analysts on Wall Street with a marketing background should help reduce this overly conservative “wait and see” discount for carryover advertising.     

Does It Make Sense to Be a Loyal Employee?

Loyalty is a much-discussed topic among business ethicists, but this discussion seems to have issued in very few clear conclusions. This article builds on the existing literature on the subject and attempts to ground a definite conclusion on a limited topic: whether, and under what conditions, it makes sense for an employee to offer loyalty to his employer. The main ways in which loyalty to one’s employer can contribute to human flourishing are that it makes the employee more trustworthy and therefore more valuable as an employee; makes it easier to form authentic relationships in other areas of the employee’s life; expands the employee’s field of interests and gives her or him a richer identity; provides greater motivation for the employee’s work; makes it possible to have a greater unity in the employee’s life; improves the performance of the organization for which the employee works; contributes to the protection of valuable social institutions; and, in so far as many employees share an attitude of loyalty towards the organization which employs them, it becomes possible for this organization to become a true community. Last, but not the least, loyal relationships have an inherent value. The article also reviews the main arguments that have been offered against employee loyalty and concludes that none of them offers a reason why it would be inappropriate in all cases for an employee to be loyal to her or his employer. The force of these arguments depends on the specific attributes of the organization for which the employee works. The main conclusion of the article is that while being a loyal employee involves risk, it has the potential to contribute significantly to the employee’s fulfilment. The main challenge for employees is to identify employers who are worthy of being loyal to.     

Real options? Labor contracts in an uncertain world

Business Economics - The standard labor contract is increasingly replaced by flexible and diverse alternative work arrangements. We discuss, in the context of firm labor demand when product demand...     

Bid and ask prices of index put options: Which predicts the underlying stock returns?

In this study, we separately estimate the implied volatility from the bid and ask prices of deep out-of-the-money put options on the S&P500 index. We find that the implied volatility of ask prices has stronger predictive power for stock returns than does the implied volatility of bid prices. We identify two sources of the better performance of the ask price implied volatility: one is its stronger predictive power during economic recessions and in the presence of increasing intermediary capital risk, and the other is its richer information about the future market variance risk premium.     

The entrepreneurial orientation–performance relationship in private family firms: the moderating role of socioemotional wealth

Drawing on socioemotional wealth (SEW) literature, this paper revisits the established entrepreneurial orientation (EO)–performance relationship in a family business context. The main idea in entrepreneurship literature is that EO leads to increased firm performance. We question this logic in a family business context because family related non-financial goals, like SEW, may prevent the firm to reap the fruits of their entrepreneurial efforts. Specifically, we argue that SEW engenders inefficiencies that place constraints on the realization of the benefits of entrepreneurship. Therefore, we propose that a high level of SEW preservation hinders the transmission of the family firm’s EO into positive performance effects. To test this hypothesis, an empirical study was developed using a sample of 232 Belgian private family firms. Robust linear regression analysis reveals that the positive effect of EO on financial performance decreases as the level of SEW preservation increases.     

Stock options,restricted stock,salary, or bonus? Managing CEO compensation to maximize organizational performance

CEO pay has gone through remarkable changes over the past two decades. The most striking new features have been the increased use of stock options in the early 2000s, and of restricted stock since then. Both forms of stock-based compensation are intended to resolve the agency problem that occurs when CEOs do not act in the best interests of stockholders, but each has its advantages and limitations. In this instalment of Organizational Performance, we discuss the history of their use and similarities and differences between the two, and argue that both are often overused. Bonuses based on strategic goals, on the other hand, may be underused. We conclude with a contextual approach to guide boards of directors in making choices among the forms of CEO compensation—stock options, restricted stock, salary, and bonus—to incentivize CEOs to work toward maximizing organizational performance. Briefly, stock options are most appropriate for growth firms, and restricted stock for stable firms. Both forms of stock-based compensation are more appropriate for new than for long-tenured CEOs.     

Why do firms delete brands? Insights from a qualitative study

Large consumer goods firms manage and market an assortment of brands and consistently deal with strategic challenges related to brand portfolio management, such as creating or acquiring brands, growing brand equity, managing brands in the portfolio and deleting brands. There is substantial research on several areas of brand portfolio management except in the area of brand deletion. This situation exists despite the fact that deleting weak brands has important implications for a firm and its brand portfolio. Therefore, it is critical to understand why firms delete brands from their portfolios. This research applies a qualitative approach using semi-structured interviews and thematic analysis in the context of firms that adopt a ‘house of brands’ brand architecture and presents findings guided by the strategic decision-making literature.     

How different are corporate social responsibility motives in a developing country? Insights from a study of Indian agribusiness firms

Against the backdrop of increasing foreign direct investment flows in the developing economies in Asia, the investigation of topical aspects of corporate social responsibility (CSR) in the region increases in importance. We examine the CSR motives of four large indigenous agribusiness firms in India with a view of assessing the validity of the claim that CSR in this country, compared to developed countries, is influenced substantially more by moral, cultural, and religious considerations and less by self‐interest and profit seeking. Unlike numerous other investigations of CSR that rely on questionnaires and company reports, our data are drawn from in‐depth interviews and theme analysis revealing some intricate motives behind CSR behavior and business conditions that inspire them. Our findings challenge some previously reported results and indicate that the degree to which such a behavior is affected by the state of economic development and cultural differences may be smaller than is often argued.     

Does global fear predict fear in BRICS stock markets? Evidence from a Bayesian Graphical Structural VAR model

We examine the predictive power of implied volatility in the commodity and major developed stock markets for the implied volatility in individual BRICS stock markets. We use daily data from March 2011 to October 2016 and employ the newly developed Bayesian Graphical Structural Vector Autoregressive (BGSVAR) model of Ahelegbey et al. (2016). Evidence suggests that the predictability of individual implied volatilities in BRICS is generally a function of both global and within the group stock market implied volatilities, and that the role of commodity market volatility is marginal, except for South Africa. Important implications for policy-makers and portfolio-managers are discussed.     

Do entrepreneurial goals matter? Resource allocation in new owner-managed firms

This paper focuses on how entrepreneurial goals affect the resource allocation of new firm owners. It connects research in psychology and management that examines the core motivations of entrepreneurs with research in economics that models the behavior of owner-managers as utility-maximizing rather than profit-maximizing. We hypothesize that new owners with nonmonetary goals allocate their resources differently than do owners with monetary goals and that the differences are meaningful in size. To test these hypotheses, we estimate firm level equations based on economic theories of input demand that show how input quantities depend on owner goals. Data come from a national survey of new U.S. business owners. We find owner goals have both a statistically and substantively significant effect on resource allocation for new firms. Owners with nonmonetary goals put in more of their own and family hours rather than hiring outside employees. Implications for research and policy are discussed.     

Do Swedish multinationals pay less in taxes than domestic firms?

In recent years, there has been growing concern that multinational enterprises (MNE s) engage in strategic tax planning in order to shift profits to low‐tax jurisdictions. This common perception is generally confirmed by empirical evidence, which is foremost provided for countries with high corporate taxes and relatively complex tax systems. We investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting. We do this using detailed census data from corporate income statements and balance sheets filed by Swedish manufacturing firms between 1997 and 2007. We detect profit shifting by comparing MNE s with (purely) domestic firms. In particular, we identify systematic differences in tax payments, earnings (before interest and taxes) and equity ratios between multinational and comparable domestic firms based on propensity score matching. In addition, we examine the tax behavioural impact of acquiring multinational status using difference‐in‐differences estimations and/or propensity score matching. Our results reveal that the extent to which multinational firms have lower tax payments than their domestic counterparts depends on their production characteristics and foreign market outreach. In particular, we find evidence indicating that firms operating in few foreign markets and firms that become multinational engage in profit shifting from Sweden.     

Why don't all young firms invest in R&D?

This article aims to analyze the different impacts that some factors may exert on the probability that a small young firm invests intensively in R&D. Recently, an increasing amount of the literature makes reference to the vital role played by a small number of young firms in generating jobs and increasing efficiency levels. However, not all new firms invest in R&D. Departing from the definition of Young Innovative Companies (YICs, firms younger than 6 years old, fewer than 250 employees and with more than 15 % of their revenues invested in R&D activities), and with an extensive sample of the Spanish Community Innovation Survey between 2004 and 2010, we try to determine: (1) those factors that cause firms to become YICs (innovative young small firms) or Young Non-Innovative Companies (YNICs, moderately innovative young small firms), and (2) what is the difference in the impact of those factors between YICs and YNICs. Our results show that factors such as initial innovation capacity and cooperation in R&D projects enhance the probability of becoming a YIC. Nevertheless, factors such as export potential and market uncertainty may influence the decision to invest moderately and become a YNIC.     

Partnering with universities: a good choice for nanotechnology start-up firms?

The role of universities in supporting economic development has been explored in studies emphasizing the mechanisms of technology transfer and knowledge spillover. However, in addition to these forms of intellectual capital, university scientists bring other resources into research collaboration and contribute to firm partnerships in both direct and indirect ways. This paper develops the concept of resource spillover, which captures the various ways in which firms can benefit from collaborations with university scientists. The study categorizes the resources possessed by university scientists into intellectual capital, social capital, and positional capital, and tests the impact of each on the performance of firms. Using a sample of new nanotechnology-based firms in the USA, the study finds that the benefits to firms from university scientist research collaboration include enhancements to perceived research capacity and technology potential, which in turn may increase chances of securing external funding.     

Corporate social responsibility: a boon or bane for innovative firms?

In today’s dynamic business landscape, Corporate Social Responsibility (CSR) is considered as an important strategic initiative for attaining sustainable competitive advantage. The present study aims to examine (i) the influence of consumer’s perceived firm innovativeness (CPFI) and consumer trust on perceived CSR activities of the firm and (ii) the mediating role of perceived CSR in the relationship between (iia) consumer’s perceived firm innovativeness and purchase intention (iib) consumer trust and purchase intention. Four hypotheses were tested with the primary data (n = 287) collected through a structured questionnaire. The regression analysis revealed that CPFI and consumer trust have direct positive impacts on the perceived CSR. Further, perceived CSR mediates the relationship between CPFI and purchase intention. However, perceived CSR does not play a mediating role between Consumer Trust and Purchase Intention. Overall, the findings of this study indicate that engagement in the CSR activities tend to reduce the perceived risk associated with innovation and consequently, influence the purchase intention among consumers. Theoretical and managerial implications are further discussed.     

Does Service Employee Arrogance Discourage Sales of Luxury Brands in Emerging Economies?

Upscalex stores selling luxury brands from Western, developed countries are having a strong presence in many emerging markets. However, it is not uncommon to find that the service employees of these stores are arrogant and inhospitable. This article uses a dual attitudes perspective to show how service employee arrogance affects customers’ attitudes and purchase intentions toward luxury brands in emerging markets. Experimental findings show that arrogance produces dual attitudes, with positive implicit attitudes exerting a stronger influence than unfavorable explicit attitudes on purchase intentions. In addition, for customers with high self‐esteem, service employee arrogance has a negative effect on their purchase intentions. In line with the expectation disconfirmation model, when service employees change their arrogant attitudes and subsequently show hospitality, customers also change their expectations. When the improved service exceeds customers’ expectations, their explicit attitudes turn positive and exert a stronger influence on purchase intentions than when service employees are consistently hospitable.