Portfolio Construction for Tests of Asset Pricing Models

Portfolios are commonly used in finance literature to study asset‐pricing models. In business practice portfolios are used to detect abnormal performance in certain asset groups or to construct reference assets. However, analyses on practical issues related to portfolio construction are surprisingly few. This paper presents and discusses issues related to portfolio return calculation from theoretical and practical perspectives. Special attention is given both to smaller and emerging stock markets. These stock markets often share common features like low liquidity, multiple stock series, and changes in foreign ownership restrictions that greatly affect portfolio construction.     

Equity premium in Finland and long-term performance of the Finnish equity and money markets

Using new monthly series collected together for the first time for Finland, this paper analyses the performance and development of the Finnish equity and money markets as well as the equity premium and inflation from 1912 to 2009. The series are analyzed and compared to similar series from Sweden and USA. Continuously compounded nominal returns in Finland have been high, 12.91 and 6.44 % per annum for the stock and money markets, respectively. However, taking into account the high annual average inflation rate of 7.77, the Finnish market has provided clearly lower real returns than the US market. On the other hand, the equity premium, 10.14 % per annum, is found to be comparable to that of the United States (9.35 %) and higher than that in Sweden (6.01 %) using an approach similar to Mehra and Prescott (Handbook of the economics of finance, vol 1B. Financial Markets and Asset Pricing, North Holland, 2003). Finally, our empirical evidence suggests that as the Finnish stock market has matured, it shows an increasing degree of informational efficiency while at the same time becoming more intertwined with international markets.     

EU-Enlargement and Beyond: A Simulation Study on EU and Russia Integration

This paper examines the economic effects of the opening of the Russian Federation. The analysis carried out in the paper is twofold. First we simulate the impact of the eastern enlargement of the EU and, second, we analyse how deeper integration between the EU and Russia contributes to this. The analysis is carried out with GTAP, a computable general equilibrium model. We find that there is a trade-off between the two roads of European integration arrangements. Eastern enlargement seems, even in its very deep form, be beneficial for all EU regions without causing substantial welfare losses outside the Union. EU–Russia integration, on the other hand, has different impact. To be beneficial for Russia free trade between the EU and Russia requires improved productivity in the latter, which may be due to better institutions or increased FDI. This might make the negotiations of the agreement cumbersome and if agreed its implementation difficult.This study stems from a project Opening of Russia in which the authors participated at RECEP in Moscow. This paper is substantially revised and updated version of Sulamaa, P. and Widgrén, M. (2003): EU Enlargement and Beyond: A Simulation Study on EU and CIS Integration, CEPR Discussion Papers 3768. The authors thank Peter Havlik and Risto Vaittinen and an anonymous referee for beneficial comments on earlier drafts, Comments and discussions with Paavo Suni, Ivan Samson, Xavier Richet and Xavier Greffe are also gratefully acknowledged. The usual disclaimer applies.     

The globalization strategies of business-to-business born global firms in the wireless technology industry

This paper discusses the globalization process of business-to-business born globals in a rapidly growing industry, the wireless technology industry. Deviations in these patterns in regards to the mainstream pattern of internationalization and earlier born global literature are discussed. Furthermore, the roles of the founders and managers, the networks, the financial resources of the companies, and the innovations behind the companies under consideration are analyzed. A conceptual framework and propositions explaining the product, operation and market strategies of born globals are developed. The results suggest that born globals in the wireless sector do in fact deviate from the traditional internationalization process in many areas. Their expansion even to distant markets is rapid and they apply advanced product strategies at an early stage. However, their business operations are found to proceed at a more conventional pace and the notable difference from traditional firms is the rapid establishment of sales and marketing subsidiaries. Results emphasize the key role of the resources and capabilities of born globals in influencing the advancement of product categories, operation strategies, and global market presence. Born global firms were found to lack the resources and capabilities accumulated by traditionally internationalizing firms, and they therefore need to acquire them either through the earlier experience of the founding team, which should be complementary in nature, or from external domestic and international network actors.     

The impact of consumer local engagement on local store patronage and customer satisfaction

Abstract

This paper examines the drivers of local grocery retail patronage. Drawing on institutional and social network theory literature, we develop a framework to investigate how consumers’ personal values and engagement with local communities affect their satisfaction and local store patronage. We test our model with survey data on 1504 Finnish consumers. Our results show that the relationship between customer local engagement and local retail patronage is indirect rather than direct, and it is mediated by the vitality of local services, social interaction, and consumer satisfaction.     

Toward Sustainable Consumption: Two New Perspectives

The article is an integrative, theoretical paper addressing the problem of sustainable consumption. It provides the insights of two conceptual frameworks on the conditions for and limits to sustainable consumption. Existing consumer research on environmental issues is reviewed. It is argued that consumer research is not focusing on the right issues in this area and that a trans-disciplinary approach is called for. Frameworks from materials balance economics and evolutionary theory are presented and applied to recreational consumption. Three major areas are identified in which consumer research could contribute to the presented frameworks, and to the theory and practice of sustainable consumption.     

Globalization and marketing strategies of Born Globals in SMOPECs

This research examines Born Global companies, which are facing tremendous entrepreneurial and managerial challenges related to instant or rapid globalization. A major research problem addressed is whether the strategies and processes of Born Globals differ essentially from those of other firms in respect to globalization and global marketing. Based on a literature analysis, we first examine the concept of Born Globals and then turn to a review of the research dealing with the globalization and marketing strategies of Born Globals. Survey results on 89 Finnish Born Globals from high‐tech, high‐design, high‐service, high‐know‐how, and high‐system business areas are presented. Their domestic stage lasts for an average of only 2.1 years. For conventional companies, the period is ten times longer. Furthermore, Born Globals can be classified on the basis of their development into three preliminary stages (research & development [RD], domestic, and entry) and into four major stages (starting, development, growth, and mature). The study then proceeds to examine the globalization and global marketing strategies of Born Globals through a multiple case study of 30 case companies representing the above development stages. Special attention is paid to the mature Born Globals, which were found to have passed quickly through the conventional internationalization stages, jumped over some stages, and, in some cases, even progressed in reverse order. After this, attention turns to a detailed examination of the challenges identified and their solutions for three particular interest groups: entrepreneurs, government policymakers, and academicians. The implications of the results for entrepreneurs should be of particular importance, as managerial, research and development, sales and marketing, and also financial challenges and solutions are covered in detail. Finally, this research concludes that although many of the Born Global findings deviate from the internationalization behavior of conventional companies, the holistic and company‐level stage models still seem to have a high degree of explanatory power for many companies originating in small and open economies (SMOPEC). © 2006 Wiley Periodicals, Inc.     

Communication as a determinant of organizational innovation

This study of 32 small and medium-sized industrial enterprises explored eight distinct aspects of communication, as appraised by the staff ( n  = 493), and innovative performance, assessed by two indicators: perceived innovation effectiveness and patent statistics obtained from the Patent Register at the National Board of Patents and Registration of Trademarks. The results showed that intra-organizational aspects of communication, such as encouragement of initiatives and critical evaluation of performance, were associated with both indicators of innovative performance. In addition, a participative climate and interaction between the personnel in R&D, marketing and production were related to perceived innovative effectiveness, whereas interaction with clients and other firms related to the number of patents in the organization. The link between communication and innovation was interdependent with the organizational and staff characteristics including the number of personnel, administrative and R&D intensity, the level of vocational training, and the age distribution of the staff.     

Public and private capital productivity in Russia: a non-parametric investigation

The productivity of public capital has been very popular research topic for US and other OECD countries, while studies using data from transitional countries are almost non-existent. In this paper, we analyze the productivity of public and private capital in Russia with parametric and non-parametric regression methods utilizing a unique regional level panel data from 2003 to 2007. More specifically, we assess public capital’s spillover effects, i.e., the productivity of public capital on private output, as well as the productivity of different capital ownership types on total output. We find that public capital has a clear positive effect on private output. However, our estimates and test statistics show that parametric methods are not able to grasp vast non-linearities and heterogeneity present among Russian regions, while the non-parametric approach can capture these important features of the data better. Furthermore, we find that multicollinearity is an important methodological problem which should be accounted for in analysis concerning capital data. Our results also suggest that the impact of public capital in Russia is heterogeneous in the sense that for some regions its contribution to private output is insignificant or even negative while it has a considerable positive role for most regions. Concerning the capital elasticities of total output, we find that public capital is less productive than private capital and roughly as productive as joint private-public capital.     

Determinants of capital budgeting methods and hurdle rates in Nordic firms

We study the determinants for the choice of capital budgeting methods and the setting of hurdle rates (WACCs) in five Nordic countries. Combining survey data with a rich set of determinants, including ownership data, CFO characteristics, and financial data, we find that the use of the Net Present Value method and the sophistication of the capital budgeting are related to firm characteristics, variables proxying for real option features in investments and CFO characteristics (age and education). We also find support for significantly higher hurdle rates than motivated by economic theory. The premium is weakly positively related to managerial short‐term pressure and strongly negatively related to the sophistication level of the firm’s capital budgeting.