Business groups and foreign direct investments by developing country firms: An empirical test in India

Drawing on recent theoretical explanations, we develop hypotheses on the relationship between business group affiliation and FDI by developing country firms. We hypothesize a positive relationship between business group affiliation and FDI overall, as well as between business group affiliation and FDI into advanced countries and into developing countries. In addition, we argue that the impact of business group affiliation on FDI varies in strength among business groups based on their size and diversification. We also empirically test the hypotheses in a sample of firms from one large and important developing country, India.     

Do Style-Goods Retailers’ Demands for Guaranteed Profit Margins Unfairly Exploit Vendors?

Retailers, particularly those in the style-goods and fashion apparel industry, are increasingly demanding guaranteed profit margins (GPMs) from their vendors. Under a GPM stipulation, a vendor has to offer a rebate to maintain the retailer’s target margin on the item if the retailer is compelled to take a markdown from the initial price to sell out the ordered quantity for the season. Vendors dispute retailers’ claim that a GPM is a “win-win” mechanism for both parties. They rather view it as a coercive device. The authors examine this issue in a multistage game with demand uncertainty. Interestingly, the analysis shows that depending on the level of demand uncertainty, it may be optimal for the vendor to lower rather than raise his wholesale price upon being asked for a GPM. Further, the analysis shows that under conditions of low demand uncertainty the provision of a GPM by the vendor to the retailer can indeed yield higher profits for both parties than in the NO GPM case.     

Why are firms unlevered?

In this paper, we examine why firms have no debt in their capital structure. We reject the hypothesis that zero-leverage policies are driven by entrenched managers attempting to avoid the disciplinary pressures of debt. These firms do not have weaker internal or external governance mechanisms. The debt initiation decisions of these firms are not preceded by shocks to their entrenchment, such as takeover threats or the emergence of activist blockholders. Our evidence supports the hypothesis that these firms are financially constrained. Zero-debt firms are small, young, conserve cash from cash-flow, and are more likely to lease their assets. When they have access to a line of credit, they face stricter covenants and higher all-in costs than comparable control firms. They lose market share in economic downturns, consistent with the financial constraints explanation, but inconsistent with theories of predation which suggest that they may be voluntarily stockpiling debt capacity.     

A microcomputer‐aided support environment for Xerox quality improvement teams: A case study

Although successful total quality management (TQM) emphasizes the role of teams, the quality literature does not provide a clear picture of the conditions that enable high‐performance teamwork. This case study describes the impacts of a microcomputer‐aided support environment implemented to support quality improvement teams (QITs) at Xerox. The support environment, called the Quality Support Center or QSC, was proposed and implemented explicitly to aid Xerox QITs in intensifying quality practice. The QSC features a comprehensive software tool kit, which, in conjunction with human facilitation, is designed to support correct use of Xerox structured meeting and quality processes and tools and facilitate team coordination over time. Impacts—realized from implementing solutions proposed by QITs using the QSC, as well as impacts on the work of QITs—have been substantial and far‐reaching, indicating that use of the QSC has contributed significantly to the business bottom line and quality intensification. The contribution of contextual enablers to these impacts is assessed using Hackman's [1] influential model; QSC software is described as reinforcing and augmenting these contextual enablers. Practical implications of this study stem from its documentation of the impacts of use of the QSC in the award‐winning TQM environment of Xerox. This study contributes to theory development as well by mapping features of the Xerox TQM environment on to the Hackman model. The mapping suggests the relevance of frameworks drawn from group research for modeling contextual enablers of high‐performance teamwork in TQM settings, especially as the need for theory in assessing QIT performance enablers has been emphasized [2].     

Reforming Food Subsidy Schemes: Estimating the Gains from Self-targeting in India

The paper uses the theoretical framework of the theory of tax reform to analyze whether a “small” change in an existing food subsidy program can be both welfare‐improving and revenue‐neutral. It shows how existing econometric methods can be adapted to estimate demand parameters even when household‐level data exhibit little price variation because the government controls food prices. The methodology is used to estimate welfare changes from shifting a rupee of subsidy on existing commodities to coarse cereals in the Indian public distribution system.     

Strategic investments in Japanese corporations: do foreign portfolio owners foster underinvestment or appropriate investment?

This paper investigates the effect of foreign ownership on strategic investments in Japanese corporations. Foreign owners are typically portfolio investors who frequently buy and sell shares and hold diversified portfolios of small stakes in many firms. Prior research has presented two conflicting perspectives on the role of such investors: (a) their frequent trading leads to pressure for short‐term returns that fosters underinvestment; (b) their active trading fosters appropriate investments. We investigated the relationship between foreign ownership and strategic investments using dynamic panel data analysis of a sample of 146 Japanese manufacturing firms from 1991 to 1997. We found that foreign ownership enhances strategic investments (in R&D and capital intensity) to a greater extent when firms have growth opportunities than when they lack such opportunities. We conclude that foreign ownership fosters appropriate investment. Copyright © 2006 John Wiley & Sons, Ltd.     

Communication and authority with a partially informed expert

A sender‐receiver game a la Crawford‐Sobel is analyzed where the sender has expertise on some but not all the payoff‐relevant factors. This residual uncertainty can either improve (even allow full revelation) or worsen the quality of transmitted information depending on a statistic called the effective bias. For symmetrically distributed residual uncertainty or quadratic loss functions, (i) the quality of information transmission is independent of the riskiness of residual uncertainty, (ii) it may be suboptimal to allocate authority to the informed player, (iii) despite players' preferences being arbitrarily close, it is impossible to assert that the receiver prefers delegation over authority or vice versa.     

Use of tobacco retailer inspections to reduce tobacco sales to youth: do inspections increase retailer compliance?

Public health efforts to prevent tobacco use among young people have typically attempted to change individual behaviour. More recently, it has become evident that macro‐level behaviour change strategies which impact on the wider social environment are more effective in changing behaviour. In most states, retailer compliance laws restrict the sale and distribution of tobacco products to minor consumers. Indiana's Tobacco Retailer Inspection Program (TRIP), a state government programme, was established to put environmental controls in place by restricting youth access to tobacco products. TRIP involved conducting random, unannounced tobacco retailer outlet inspections, with violators being fined, and compliant retailers rewarded. This study examines the associations among retailer inspections, retailer compliance and access to tobacco by youthful consumers. Inspection data from 2001 to 2003 were analysed using chi‐square statistics and analysis of variance. Findings indicate that randomly selected retail outlet inspections are associated with increased sales restrictions to youth. The researchers conclude that strong tobacco sales regulations and enforcement will reduce illegal sales of tobacco products to minors.     

Ethics Trumps Culture? A Cross-National Study of Business Leader Responsibility for Downsizing and CSR Perceptions

Downsizing remains a topic of great interest to both academics and practitioners. Yet, the impact of layoff decisions on perceptions of corporate social responsibility (CSR) has hardly been studied. We examine the impact of responsibility of business leaders making these layoff decisions, and characteristics of the downsizing implementation on convergence and divergence in (1) CSR perceptions, (2) victims’ perceptions of fairness, and (3) survivor commitment, in four countries. Using an experimental design, sixteen scenarios were distributed to (1) 163 managers in Estonia, (2) 152 MBA students in India and 125 MBA students in France, and (3) 186 (non-traditional) undergraduate students in the USA. Results suggest that when top managers are attributed with the responsibility for downsizing, the resulting perceptions of CSR are negative. A similar pattern of results is obtained for victims’ perceptions of fairness and survivor commitment. In addition, although there are differences in effect-size based on differences in power distance, these results hold good (are similar) across the four countries, from four different society clusters. We discuss implications, limitations, and future research directions.