Rapidly with a Rifle or more Slowly with a Shotgun? Stretching the Company Boundaries of Internationalising ICT Firms

Small firms start operating internationally much more quickly than was previously the case. However, this requires that companies acquire resources and skills in a significantly shorter time than earlier. This paper discusses the pressures that such development puts on company boundaries from the viewpoint of Finnish ICT companies. Our findings indicate that the rapidity of internationalisation is positively correlated with the number of foreign partners but reverse to our expectations, i.e., the more partners the firm has, the slower its start of international operations. Additionally, the study confirmed that a rapidly internationalising firm has a narrowly defined core competence. Surprisingly, rapidly internationalising firms searched for partners with similar type of competence instead of complementary one. This indicates that the associations between core competence and rapid internationalisation deserves more attention.     

Capital Structure and Debt Priority

We study a defaultable firm's debt priority structure in a simple structural model where the firm issues senior and junior bonds and is subject to both liquidity and solvency risks. Assuming that the absolute priority rule prevails and that liquidation is immediate upon default, we determine the firm's interior optimal priority structure along with its optimal capital structure. We also obtain closed‐form solutions for the market values of the firm's debt and equity. We find that the magnitude of the spread differential between junior and senior bond yields is positively, but not linearly related to the total debt level and the riskiness of assets. Finally, we provide an in‐depth analysis of probabilities of default and the term structure of credit spreads.     

What moves option‐implied bond market expectations?

This article examines the impact of macroeconomic news announcements on bond market expectations, as measured by option‐implied probability distributions of future bond returns. The results indicate that expected bond market volatilities increase in response to higher‐than‐expected inflation and unemployment announcements. Furthermore, the asymmetries in bond market expectations are found to be affected mostly by surprises in inflation and economic production figures. In particular, it is found that higher‐than‐expected inflation announcements cause optionimplied bond return distributions to become more negatively skewed or less positively skewed, implying a shift in market participants' perceptions toward future increases in interest rates. Finally, the results indicate that market expectations of future extreme movements in bond prices are virtually unaffected by macroeconomic news releases. Some evidence is found, however, that suggests that after extreme surprises in inflation announcements market participants attach higher probabilities for extreme movements in bond prices. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:817–843, 2005     

Random monitoring in financing relationships

This paper examines a financier’s optimal monitoring intensity in a multi-period financing relationship. We identify conditions under which the financier should sometimes misidentify the quality of an entrepreneur. Such an imperfect evaluation technology affects action choices by bad entrepreneurs. We first characterize the optimal monitoring intensity and show that it is one in which the investor monitors entrepreneurs randomly. Random monitoring in the first stage of a relationship induces bad entrepreneurs to reveal their intrinsic types. Second, because random monitoring reduces the share of bad entrepreneurs in the subsequent periods, we show that the financier can therefore realize substantial gains.