Are differences in firm size transitory or permanent?

An Erratum for this article has been published in Journal of Applied Econometrics 18(2) 2003, 249 Previous empirical work on corporate growth rates using cross‐section or short‐panel econometric techniques suggests that growth rates are random but that some degree of mean reversion exists. This means that size differences between firms are transitory. Another, more natural way to explore the long‐run distribution of firm sizes is to examine data on the growth of particular firms over long periods of time. Using a sample of 147 UK firms observed continually for more than 30 years, our conclusions are that growth rates are highly variable over time and that differences in growth rates between firms do not persist for very long. Further, firms show no tendency to converge to either a common size or to a pattern of stable size differences over time. These results are compared and contrasted with standard approaches that suggest that firms reach and maintain stable positions in a skewed size distribution. Copyright © 2002 John Wiley & Sons, Ltd.     

A flight to Q? Firm investment and financing in Korea before and after the 1997 financial crisis

We examine investment behavior among exchange-listed Korean manufacturing firms before and after the 1997 financial crisis using firm-level panel data. Starting with the standard Q-theory of investment, we augment it by allowing for a sales accelerator and the possibility of cash constraints, categorizing firms based on their age, size and affiliation to an industrial conglomerate (i.e., chaebol). We find that Tobin’s Q is a robust determinant of investment in a pooled sample for 1992–2001, but that it became more important for small firms and less important for chaebol-affiliated firms after the crisis. Investment by chaebol firms also became more sensitive to the availability of internal cash balances after the crisis. We interpret this as reflecting a shift in the Korean economy to a stronger market orientation after the crisis and to a business climate in which the quality of potential projects became more important relative to capital market imperfections in determining the destination of investment funds.     

Recreation Demand and Residential Location

We use the properties of competitive location equilibrium to study the demand for recreation and the choice of primary residence location. Location-specific recreation and employment lead to pooling equilibria in which consumers reside according to their preference for recreation. In general, the stronger the taste for recreation, the greater the attraction of living close to the recreation site and the lower the demand for other goods, including housing. We explore the effects of trip frequency, trip length, and recreation cost on the spatial distribution of consumers. We also consider the effect of the wage rate on recreation and location demands.     

FOCUS: Ethical Business: Thinking Thoughts and Facilitating Processes

Doing business ethics and conducting ethical business has to be much more than conducting a rational enquiry. Much also depends on the motivation of individuals and how a positive moral vision of business can unite intellectual and affective approaches to the conduct of business. The author is a lecturer in Philosophy at Warwick University, Coventry CV4 7AL, and a Research Associate at the Local Government Centre at Warwick Business School. He is also an independent organisation development consultant specialising in helping organisations develop their learning processes and value-based forms of leadership.