Unleash innovation in foreign subsidiaries

In multinational corporations, growth-triggering innovation often emerges in foreign subsidiaries from employees closest to customers and least attached to the procedures and politeness of the home office. But too often, heavy-handed responses from headquarters squelch local enthusiasm and drive out good ideas--and good people. The authors' research into more than 50 multinationals suggests that encouraging innovation in foreign subsidiaries requires a change in attitude. Companies should start to think of foreign subsidiaries as peninsulas rather than as islands--as extensions of the company's strategic domain rather than as isolated outposts. If they do, innovative ideas will flow more freely from the periphery to the corporate center. Basing their arguments on a rich array of examples, the authors say that encouraging such "innovation at the edges" also requires a new set of practices, with two aims: to improve the formal and informal channels of communication between headquarters and subsidiaries and to give foreign subsidiaries more authority to see their ideas through. The challenge for executives of multinationals is to find ways to liberalize, not tighten, internal systems and to delegate more authority to local subsidiaries. It isn't enough to ask subsidiary managers to be innovative; corporate managers need to give them incentives and support systems to facilitate their efforts. The authors suggest four approaches: give seed money to subsidiaries; use formal requests for proposals as a way of increasing the demand for seed money; encourage subsidiaries to be incubators for fledgling businesses; and build international networks. As part of the last approach, multinationals also need to create roles for idea brokers who can link entrepreneurs in foreign subsidiaries with other parts of the company.     

Cash Flow Estimation and Cost of Capital for Overseas Projects

Several issues concerning foreign project evaluation are critically examined. The paper suggests that the point of view for analysis, cost of capital and cash flow estimation be internally consistent. Three points of views of analysis, local, global, and parent specific, are identified and various inconsistencies in the estimation of the initial outlay and project cash flows are identified. The elimination of the inconsistencies is discussed. It is argued that the treatment of blocked funds is relevant only from the parent specific point of view. A number of alternatives for the estimate of the terminal value is also suggested. The differences between the parent specific point of view and the global and local views are sharply drawn. An integrated scheme is also presented to underscore the need for consistency in evaluating foreign investments.     

Statistical disclosure in general three-dimensional tables

Statistical offices are concerned with problems of protecting confidential information when publishing data in statistical tables. One method to avoid disclosure is the method of cell suppression, in which the values of the sensitive cells in the table are suppressed from publication. To prevent the values of the sensitive cells from being calculated from the tables totals, additional suppressions are necessary. The problem of minimizing the loss of information caused by the additional suppressions is a difficult optimization problem. We present and compare the performance of some heuristics for cell suppression for general three-dimensional tables.     

On testing the correlation coefficient of a bivariate normal distribution

Summary Here we propose two tests for testing in the bivariate normal population assuming that the ratio of the variances in it is known. The first test (U.M.P.U.) is derived by using the Neyman-Pearson lemma, whereas the second test is obtained through testing the scale parameter of the Cauchy distribution. The powers of the first and second tests are compared with a well-known test, based on the sample correlation coefficient for small and large samples respectively.     

Price dynamics when there are alternatives to cash payment

Empirical evidence from the 1980s and 1990s indicates that cash use in the U.S. remains high even though there has been a proliferation of alternatives to cash. This paper examines the dynamics of inflation and asset prices in response to innovations in the efficiency of processing noncash transactions. The quantitative results suggest that inflation is more sensitive than nominal interest rates or real equity prices to innovations in the efficiency of non-cash payments processing. Thus, as alternatives to cash payment become more prominent, the volatility of real interest rates may increase.(JELE31, E41, G12) This research is supported by a Swarthmore College Faculty Research Grant and a Eugene M. Lang Faculty Fellowship.     

The Sarbanes-Oxley Act and CEO tenure,turnover, and risk aversion

Using a sample of CEO turnover from 1999 to 2005, we find that CEOs become significantly more risk averse following the passage of the Sarbanes-Oxley Act, SOX. Their increased risk aversion may serve as an explanation for why CEO tenure is not significantly shortened and forced CEO turnover is not more likely post-SOX, as we document in this paper. In addition, we provide evidence that financial restatements have some effects on CEO tenure and the probability of forced CEO turnover. This may be due to intensified monitoring activities by the board and the financial press in the post-SOX era, but we cannot contribute all of it to SOX. In some occasions, SOX seems to weaken the effect of board monitoring on CEO tenure and the effect of firm performance on CEO risk aversion. Though the increased monitoring level post-SOX contribute to the increased CEO risk aversion, little impact is found from the SOX-mandated accuracy and transparency of financial reporting.     

Random coefficient regression and the long-run phillips curve for the U.S.

This research suggests that a random coefficient regression model is well-suited for analyzing long-run versus short-run movements in wages and unemployment and is an improvement over some empirical techniques typically used.