ORGANIZATIONAL CONTEXT AND THE INTERPRETATION OF STRATEGIC ISSUES: A NOTE ON CEOS’ INTERPRETATIONS OF FOREIGN INVESTMENT*

This paper explores the relationship between organizational context and the interpretation of strategic issues by examining the hypothesis that CEOs' interpretations of foreign investment in the USA are influenced by the organizational context in which they are embedded. Three aspects of organizational context - the global business experience of the firm; the firm's level of organizational inertia (as represented by firm age and size); and the resources available for responding - are examined as predictors of CEOs' perceptions of foreign investment as a threat or an opportunity. Analysis of data from 320 organizations, controlled by industry, shows that global business experience, firm size, and perceived capability are significant predictors of the perception of threat and opportunity. the discussion addresses the implications of these findings for future research on issue interpretation and organizational context.     

Social Status,Entry and Predation: The Case of British Shipping Cartels 1879–1929

The authors incorporate social status and regional affiliation—two variables of central sociological interest—into an economic analysis of entry and predation. They build on Scott Morton’s [1997] examination of entry and predation in the merchant shipping industry and examine whether the social status of an entrant owner impacts on the predation behavior of the incumbent cartels. They find that high social status entrants are significantly less likely (40%) to be preyed upon than the low social status entrants. They discuss several interpretations of this result. Subsequent analysis supports the hypothesis that cartel members use social status as an indicator of an entrant’s propensity to be a cooperative cartel participant.     

Do Financial Constraints Matter for Foreign Market Entry? A Firm‐level Examination

Recent theoretical and empirical contributions stress the importance of financial development for international trade. This paper investigates whether financial constraints matter for foreign market entry at the firm level using dynamic panel data techniques. Dynamic Probit and Tobit models that account for state dependence and unobserved heterogeneity are used to analyse the effect of financial indicators on export activities. The empirical framework tests for heterogeneous effects among different quartiles of the size and productivity distribution, across previous exporters and potential starters, and across different types of industries as those are predicted by theoretical models. The empirical analysis is applied to a large panel dataset of French manufacturing firms over the years 1998–2005. The data contain a high share of small firms that are usually the most likely to be financially constrained. Although financial indicators are significantly correlated with export status and export share, there is no evidence that financial constraints have a direct impact on foreign market participation or sales in foreign markets once observed and unobserved firm heterogeneity is controlled for. This result is robust to using alternative estimation techniques and also holds for subgroups of firms that are more likely to face financial constraints and industries that are more dependent on financial factors.     

A Proposal to Replace 'True and Fair View' With 'Acceptable Risk of Material Misstatement'

This article examines argumentation factors which affect the truth of an audit opinion. We propose that the auditor's report be revised to replace the words 'true and fair view' with 'acceptable risk of material misstatement'. This would better align the communication of auditors with the characteristics of accounting information upon which they report. Adoption of the wording 'acceptable risk of material misstatement' will facilitate a better appreciation by users of financial statements of the accounting estimates in financial statements.     

Conflicts of interest,information provision,and competition in the financial services industry

In some markets sellers have better information than buyers over which products best serve a buyer's needs. Depending on the market structure, this may lead to conflicts of interest in the provision of information by sellers. This paper studies this issue in the market for financial services. The analysis presents a new model of competition between banks, where price competition influences the ensuing incentives for truthful information revelation. We also compare conflicts of interest in two different firm structures, specialized banking and one-stop banking.     

Voucher Privatization: A detour on the road to transition?

We explore an overlooked aspect of the design of the Czech voucher privatization programme, namely, the consequences of allowing individuals to distribute their vouchers among the voucher privatization funds (VPFs). We develop and analyse a model of voucher privatization in which we study the problem facing individuals who invest their vouchers in VPFs which, in turn, are able to use their skills to alter the performances of the firms in which they acquire shares. The VPFs have different skills and, by their bids and subsequent joint ownership patterns, affect the performances of the firms in their funds. We show that even in the case in which voucher holders have identical and full information, and wish to allocate their vouchers to the VPFs in a manner consistent with the maximization of economy–wide profit, a coordination failure generally prevents the implementation of this efficient outcome. Uncertainty, as well as differing payouts by the VPFs, is shown to exacerbate the problem. We conclude that there was an inherent flaw in the design of the Czech voucher scheme. JEL classification: D44, L33, P21, G11.     

The Explanatory Power of Game Theory in International Politics: Syrian–Israeli Crisis Interactions, 1951–87

The present paper assesses the usefulness of game theory in explaining crisis interactions between Israel and Syria. We begin with the simplest game-theoretic tool for analyzing strategic situations: the one-shot 2×2 game. By analyzing the various episodes of the protracted Syrian--Israeli conflict as one-shot 2×2 games, we avoid the multiplicity of equilibria of the infinitely repeated game and the difficulty of specifying an endpoint of a finitely repeated game. The pure strategy Nash equilibria of these one-shot games are treated as theoretical predictions and are compared with the observed outcomes.     

Reduced-bias tail index estimation and the jackknife methodology

In the context of regularly varying tails, we first analyze a generalization of the classical Hill estimator of a positive tail index, with members that are not asymptotically more efficient than the original one. This has led us to propose alternative classical tail index estimators, that may perform asymptotically better than the Hill estimator. As the improvement is not really significant, we also propose generalized jackknife estimators based on any two members of these two classes. These generalized jackknife estimators are compared with the Hill estimator and other reduced-bias estimators available in the literature, asymptotically, and for finite samples, through the use of Monte Carlo simulation. The finite-sample behaviour of the new reduced-bias estimators is also illustrated through a practical example in the field of finance.     

THE VALUE ADDED BY BANK ACQUISITIONS: LESSONS FROM WELLS FARGO'S ACQUISITION OF FIRST INTERSTATE

Wells Fargo's recent acquisition of First Interstate Bancorp represents one of the relatively uncommon cases in which the economic values of both the acquiring and acquired banks increased sharply upon announcement of the deal. The transaction is also one of the few cases where the bidder in a major bank acquisition chose purchase instead of pooling accounting–despite the fact that the deal was openly hostile and that Wells Fargo had to fight off a competing bid from First Bank Systems.
Based on the stock market's reaction to this merger battle, as well as the results of their study of 153 bank mergers over the period 1985–1991, the authors argue that the most promising mergers are those presenting large opportunities to reduce costs by eliminating redundant operations. The stock market is much less responsive to other merger rationales such as diversification or entry into new markets in pursuit of growth.
The Wells case also suggests that a preoccupation with the accounting treatment of a merger is a mistake if it becomes the primary reason for turning down a deal that creates economic value, or if it prevents the bidder from choosing the lowest-cost method of financing the deal. Throughout the bidding contest for First Interstate, the stock market responded positively to the success of Wells Fargo's efforts, even though purchase accounting would have a large adverse impact on reported earnings.
But if the stock market does not appear to care about the accounting treatment of a merger, the method of financing does appear to matter to investors. In general, acquisitions financed with cash are viewed more favorably by the market than stockfunded transactions. The evidence also suggests, however, that acquiring firms can reduce the negative impact of stock deals by making conditional offers (those in which the number of shares depends on the stock price performance of the acquirer) and by combining such offers with stock repurchase programs.