Diversification strategy,capital structure,and the Asian financial crisis (1997–1998): evidence from Singapore firms

We use agency theory to predict the influence of related and unrelated product diversification on a firm's level of debt financing. Further, we argue that the link between diversification and capital structure is moderated by the environment in which firms operate. Using SAS PROC MIXED, we fit a mixed‐effects model to our unique six‐year longitudinal dataset (1995–2000) of 245 publicly listed Singapore firms. Our data spans the period of the Asian Financial Crisis (1997–1998). We find that firms pursuing unrelated product diversification take on less debt financing in stable environments, but more debt financing in dynamic environments. Using longitudinal structural equation modeling, we find a reciprocal relationship between a firm's product diversification strategy and its debt financing level. Copyright © 2009 John Wiley & Sons, Ltd.     

Capabilities as shift parameters for the outsourcing decision

In this paper, we argue that capabilities serve as shift parameters that result in a change in the critical value of asset specificity at which firms switch from in‐sourcing to outsourcing. Capabilities have two effects: they result in a change in firm production costs and in firm governance costs relative to the market. As a result, the frontier at which market governance gives way to firm governance shifts. Three factors that produce such shifts are the value, rarity, and inimitability of capabilities employed in firm processes. Considered as shift parameters, the effect of capabilities integrates seamlessly into transaction costs reasoning and is not a competing view of firm governance. We demonstrate these arguments empirically using a sample of 180 information systems sourcing decisions. Copyright © 2013 John Wiley & Sons, Ltd.     

Cost leadership strategy and experience curves

Investing in cost leadership by rapidly riding down the experience curve is a common way to establish a firm's competitive advantage. Its success depends, in part, on the factors that underlie the experience curve. In this paper we make the distinction between cost declines that occur at any point in time and cost declines that may occur over time. This leads us to consider a revised experience concept in which the dynamic interrelationship between a firm's production rate, cumulative production and unit cost is explicitly considered. We provide a detailed analysis of various scale-learning relationships and their strategic implications for establishing competitive advantage through an investment in cost leadership. We also prove analytically that such investment should take place only in the presence of learning.     

A Simulation Approach to Dynamic Portfolio Choice with an Application to Learning About Return Predictability

We present a simulation-based method for solving discrete-timeportfolio choice problems involving non-standard preferences,a large number of assets with arbitrary return distribution,and, most importantly, a large number of state variables withpotentially path-dependent or non-stationary dynamics. The methodis flexible enough to accommodate intermediate consumption,portfolio constraints, parameter and model uncertainty, andlearning. We first establish the properties of the method forthe portfolio choice between a stock index and cash when thestock returns are either iid or predictable by the dividendyield. We then explore the problem of an investor who takesinto account the predictability of returns but is uncertainabout the parameters of the data generating process. The investorchooses the portfolio anticipating that future data realizationswill contain useful information to learn about the true parametervalues.     

Consumer Responses to Slice-of-Life Versus Slice-of-Death Advertising Appeals: Exploring the Role of Polysemy,Branding, and Culture

Prior research has not verified the theoretical or practical value of slice-of-life and slice-of-death advertising appeals in relation to advertising and branding constructs like advertising polysemy and consumer-based brand equity. The authors make conceptual, measurement, and managerial contributions to this research issue dealing with slice of life versus death advertising appeals. Across three studies, the authors measure, evaluate, compare, and contrast slice-of-life and slice-of-death (SOL/D) advertising appeals across British and American cultures. The authors demonstrate the interrelationships of SOL/D appeals with advertising polysemy, consumer-based brand equity, cultural differences in advertising attitudes, and purchase intentions. From a measurement perspective, the authors develop and validate parsimonious measures of slice-of-life and slice-of-death (SOL/D) advertising appeals. Furthermore, they test the assumptions that underlie these appeals for United States and British customers, and investigate how the cultural characteristic of uncertainty avoidance moderates the impact of SOL/D advertising attitudes on purchase intentions. Managerially, the research demonstrates that SOL/D appeals offer value in predicting (a) consumer-based brand equity through advertising polysemy, (b) consumers’ advertising attitudes across different cultures, (c) consumers’ intentions to purchase, and (d) advertising differences and varying consumer responses in the United States and Britain.     

Effect of Business Group Affiliation on Firm Internationalization: The Case of India Under Reforms

The authors investigate how diversified business groups influence the structural reform–firm strategy relations given its effect on strategic choice and its implementation in a large emerging economy: India. By integrating business group, industrial organization, and international business literature, the authors predict considerable differences in the exporting behavior of business group–affiliated firms on the basis of their market competitiveness and governance dynamics. The authors test their predictions empirically with longitudinal data of 6,119 Indian firms over a 21-year period starting from 1991–1992 to 2011–2012 and find support for most of the hypotheses. These findings suggest that knowledge of the heterogeneity within business groups are essential for understanding the response of business group affiliates in light of the progression of reform process in India. This study thus contributes to a more complete conceptual understanding of the strategic responses of promarket reforms of business group affiliates in emerging economies.     

Advertising budgets in competitive environments

Firms can approach advertising competition either by setting advertising budgets (as in the percentage of sales method) or target sales levels (as in the objective and task approach). We study firms’ incentives to adopt one or the other posture using a two-stage model of duopolistic competition. In the first stage, each firm chooses to commit either to an advertising budget, letting its sales follow from the market response function, or to a desired sales level, promising to adjust its advertising spending accordingly. In the second stage, firms choose the actual levels of their advertising budget or sales target. When prices are exogenous, we show that, due to strategic effects, if a firm benefits from its rival’s advertising (as when advertising increases awareness of the product category) then setting an advertising budget dominates setting a sales target. On the other hand, if a firm is harmed by its rival’s advertising (as when advertising increases the firm’s share of a fixed market), then committing to a sales level dominates. We extend these results in several directions and show that when firms engage in price competition as well as advertising the nature of advertising and product-market competition interact to determine whether setting an advertising budget or sales target dominates.