Multinational Corporations and Spillovers

This paper examines spillover effects of the activities of multinational firms. Such effects are most likely to be found in host countries, where the operations of foreign multinationals may influence local firms in the MNCs own industry as well as firms in other industries. However, there is no comprehensive evidence on the exact nature or magnitude of these effects, although it is suggested that host country spillovers vary systematically between countries and industries. In particular, the positive effects of foreign investment are likely to increase with the level of local capability and competition. The spillovers to the home countries of MNCs are often more difficult to identify, for various reasons. Earlier studies suggest that the effects are generally positive, but the increasing international division of labor within multinationals complicates the analysis. The impact on the home country is likely to depend on what activities these firms concentrate at home.     

Global production networks and China's processing trade

This paper unveils a systematic pattern in China's processing trade. In a cross-section of Chinese provinces, the average distance traveled by processing imports (import distance) is negatively correlated to the average distance traveled by processing exports (export distance). To explain this pattern, we set up a three-country industry-equilibrium model in which heterogeneous firms from two advanced countries, East and West, sell their products in each other's markets. Each firm can use two modes to serve the foreign market. It can directly export its products from its home country. Alternatively, it can indirectly export to the foreign market by assembling its product in a third low-cost country, China, which is located in the vicinity of East. Our model establishes two theoretical predictions relating China's geographical location to its processing trade patterns. First, China's processing exports are negatively affected by both an increase in import distance and a rise in export distance. Second, China's processing exports to East Asian countries are more sensitive to export distance and less sensitive to import distance than its processing exports to non-Asian countries. We find empirical support for both predictions.     

Fragmentation and East Asia's information technology trade

This article studies the growth and determinants of information technology (IT) trade in the Asia-Pacific region. We argue that the rise of IT trade must be understood within the context of increasing vertical fragmentation of production processes that has occurred over the past two decades. To evaluate this empirically, we estimate a set of pooled bilateral IT export equations for eight Asian countries, the USA and the EU, where foreign direct investment (FDI) inflows are introduced as a proxy for fragmentation. We apply a panel cointegration approach that allows for heterogeneity in short-run dynamics and in fixed effects. Consistent with production fragmentation, we find that the evolution of IT trade can be explained in part by traditional income and relative price effects but also by FDI inflows.     

Enterprise Risk Management Program Quality: Determinants,Value Relevance,and the Financial Crisis

This paper investigates factors associated with high‐quality Enterprise Risk Management (ERM) programs in financial services firms, and whether ERM quality enhances performance and signals credibility to the financial markets. ERM, developed with the assistance of the accounting profession, provides a framework and plan to integrate management of all sources of risk. Challenged by measurement difficulties common to research on management control systems, prior ERM studies present mixed findings. Using ERM quality ratings of financial companies by Standard & Poor's, we find that higher ERM quality is associated with greater complexity, less resource constraint, and better corporate governance. Controlling for such characteristics, we find that higher ERM quality is associated with improved accounting performance. Results show a market reaction to signals of enhanced management control from initial ERM quality ratings and rating revisions, and a stronger response to earnings surprises for firms with higher ERM quality. Focusing on the recent global financial crisis, our analysis suggests that there is no relation between ERM quality and market performance prior to and during the market collapse. However, returns of higher ERM quality companies are higher during the market rebound. Overall, results reveal that firm performance and value are enhanced by high‐quality controls that integrate risk management efforts across the firm, enabling better oversight of managers' risk‐taking behavior and aligning that behavior with the strategic direction of the company.     

Does the Ethical Leadership of Supervisors Generate Internal Social Capital?

Ethics has recently gained prominence in debates surrounding social capital creation. Despite the significant theoretical progress in this field, it still lacks empirical research. The goal of this study is to empirically explore the ethical leadership of supervisors as an antecedent of the firm’s social capital. We build on social learning theory to argue that employees can learn standards of appropriate behavior by observing the behavior of role models. By displaying and enforcing ethical behavior, supervisors can facilitate the process through which employees learn to feel empathy toward others and establish profound affective relationships with them. Data were collected from 408 Spanish, French, and Portuguese part-time MBA students. Using structural equation modeling techniques, we show that the ethical leadership of supervisors exerts a significant influence on the structural, relational, and cognitive dimensions of social capital.     

Child allowances and allocative decisions in Romanian households

In this paper it is tested whether increasing child allowances will affect the intra-household allocation of consumption, measured by child and adult goods, holding total household resources constant. The analysis is based on household survey data collected in Romania, where cash payments are made to families according to the number and age of children. Selectivity is controled for since there is the potential for self-selection bias in terms of the level of child allowances received. The findings suggest that holding total household resources constant, child allowances increase demand for child goods and calories and reduce demand for adult goods.     

Linking knowledge, entry timing and internationalization strategy

This paper contributes to the current internationalization theory by linking the characteristics of the firm's resource-base, its market-entry timing orientation and international growth orientation so as to shed more light on internationalization strategies. By employing multi-industry data, we find that the nature of the firm's knowledge, its entry timing orientation and international growth orientation are related to its internationalization strategy. Among other results, we find that the firm's accumulated expertise is positively related for both the international growth orientation and entry timing orientation. The international growth orientation, in turn, is related both to the path type of internationalization the firm employs as well as the geographical diversification in market entry. In other words, the results suggest that the firm's resource-base influences on both its entry timing orientation and to the internationalization strategy. These and other findings are discussed with regard to their scholarly and managerial implications.     

Cooperative strategies for the availability service of repairable aircraft components

This paper specifies cooperative strategies for the availability service of repairable aircraft components and finds out which factors contribute to the emergence of a particular cooperative strategy. The strategies ad hoc cooperation, cooperative pooling and commercial pooling were specified and compared to the alternative of acting alone, i.e. solo strategy. A simulation model based on fair assumptions of the cost structure was constructed and the cooperative strategies were tested in a game theoretic setting both from the viewpoint of total efficiency and from the perspective of each participant. Despite the explicit focus on aircraft components, the findings should be relevant to any industry using a closed-loop maintenance process with repairable spare parts.     

Strategic alliance contracts: dimensions and determinants of contractual complexity

In contrast to prior studies examining strategic alliances as discrete governance structures (e.g., alliances vs. M&A, equity vs. non‐equity agreements), we investigate their particular contractual features. The analysis examines the dimensionality of the contractual complexity construct and investigates the determinants of firms' adoption of various contractual provisions. We find two underlying dimensions of contractual complexity, based upon the enforcement and coordination functions of different contractual provisions. The evidence reveals that firms' usage of particular contractual provisions is a function of asset specificity as well as whether the alliance's duration is pre‐specified or open‐ended. The findings also speak to the debate surrounding the roles of prior ties and trust for alliance governance. Firms that have collaborated with each other in the past are not less likely to negotiate enforcement provisions; rather, repeat collaborators are less likely to adopt contractual provisions that are informational in nature and are geared to the coordination of the alliance. Copyright © 2007 John Wiley & Sons, Ltd.