How a Firm's Domestic Footprint and Domestic Environmental Uncertainties Jointly Shape Added Cultural Distances: The Roles of Resource Dependence and Headquarters Attention

Even though many firms conduct most of their business domestically, international management research has remained remarkably silent on the role of a firm's domestic footprint in its internationalization strategy. We shed light on that role by exploring how the size of a firm's domestic footprint influences the cultural distance that the firm adds to its country portfolio when expanding internationally. Integrating resource dependence theory and the attention‐based view, we hypothesize that a firm's domestic footprint has a negative relationship with added cultural distance (ACD), and that domestic policy uncertainty strengthens this relationship whereas domestic demand uncertainty weakens it. We find robust support for our hypotheses in a sample of the world's largest retailers covering the period 2000–07, indicating that a firm's domestic footprint and domestic environmental uncertainties jointly shape cross‐cultural expansion strategies. Our findings suggest that ACDs reflect headquarters executives' desire to avoid ineffective foreign expansions, hinting at possible biases in studies of the performance effects of distance.     

The Effect of Shortfall as a Risk Measure for Portfolios with Hedge Funds

Abstract:  Current research suggests that the large downside risk in hedge fund returns disqualifies the variance as an appropriate risk measure. For example, one can easily construct portfolios with nonlinear pay-offs that have both a high Sharpe ratio and a high downside risk. This paper examines the consequences of shortfall-based risk measures in the context of portfolio optimization. In contrast to popular belief, we show that negative skewness for optimal mean-shortfall portfolios can be much greater than for mean-variance portfolios. Using empirical hedge fund return data we show that the optimal mean-shortfall portfolio substantially reduces the probability of small shortfalls at the expense of an increased extreme crash probability. We explain this by proving analytically under what conditions short-put payoffs are optimal for a mean-shortfall investor. Finally, we show that quadratic shortfall or semivariance is less prone to these problems. This suggests that the precise choice of the downside risk measure is highly relevant for optimal portfolio construction under loss averse preferences.     

Social Value Orientation and Climate Strength as Moderators of the Impact of Work Group Cooperative Climate on Affective Commitment

We investigate the moderating role of an individual's social value orientation (which refers to self‐ versus other‐regarding preferences) and of climate strength (which refers to the extent of agreement among group members on group norms and values) on the relationship between work group cooperative climate and affective commitment among professional employees. We develop two plausible but opposite hypotheses on the moderation effect of social value orientation, one based on the behavioural assimilation assumption and the other on goal transformation theory. We argue that the work group's climate strength is an important contingency factor that affects which of both contradictory predictions holds. In a sample of 209 academic employees of a Belgian university, we find support for our arguments. Specifically, a cooperative climate enhances the affective commitment of employees with a prosocial value orientation (as predicted by the behavioural assimilation argument) but only when there is strong consensus among group members about the group's climate (high climate strength). Conversely, for those whose social value orientation is towards the self rather than others, a cooperative climate enhances affective commitment (consistent with goal transformation theory), especially when the climate is not agreed upon (low climate strength). These findings underscore recent claims that the predictive power of different theories in organizational behaviour depends on an individual's motives and values. We discuss the implications of our findings for the management of work groups consisting of employees with different social value orientations.     

What happens to gazelles? The importance of dynamic management strategy

The starting point of this study is Gibrat’s Law, which is contrasted with strategic management. This logic is subsequently applied to a group of remarkably dynamic, high-growth firms: gazelles. Strategic management theory emphasises the importance of firms adjusting strategies in response to changes in the external environment. In our study, it is used to explain several key empirical findings using a novel British data set containing information on more than 100 gazelles. These findings help explain: (1) why Gibrat’s Law of random firm growth processes does not generally hold, (2) which strategy and environmental variables have a predictable influence on firm performance and (3) why routine application of ‘best practice’ strategies is unlikely to foster firm growth in a changing economic environment. In so doing, this paper contributes to the large body of literature on small-firm growth.     

The location of cross-border and national mergers and acquisitions within the United States

Research on the location choice of foreign direct investment (FDI) focuses on the choice between countries. The within-country location choice is either not analyzed at all or restricted to greenfield investments only. The majority of FDI, however, takes the form of cross-border mergers and acquisitions (M&As). We develop and test a pair of hypotheses regarding location-target selection for both cross-border and national M&As across the United States, expecting differences in line with the liability of foreignness argument. Using a detailed firm-level data set for M&As in the period 1985–2012, we compare location choices of cross-border versus national M&As. We find that cross-border M&As are more spatially concentrated, and tend to sort into larger agglomerations than national M&As. This finding holds both for urban agglomerations in isolation, as well as for agglomerations that take the economic geography of the United States into account.     

Beyond Ethnic Stereotypes – Identities and Outdoor Recreation Among Immigrants and Nonimmigrants in the Netherlands

ABSTRACT

Studies on immigrants' recreational use of greenspace have tended to focus on ethnic groups as homogeneous entities. In a qualitative study based on group interviews, this article focuses on the cultural diversity among and within ethnic groups. We used an identity perspective to study outdoor recreation of young Dutch adults with Chinese, Turkish, or nonimmigrant backgrounds. Results show that primarily personal identities, age, and ethnicity inform recreational behavior. The multiplicity of peoples' identities results in more heterogeneity between and within ethnic groups, as well as more homogeneity between immigrants and nonimmigrants, than commonly described. When immigrants are considered as a homogeneous group that underparticipates in outdoor recreation, individual immigrants who frequently participate in outdoor recreation are overlooked. Furthermore, we show that acculturation does not progress at the same rate among all ethnic groups, and that ethnic identity may be sustained among second and subsequent generations through certain recreational activities.     

Risk aversion under preference uncertainty

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this result for optimal asset allocation: poor agents that are uncertain about their risk aversion parameter invest less in risky assets than wealthy investors with identical risk aversion uncertainty.     

Is pay related to performance in The Netherlands? An analysis of Dutch executive compensation, 2002–2006

This paper analyzes the characteristics of Dutch pay arrangements. We show that (1) studying executive compensation outside the Anglo-American countries adds insights to the pay for performance literature, (2) pay for performance relations are different for various types of executives and for various compensation components, (3) attention to the methodological treatment of conditional stock (option) grants is important, and (4) researchers should go beyond stock market performance indicators to detect the performance relatedness of pay. All in all, a myriad of pay-performance relationships has been found for the Dutch case, when the above is accounted for.     

Industry competition and firm human capital

This paper argues that objective and subjective human capital may have substantial impact upon organizational performance in a competitive context. Objective human capital pertains to such features as education and experience, whereas subjective human capital relates to personality characteristics. The argument is illustrated by presenting the results of two empirical studies: (1) a cross-section 1990–1991 analysis of about 50 incumbents in the Flemish furniture industry-concentrating on the impact of subjective human capital, particularly the Chief Executive Officer's (CEO's) locus-of-control personality, on financial performance; and (2) a longitudinal 1970–1992 analysis of a cohort of 100 entrants into the Dutch audit industry-focusing on the influence of objective human capital, particularly education and experience, on exit by merger and acquisition (M&A) or diaspora. Both studies support the claim that objective and subjective human capital matters: for example, Flemish furniture firms headed by a CEO with an internal locus-of-control trait reach higher levels of financial performance, and Dutch audit firms with a high proportion of personnel with business experience are more likely to exit the industry over the years as a result of diaspora. Finally, the data of the Flemish furniture and Dutch audit industries are re-analyzed so as to compare the impact of human capital variables on small-firm performance in both industries. This re-analysis reveals that in both industries the impact of human capital variables is more pronounced in large firms compared to small businesses.     

Market Valuation,Pension Fund Policy and Contribution Volatility

Summary Market valuation is becoming more and more popular, both in accounting and regulation, as well as in academic circles. For pension funds and their participants, the knowledge that market-valued pension liabilities can indeed be transferred to a third party, if necessary, is a great virtue. Using a simulation model, this paper demonstrates the implicit costs and benefits of using market valuation for a typical Dutch pension fund, which offers a guaranteed average pay nominal pension with conditional indexation. The impact turns out to be fairly small, if fixed discount rates are still used for conditional rights. However, if market valuation is used for both unconditional and conditional rights, contribution volatility increases significantly. A remedy is to increase the duration of assets considerably. It is not clear, though, whether this option is available for large pension funds given the limited supply of long-term bonds. This paper benefited from discussions at seminars at DNB, PVK, ABP and CPB. We are grateful to Jan-Marc Berk, Dirk Broeders, and Peter van Els for useful suggestions and comments on a previous version of the paper. Views expressed are those of the authors and do not necessarily reflect official positions of De Nederlandsche Bank.