Financing decisions as a source of conflict in venture boards

Governance scholarship has suggested that venture boards should be structured so as to stimulate internal conflict. However, structure is a weak predictor of board effectiveness. Moreover, conflict can be dysfunctional, especially when it is focused on relationships rather than tasks. We show that venture boards experience more relationship conflict when they make financing decisions that involve devaluation of the venture and that this effect is moderated by whether the CEO is a founder. Our findings should prompt venture governance scholars to reconsider the importance of board structure, the value of board conflict and the behavior of founder- versus non-founder CEOs.     

Trust and Stakeholder Theory: Trustworthiness in the Organisation–Stakeholder Relationship

Trust is a fundamental aspect of the moral treatment of stakeholders within the organization–stakeholder relationship. Stakeholders trust the organization to return benefit or protections from harm commensurate with their contributions or stakes. However, in many situations, the firm holds greater power than the stakeholder and therefore cannot necessarily be trusted to return the aforementioned duty to the stakeholder. Stakeholders must therefore rely on the trustworthiness of the organization to fulfill obligations in accordance to Phillips’ principle of fairness (Business Ethics Quarterly 7(1), 1997, 51–66), particularly where low-power stakeholders may not be fully consenting (Van Buren III, Business Ethics Quarterly 11(3), 2001, 481–499). The construct of organizational trustworthiness developed herewith is presented as a possible solution to the problem of unfairness in organization–stakeholder relations. While organizational trustworthiness does not create an ethical obligation where none existed before, stakeholders who lack power will likely be treated fairly when organizational trustworthiness is present.     

Beyond the Proxy Vote: Dialogues Between Shareholder Activists and Corporations

The popular view of shareholder activism focuses on shareholder resolutions and the shareholder vote via proxy statements at the annual meeting, which is treated as a “David vs. Goliath” showdown between the small group of socially responsible investors and the powerful corporation. This article goes beyond the popular view to examine where the real action typically occurs – in the Dialogue process where corporations and shareholder activist groups mutually agree to ongoing communications to deal with a serious social issue. Use of the capitalized word “Dialogue” is intended to distinguish this formal process between corporations and shareholders from all the other forms of dialogue or two-way communication exchanged between a corporation and its stakeholders. The phenomenon of Dialogue between a corporation and dissident shareholders has not been analyzed in the academic literature or in the popular press because it occurs behind the scenes and out of sight from media scrutiny. Yet this is where a great deal of social change initiated by shareholder activists is negotiated. This article contributes both theoretically and empirically to the study of Dialogues between shareholder activists and corporations. We explain how Dialogues occur in the context of the shareholder resolution process and examine two Dialogues that focus on international labor issues in two industries. Then data on Dialogues during the period, 1999–2005, from the Interfaith Center on Corporate Responsibility are analyzed. This research contributes to knowledge about the Dialogue process and the emerging literature on corporation–stakeholder engagement.     

Shopping context and consumers’ mental representation of complex shopping trip decision problems

Depending on the shopping context, consumers may develop different mental representations of complex shopping trip decision problems to help them interpret the decision situation that they face and evaluate alternative courses of action. To investigate these mental representations and how they vary across contexts, the authors propose a causal network structure that allows for a formal representation of how context-specific benefits requirements affect consumers’ evaluation of decision alternative attributes. They empirically test hypotheses derived from the framework, using data on consumers’ mental representations of a complex shopping trip decision problem across four shopping contexts that differ in terms of opening hour restrictions and shopping purpose, and find support for the proposed structure and hypotheses.     

A bridge from ruin theory to credit risk

The structural model uses the firm-value process and the default threshold to obtain the implied credit spread. Merton’s (J Finance 29:449–470, 1974) credit spread is reported too small compared to the observed market spread. Zhou (J Bank Finance 25:2015–2040, 2001) proposes a jump-diffusion firm-value process and obtains a credit spread that is closer to the observed market spread. Going in a different direction, the reduced-form model uses the observed market credit spread to obtain the probability of default and the mean recovery rate. We use a jump-diffusion firm-value process and the observed credit spread to obtain the implied jump distribution. Therefore, the discrepancy in credit spreads between the structural model and the reduced-form model can be removed. From the market credit spread, we obtain the implied probability of default and the mean recovery rate. When the solvency-ratio process in credit risk and the surplus process in ruin theory both follow jump-diffusion processes, we show a bridge between ruin theory and credit risk so that results developed in ruin theory can be used to develop analogous results in credit risk. Specifically, when the jump is Logexponentially distributed, it results in a Beta distributed recovery rate that is close to market experience. For bonds of multiple seniorities, we obtain closed-form solutions of the mean and variance of the recovery rate. We prove that the defective renewal equation still holds, even if the jumps are possibly negative. Therefore, we can use ruin theory as a methodology for assessing credit ratings.      

The Bindingness of Social and Psychological Contracts: Toward a Theory of Social Responsibility in Downsizing

Downsizing has become a significant public issue that has not yet been significantly studied by business ethicists. It is proposed that reasonable social and psychological contracts bound the moral free space of managers contemplating downsizing; the degree of constraint is also dependent on the organization's resource munificence. A framework for considering the extent of managerial moral free space and implications thereof for managerial practice are offered.     

The Cost Structure of Australian Telecommunications

Since 1991 Australian telecommunications has undergone substantial reform. To a large extent, the economic correctness of pro-competitive policy depends on the non-existence of natural monopoly technology. This paper provides estimates of the Australian telecommunications system cost structure, and tests for subadditivity from 1943 to 1991. Additivity of the cost function after 1945 rejects the natural monopoly hypothesis and supports recent government policy. Diminished natural monopoly characteristics suggest that co-ordination between firms through networking can achieve similar economies as internal co-ordination within a monopoly. This finding is important, given the trend towards network unbundling, and service provision through interconnection.     

Seeds of Corruption – Do Market Institutions Matter?

Ten years into the transition process, corruption is now recognized to be a pervasive phenomenon thatcan seriously jeopardize the best intentionedreform efforts. Because of the complex anddeep political economy dynamics surroundingthe process transition economies areundergoing it is essential for policy-makersto understand the causes of corruption. Thispaper develops an integrated analyticalframework of the role basic marketinstitutions play as determinants ofrent-seeking and illicit behavior intransition economies. Using data onlyrecently available on the incidence ofcorruption and institutional development inthese economies, we provide preliminaryevidence on both the systemic links betweendevelopment of market institutions andincentives for corruption and the relativeimportance of such institutions. The mainlesson from our analysis is that awell-established system of marketinstitutions – one characterized by clear andtransparent rules, fully functioning checksand balances, including strong enforcementmechanisms, and a robust competitiveenvironment – reduces rent-seekingopportunities and, in turn, the incentives forcorruption. The empirical results suggestthat high barriers to new business entrantsand soft budget constraints on incumbent firmsare particularly important institutionalfactors engendering opportunities andincentives for corruption. As in otherstudies, the empirical results also supportthe notion that economic development andmaturation of democratic processes both tempercorruption, as does, to a lesser extent,openness to trade.     

Black Applicants, Black Employees, and Urban Labor Market Policy

In this paper, we use data from a new survey of employers in four large metropolitan areas to analyze the flow of black applicants to different kinds of employers and the extent to which these applicants are hired. The results show that less-educated black workers apply less frequently for jobs in the suburbs than in the central cities, especially at smaller establishments. Their lower tendency to apply for suburban jobs seems to be mostly accounted for by factors associated with higher costs of applying and/or lower information flows. Black applicants, especially less-educated black males, are also less likely to be hired at suburban establishments. These results suggest the need for policies to improve the access of less-educated blacks to suburban employers, and also more effective enforcement of antidiscrimination laws in suburban establishments.