Product development with multiple partners: Strategies and conflicts in networks

This paper provides an insight into and discusses the variety of sources of conflict in linking multiple partners in a network to the product development process. Conflict issues are discussed in relation to focal company strategies for product development within networks. On the basis of three case studies representing three different strategic intentions and network situations, our findings suggest that the sources of conflict are related to the actors' definition and negotiation of the development task at hand. The study suggests that the ability to combine and find complementarities in the strategic intentions of the multiple participating actors is essential to accomplish innovation. The paper concludes that influential actors initiating or acceding to changes are crucial for reaching a positive outcome in joint product development.     

Implementing a Market Orientation in Small Manufacturing Firms: From Cognitive Model to Action

Using in-depth interviews of the CEO/Presidents of 21 small manufacturing firms, this research explored how leaders with a high market-oriented cognitive model have intentionally pursued the implementation of that model and how their activities differed from leaders with a low market-oriented cognitive model. Results indicated that leaders in high market-oriented organizations appeared to be working from cognitive models that reflected market-oriented values, and norms consistent with those suggested by Homburg and Pflesser. Additionally, results indicated strong consistencies across firms in the mechanisms used by leaders to implement their high market-oriented cognitive models and different but equally strong consistencies in the mechanisms used by leaders to implement their low market-oriented cognitive models. Structurally, high market-oriented leaders expressed less departmentalization than low market-oriented firms, used some form of internal customer/supplier networks, had very open communication systems, and established performance management systems designed to initiate and reward market-oriented behaviors among employees.     

Impact of renewable long-term audit mandates on audit quality

Anglo-American countries like the US and the UK allow companies to switch auditors every year. In contrast, some continental European countries restrict auditor switching by allowing only renewable long-term audit mandates. This paper aims to analyse the impact of renewable long-term audit mandates on audit quality. Audit quality is considered from the viewpoint of the external users of the financial statements. It is questioned whether renewable long-term audit mandates have an impact on the auditor's reporting behaviour and on auditor independence. This research is motivated by the lack of consensus in the literature on the impact of the length of the auditor client relationship on audit quality. Moreover, few empirical studies use publicly available secondary data in order to determine whether perceived threats to auditor independence actually compromise auditor independence. Therefore, our research methodology consists in the development of a logistic regression model in which the explanatory variables are measured using publicly available data. The results of the study suggest that long-term auditor client relationships significantly increase the likelihood of an unqualified opinion or significantly reduce the auditor's willingness to qualify audit reports. A significant difference was also found between the auditor's reporting behaviour in the first two years versus the last year of the audit mandate. Auditors are more willing to issue an unqualified audit report in the first two years of their official mandate than in the last year of their mandate. This could be an indication that the decision to renew the auditor's mandate is already taken and known to the auditor before he has issued his last audit report within his current mandate. The policy implications of these findings could be in favour of mandatory auditor rotation to maintain the value of an audit for the external users. However, given recent theoretic evidence on the adverse effects of mandatory auditor rotation, there is a need to develop alternative measures to safeguard auditors' independence.     

EXCHANGE RATE TARGET ZONES: A SURVEY OF THE LITERATURE

This work selectively reviews the literature on exchange rate target zones and their theoretical and empirical methodologies and examines whether they can be used to clarify to what extent this type of exchange rate regime could contribute to greater exchange rate stability. We discuss the main contributions of the first and second generations of exchange rate target zone models. In an attempt to reconcile the poor empirical performance of the Krugman model with the reality of exchange rate target zone regimes, this line of research integrates target zones with alternative underlying economic models, such as imperfect credibility, intra‐marginal interventions and sticky price models. It was thus possible to understand the correlations observed between the exchange rate, its fundamentals determinants and the interest rate differential, and to explain the fact that the statistical distribution of the exchange rate is hump shaped rather than U shaped. This implies that the initial emphasis of target zone models on nonlinearities, ‘honeymoon effect’, ‘smooth pasting’ and marginal interventions has vanished. Exchange rate target zones are better described as similar to managed floating regimes with intra‐marginal interventions, with some marginal interventions when the exchange rate reaches the edges of the floating band.     

Inefficient sales delays by a durable‐good monopoly facing a finite number of buyers

This article offers a new explanation for unscheduled price cuts and slow adoption of durable goods. We study a standard durable‐good monopoly model with a finite number of buyers and show that this game can have multiple subgame perfect equilibria in addition to the Pacman outcome—including the Coase conjecture. Of particular interest is a class of equilibria where the seller first charges a high price and only lowers that price once some—but not all—high‐valuation buyers purchase. This price structure creates a war of attrition between those buyers, which delays market clearing and rationalizes unscheduled purchase and price cut dates.     

Royal African Company Share Prices during the South Sea Bubble

Price bubbles provide a unique opportunity to test whether investors act rationally and have sufficient knowledge of the economic environment in which they trade. We focus our attention on the 1720 South Sea bubble episode as experienced by a company not involved in governmental debt financing—the Royal African Company. Following the example of the South Sea Company, the Royal African Company lent its funds to equityholders at a preferential rate. Recognizing this benefit along with the announced dividends explains a large portion of the bubble. Furthermore, the unexplained residual does not behave like an exploding bubble, casting doubt that speculative excess motivated market participants in 1720. Our findings are indeed consistent with investor rationality, and the unexplained residual suggests that we are missing information that was available to the British financial market in 1720.     

Frontiers of Non-Financial Performance Reporting in New Zealand

In 1989, legislation in New Zealand introduced requirements for non-financial performance information in the public sector to be reported and audited. This paper describes the initial responses of the Institute of Chartered Accountants of New Zealand and the Audit Office to this challenge and examines their further development following a decade of experience.     

GOVERNMENT SPENDING IN DEVELOPING COUNTRIES: Trends, Causes, and Consequences

Throughout the twentieth century governments have been spendingever larger proportions of national income. Three issues arisein discussions about the growth of such spending as it pertainsto developing countries: How does it compare with expenditurein industrial nations? What explains the growth in spendingby developing country governments? And what are the effectson economic growth? Government expenditure as a share of GDPin low- and middle-income countries, on average, is lower thancomparable shares in industrial market economies and, with fewexceptions, is growing. Many factors, including ideology, demographics,a positive income elasticity for public goods, the rising costof public goods relative to private goods, and perhaps developmenttheory and practice, explain this growth. As for the relationshipbetween government expenditure and economic growth, the empiricalevidence does not reveal any strong correlation. The size ofgovernment may engender strong ideological debate, but the positionthat the aggregate level of government expenditure is a significantdeterminant of growth rates receives little support.      

Is There an Optimal Constitution?

The optimal constitution is one that protects people from politicians' thirst of power and preserves citizens' civic virtues. This paper presents a model that blends David Hume's (1741) consideration that in politics every man ought to be supposed a knave, with John Stuart Mill's (1861) conception of self-interested politicians. The optimal constitution is proved to be feasible. However, there are two possible equilibria, the Frey and Brennan-Buchanan equilibrium. It is shown that Bruno Frey's (1997) crowding-in and crowding-out analysis is a particular case of our model. In the Brennan-Buchanan equilibrium there is a long-run neutrality of enforcement on citizens' performance. In general, a trade-off is expected between the optimal number of laws and enforcement. The comparison between the equilibria shows that the Frey equilibrium is the best option to enhance the civic virtues of citizens, while the Brennan-Buchanan equilibrium is the best way to deter the ambitions of self-interested politicians.