Governance and the decision to issue a profit warning

The theoretical concept of agency costs developed by Jensen and Meckling (1976) and Jensen (2005) are used to study the relationship between the quality of a firm's governance and its decision to issue a profit warning (PW) when it is overvalued. Based on a sample of Canadian companies between 2000 and 2004, results were only partially supportive of the hypotheses. The characteristics of the board seem to play only a secondary role in the decision to issue a profit warning when the firm is overvalued. On the other hand, as expected, governance mechanisms that factor in market values to align the interests of managers and directors with those of shareholders are negatively related to the profit warning decision. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.     

On Ending the Forced Choice between Attributions of Change to Exogenous vs. Endogenous Causes

This comment is in response to Frederic L. Pryor (2000). 7ldquo;The Millennium Survey: How Economists View the U.S. Economy in the 21^st Century." The American Journal of Economics and Sociology. 59 (January), pp. 3-33.     

Does international research and development increase patent output? An analysis of Japanese pharmaceutical firms

Internationalizing research and development is often advocated as a strategy for fostering the development of technological capabilities. Although firms conduct international R&D to tap into knowledge bases that reside in foreign countries, we argue that in order to benefit from international R&D investments firms must already possess research capabilities in underlying or complementary technologies. We examine the international R&D expansion activities, research capabilities, and patent output of 65 Japanese pharmaceutical firms from 1980 to 1991. We find that firms benefit from international R&D only when they possess existing research capabilities in the underlying technologies. In addition to refining our understanding of when international R&D enhances firm innovation, our results integrate asset‐seeking and asset‐based theories of foreign direct investment. Internationalizing R&D to tap into foreign knowledge bases is consistent with asset‐seeking theories of foreign direct investment, while the contingent nature by which firms benefit from international R&D is consistent with asset‐based theories of foreign direct investment and the notion of absorptive capacity. Copyright © 2004 John Wiley & Sons, Ltd.     

CAPITAL MAINTENANCE AS A KEY DEVELOPMENT TOOL

We construct optimal growth models where labor resources can be allocated either to production, technology adoption or capital maintenance. We first characterize the balanced growth paths of a benchmark model without maintenance. Then we introduce maintenance activity via the depreciation rate of capital. We characterize the optimal allocation of labor across the three activities. Although maintenance deepens the technological gap by diverting labor resources from adoption, we show that it generally increases the long run output level. Moreover, we find that equilibrium maintenance and adoption efforts respond in opposite directions to policy or technology shocks. Finally, we find that the long‐term output response to policy shocks is slightly higher in the presence of maintenance.     

Foreign bank participation and outreach: Evidence from Mexico

Recently, developing countries have witnessed a sharp increase in foreign bank participation. We examine the impact on banking outreach using newly gathered data for Mexico, where foreign bank participation rose from 2% to 83% of assets during 1997–2005. Country-, bank-, and bank-municipality-level estimations show a decline in the number of deposit and loan accounts. While country- and bank-level estimations indicate an increase in the share of municipalities with bank branches and in the likelihood of bank presence, bank-municipality regressions show that only rich and urban municipalities benefited. Overall, the evidence is consistent with a decline in outreach.     

Consumer involvement and acceptance of biotechnology in the European Union: a specific focus on Spain and the UK

Biotechnology stands out as a clear‐cut example of an industry where legislation on new technologies has been shown to be linked with public attitudes. Indeed, consumer consultation has played a leading role in the acceptance of genetically modified (GM) food as well as in government policy and legislation. This paper examines the issue of consumer consultation by analysing how public opinion has conditioned the acceptance of GM food in the European Union in general and specifically in Spain and the UK. We draw upon the evidence of two Eurobarometer surveys (46.1 and 52.1) to argue that consumer decision making on new technologies is an information‐dependent factor explaining consumer rejection to non‐transparent introduction of GM food. Individuals feel ill‐prepared to make decisions and rely on trusted information advisors such as consumer organizations. Findings suggest significant information dependency as well as widespread heterogeneity in attitudes towards the applications of biotechnology. Finally, the role played by information channels indicates that consumer participation should precede the adoption of communication policies, as they might need to adapt to the specific cultural characteristics of each country.     

Capital rationing, competition, and misrepresentation in budget forecasts

In this study, we ask: how does the intensity of internal competition for resources affect the communication of private information in an organization? Although competition between different divisions or units for resources is pervasive in many organizations, much of the accounting literature examines non-competitive resource allocation and thus does not provide guidance on this point. To address this question, we conduct an experiment in which a principal allocates capital among three agents, who can each propose a single project. In the high (medium, low) competition condition, principals have sufficient funds to accept only one (only two, all three) projects. We test three competing predictions based on prior literature: (1) Agents will make maximum credible misrepresentations under both medium and high competition, in order to maximize their chance of receiving capital. (2) Agents will weigh the disutility of misrepresentation against the expected utility of receiving project funding, resulting in more misrepresentation at medium than at high levels of competition, because the probability of receiving funding is lower in high competition. (3) Misrepresentation will be highest in high competition, because agents will interpret the high-competition setting as one in which misrepresentation is most necessary to win funding and most socially appropriate. Consistent with the second prediction, misrepresentation is highest in medium competition. These results suggest that a medium level of competition is a less favorable setting for voluntary information-sharing than either uncompetitive or high competition settings, and therefore costly formal enforcement mechanisms such as post-audits are likely to be more valuable in medium-competition settings.