Leadership structure and the value of debt contracts: Evidence from the Canadian market

This paper investigates the impact of a firm's leadership structure on its ability to generate value from loans by examining the market reaction to the disclosure of Canadian bank credit agreements. Two leadership structures are considered in this paper. In the first scenario, the positions of Chief Executive Officer and Chair of the Board are held by two different persons (denoted as a Separate CEO-Chair structure); in the second scenario, both positions are held by the same person (denoted as a Combined CEO-Chair structure).We observe a stronger market reaction to the announcement of bank credit agreements when firms have a Separate CEO-Chair structure (relative to a Combined CEO-Chair structure). This stronger market reaction for firms with a Separate CEO-Chair structure suggests that the division of CEO and Chair of the Board responsibilities between two people enhances a firm's ability to generate value from its loans. This conclusion is further supported by the fact that the observed market reaction for firms with a Separate CEO-Chair structure is even greater when the size of the board of directors is small. Our results also indicate that bank monitoring activities are more valuable for firms with a Combined CEO-Chair structure and no institutional shareholder.     

Factors for improving the level of knowledge generation in new product development

Globalization and other rapid changes in markets and technologies increasingly require companies to generate new knowledge in order to remain competitive. In order to innovate successfully, firms must generate knowledge faster than their rivals. This study develops and tests a conceptual model that focuses on how managerial controllable variables influence the level of knowledge generation in new product development. Based on literature and 'theory-in-use' field research in seven knowledge-intensive organizations, the authors developed research hypotheses and tested the hypotheses using data collected from 277 firms in high technology industries. The findings suggest that information technologies, organizational crisis, individual commitment, the R&D budget, and job rotation increase levels of knowledge generation, whereas lead user and supplier networks are negatively associated with the level of knowledge generation in new product development, and the influence of co-location of R&D staff is not significant.     

The Effect of IT and Co-location on Knowledge Dissemination

Due to the increasing globalization of businesses, new ideas for innovation need to be disseminated rapidly both within and across different departments and divisions. Frequently, ideas and information are dispersed over globally distributed organizations or team members. As a result, the exchange of knowledge has become not only very important for innovation but also highly complex. To facilitate this knowledge exchange, electronically mediated interactions are growing rapidly, replacing traditional face‐to‐face communications. However, literature provides contradicting results regarding the effectiveness of computer‐mediated communication (CMC) versus face‐to‐face communication. This study attempts to reconcile differences in the literature on the benefits of CMC technologies and co‐location. Focusing on knowledge dissemination in technology development processes in high‐technology firms, the study investigates the relative impact of CMC technologies and co‐location of research and development (R&D) staff, as well as the mutual interaction between them. The present article hypothesizes that CMC technologies and co‐location of R&D staff have a positive impact on knowledge dissemination. Further, it is hypothesized that it is more favorable to co‐locate R&D staff than to invest in CMC technologies and that the effects of co‐location and CMC interact negatively. These hypotheses are tested using empirical data collected from 277 high‐technology firms in the United States, and the results are generalized by conducting the same test on data from 125 high‐technology firms in the Netherlands. Tests are conducted in a real‐world setting, differing from previous comparative studies that mainly used laboratory experiments. Empirical results support the main effects of CMC technologies and co‐location of R&D staff on knowledge dissemination. Other empirical results contradict conventional wisdom. Investing in CMC technologies is found to be favorable over co‐locating R&D staff for knowledge dissemination. Moreover, the two communication channels strengthen each other. The discussion section presents the contours of a firm‐level theory on communication infrastructures and knowledge dissemination, focusing on the scope and the heterogeneity of knowledge dissemination, which may explain these initially surprising results. From the arguments it follows that the choice for investment in co‐location or CMC technologies depends on the scope of knowledge dissemination that has to be facilitated. Furthermore, the conclusion is made that effective knowledge dissemination requires a balanced investment in co‐location and information technologies to be able to deal with the heterogeneous but interdependent types of knowledge dissemination.     

The determinants of intra-industry trade: The case of the automobile industry

Zusammenfassung Die Bestimmungsgründe für den intra-industriellen Handel. Der Fall der Automobilindustrie. - In ihrem Artikel versuchen die Verfasser, die Entstehung und die jüngste Entwicklung des intra-industriellen Handels (IIH) unter Verwendung strengerer Definitionen für den europ?ischen Automobilsektor aufzuzeigen. Zus?tzlich zu früheren Erkl?rungen des IIH aus dem Blickwinkel der komparativen Vorteile oder der intra-industriellen Spezialisierung liefert der Aufsatz erstmalig einen deutlichen empirischen Befund für die m?gliche Beziehung zwischen firmeninternem und intra-industriellem Handel. Au?erdem halten die Verfasser eine umfassende Theorie für notwendig, um den IIH in Abh?ngigkeit von verschiedenen bilateralen Zusammenh?ngen zu erkl?ren.

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Résumé Les déterminants du commerce intra-branche: le cas du secteur de l’automobile. - Dans cette étude, nous nous sommes attachés à montrer l’existence et l’évolution récente du commerce intra-branche dans le secteur de l’automobile. Expliquer cette évolution en terme de pertes d’avantages comparatifs ou de spécialisation intra-branche a constitué notre objectif. Dans un contexte de commerce bilatéral, nous avons pu constater de multiples facteurs explicatifs, en particulier, nous avons mis en évidence, pour la première fois sur le plan empirique, la possibilité que des flux d’échanges intra-firme génèrent des échanges intra-branche. Cette étude atteste, également, la nécessité d’une théorie composite du commerce intra-branche.

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Resumen Las déterminantes del comercio intraindustrial: el caso de la industria automotriz. - En este trabajo se intenta mostrar el surgimiento y la evolución reciente del comercio intraindustrial (CII), particularmente de la industria automotriz en Europa. Además de dar las explicaciones tradicionales del CII desde el punto de vista de las ventajas comparativas o de la especialización intraindustrial, en este trabajo se présenta por primera vez una fuerte evidencia empirica en favor de la relación posible entre el comercio intraempresa y el CII. En este estudio también se postula la necesidad de una teoria amplia para explicar el CII en dependencia de varios contextes bilaterales.

     

In Which Context is the Option Clause Desirable?

The option clause is a contractual device from free banking experiences meant to prevent banknote redemption duels. It has been used within the Diamond and Dybvig (J Pol Econ 91: 401–419, 1983) framework to suggest that very simple contractual solutions can act as an alternative to deposit insurance. This literature has, however, been ambiguous on whether the option clause can replace deposit insurance outside of those two contexts. It will be argued that the theoretical clause does not generally affect the likelihood that a solvent bank goes bankrupt because of a bank run, as empirical evidence suggests it is already near null, and that the exercise of the clause will have the effect of diminishing the size of creditor claims on bank assets because it exacerbates the agency problem of bank debt. It will therefore be argued that the clause is only desirable in (a) free banking systems that are historically devoid of bank runs in the first place and have other means of managing debt-related agency problems and (b) under the unrealistic assumption that bank runs are self-fulfilling prophecies. It will be argued that the agency problem of bank debt makes the option clause undesirable outside of free banking systems.     

An Empirical Investigation into the Antecedents of Knowledge Dissemination at the Strategic Business Unit Level

Knowledge dissemination is of crucial importance for the strategic planning in new product development. Many new ideas stem from recombination of previously successful, disseminated actions, and knowledge dissemination offers a clear overview of market needs, technology developments, and competitors' actions. Moreover, in dynamic environments, where strategic planning has to be added by some kind of improvisation, knowledge dissemination leads to a high quality of improvisation. It leads to a quick awareness of external or internal surprises, gives an opportunity to learn quickly from the past, and compensates for a coordination mechanism instead of planning. The dissemination of knowledge does not always happen spontaneously. Especially, people with a technical background often are highly individualistic and do not disseminate knowledge naturally. So, this must be fostered by the organization. In management research, particularly on technology and innovation management, many facilitating factors have been identified that enhance communication. Intuitively, they also would seem useful in enhancing knowledge dissemination; however, these factors have not been tested empirically for this specific use. Research on knowledge and its management has not given much attention to the way knowledge in an organization is disseminated and the factors that can facilitate it. If such factors are mentioned, they are not tested empirically and their relative impact is not addressed. In this study we identified 17 important factors in enhancing knowledge dissemination and validated 10 of these factors empirically and determined their relative impact. We focused on technological knowledge in new product development—not on the project level but on the level of the strategic business unit. The field research comprised three parts. In the first step, we conducted in‐depth interviews with research and development (R&D) managers and their supervisors to select the most important potential facilitating factors. In the second step, in‐depth interviews with senior executives, information technology (IT) officers, and R&D experts were conducted to determine whether the constructs regarding knowledge dissemination and the potential facilitating factors had face validity. Finally, the potential factors were tested empirically in 277 U.S. high‐technology firms at the strategic business unit (SBU) level. It was our intention to examine potential factors beyond the level of the particular project, so we looked for antecedents in an SBU environment with a longer‐term impact. Our results indicate that individual commitment to the firm is very important to facilitate knowledge dissemination as well as organizational crises and risk‐taking behavior. Individual commitment was found to have the greatest impact on the level of knowledge dissemination, followed by organizational crisis and risk‐taking behavior. It is thus up to management to find new ways to control individual commitment. More research, however, is required to better understand the ways by which managerial interventions stimulates knowledge dissemination.     

Correction Processes in Consumer Choice

Consumers sometimes recognize that irrelevant contextual factors may influence their judgments and decisions. When such factors are detected, consumers might engage in correction processes to counteract unwanted influences in their judgments and decisions. An experiment demonstrated that correction processes can reduce the magnitude of the compromise effect and the attraction effect.     

Usefulness of comprehensive income reporting in Canada

In January 2005 the Canadian Accounting Standards Board (AcSB) issued three new accounting standards that require Canadian firms to mark-to-market certain financial assets and liabilities and recognize the holding gains and losses related to these items as other comprehensive income or as part of net income. The Board’s objectives for issuing the new standards are (i) to harmonize Canadian GAAP with US and International GAAP, (ii) to enhance the transparency and usefulness of financial statements, and (iii) to keep pace with changes in accounting standards in other countries that are moving towards fair value accounting. This paper investigates empirically whether requiring Canadian companies to report comprehensive income and its components provides the securities market with incremental value-relevant information over the traditional historical-cost earnings approach.Previous empirical studies provide mixed evidence on the value relevance of other comprehensive income and its components. This mixed evidence may be attributed partially to the use of as if methodology to construct an ex-ante measure of other comprehensive income prior to the implementation of SFAS 130, which introduces measurement error. In contrast, this study uses actual data on other comprehensive income for a sample of Canadian firms cross-listed in the US in the period 1998–2003. We find evidence that available-for-sale and cash flow hedges components are significantly associated with price and market returns. We also find that aggregate comprehensive income is more strongly associated (in terms of explanatory power) with both stock price and returns compared to net income. However, we find that net income is a better predictor of future net income relative to comprehensive income. Our findings suggest that mandating all Canadian firms to adopt the new accounting standards is expected to enhance the usefulness of financial statements. Our findings, therefore, should be of interest to Canadian accounting policy makers as they provide ex-ante evidence on the potential usefulness of mandating firms to report comprehensive income and the components of other comprehensive income in their financial statements.     

What (if any) are the returns to computer use?

Using North American data, we revisit the question first broached by Krueger (1993 Krueger, AB. 1993. How computers have changed the wage structure: evidence from microdata. Quarterly Journal of Economics, 108: 33–60. [Crossref], [Web of Science ®] , [Google Scholar]) and re-examined by DiNardo and Pischke (1997 DiNardo, JE and Pischke, J-S. 1997. The returns to computer use revisited: have pencils changed the wage structure too?. Quarterly Journal of Economics, 112: 291–303. [Crossref], [Web of Science ®] , [Google Scholar]) of whether there exists a real wage differential associated with computer use. Employing a mixed effects model with matched employer–employee data to correct for the fact that workers and workplaces that use computers are self-selected, we find that computer users enjoy an almost 4% wage premium over nonusers. Failure to correct for worker and workplace selection effect leads to a more than twofold overestimate of this premium.     

Contagion inside the credit default swaps market: The case of the GM and Ford crisis in 2005

We study the General Motors (GM) and Ford crisis in 2005 in order to determine if the credit default swap (CDS) market is subject to contagion effects. Has the crisis spread to the whole (CDS) market? To answer this question, we study the correlations between CDS premia, by using a sample of 226 CDSs on major US and European firms. We do evidence a significant rise in correlations during the crisis episode, but little “shift-contagion” as defined by Forbes and Rigobon (2002). When using dynamic measures of correlations (EWMA and DCC-GARCH), we also show that correlations significantly increased during the crisis, especially in the first week.