Investment decisions and internal capital markets: Evidence from acquisitions

In this paper, we examine the workings of internal capital markets in diversified firms that engage in related and unrelated corporate acquisitions. Our evidence indicates that bidders invest outside their core business (diversify) when the cash flows of their core business fall behind those of their non-core lines of business. However, bidders invest inside their core business (i.e., undertake non-diversifying investments) when their core business experiences superior cash flows. We also find that bidders whose core business are in industries with low growth prospects engage in diversifying acquisitions while bidders whose core business are in high growth industries undertake non-diversifying acquisitions. The pre-acquisition evidence, then, suggests that firms tend to diversify when the cash flows and the growth opportunities of their core business are considerably lower than those of their non-core business. Subsequent to acquisitions we find that diversifying bidders continue to allocate financial resources from less profitable business segments (i.e., core business) to more profitable business segments (i.e., non-core business). Given the low profitability of diversifying bidders’ core business, this capital resource allocation suggests that diversification increases do not result in capital allocation inefficiencies. The evidence for non-diversifying bidders, however, supports the existence of “corporate socialism” in the sense that there is transfer of funds from the profitable (core) to the less profitable (non-core) business segments in multi-segment bidders. We find that the capital expenditures of bidders’ non-core business segments rely on both core and non-core cash flows.     

Determinants of the 1991–1993 Japanese recession: Evidence from a structural model of the Japanese economy

The objectives of this paper are to determine the extent to which various factors contributed to the most recent recession in Japan and to assess whether the recent behavior of the Japanese economy differs from that in previous recessions. Toward that end, we develop a small, structural macroeconometric model of the Japanese economy and estimate it using data from 1971 Q1 to 1991 Q1, the period just prior to the recent downturn. The important results can be summarized as follows. First, the severity of the recent recession probably does not reflect structural economic changes. Second, the poor economic performance in 1991–1993 period was to some extent predictable, reflecting the unwinding of imbalances that developed during the preceding expansion. Finally, unpredictable movements in exchange rates, land prices, and stock prices occurring after 1991 played an important, but not predominant, part in accentuating the downturn, while unusually stimulative fiscal and monetary policies appear to have contributed substantially to GDP during the recession.     

Driven by aspirations,but in what direction? Performance shortfalls,slack resources,and resource‐consuming vs. resource‐freeing organizational change

Research summary : Prior literature drawing on the behavioral theory of the firm has not considered how resource constraints impact the direction of organizational change in response to performance shortfalls relative to aspirations. We argue that decreasing financial resources resulting from substantial performance shortfalls and the absence or availability of slack resources together affect the emphasis on different types of organizational change in response to performance shortfalls. Using data on the acquisition and divestment behavior of 530 companies in the information and communications technology sector from 1992 to 2014, we find that the frequency of resource‐consuming acquisitions and of resource‐freeing divestments are affected differently by performance below aspirations and that these relationships are moderated by the level of financial slack. Managerial summary : This paper examines whether firms respond to performance shortfalls with acquisitions or divestments. We argue and show that the closer the firm is to the aspired level of performance, the more likely it is to respond with resource‐consuming acquisitions to close the performance gap, whereas the further it is from aspired performance, the more likely the firm is to respond with divestments to free resources. Financial slack weakens these relationships between performance relative to aspirations and acquisitions or divestments such that it increases the likelihood of a response through acquisitions while it reduces the likelihood of a response through divestments. Copyright © 2016 John Wiley & Sons, Ltd.     

Issues Facing Small Accounting Practices in Regional North Queensland: An Exploratory Study

Small accounting practices (SAP), most of which are sole principals, are an important part of the accounting profession and the Australian economy. This exploratory study identifies issues and challenges experienced by small accounting principals in Far North Queensland, Australia. The findings generally correspond with previous research, ranking staffing and keeping up to date through professional development as key areas of concern, and also highlighting the expectation gap between SAP principals and their clients. Stress emerged as a major concern for principals, and new areas of possible conflict of interests were uncovered. A number of potential areas for future research, including comparative studies in city and suburban areas, have been identified.     

The impact of cultural environment on entry-level auditors’ abilities to perform analytical procedures

We focus on the impact of three of Hofstede’s cultural dimensions, power distance, uncertainty avoidance, and individualism, on the results of analytical procedures conducted by entry-level auditors in Mexico and the U.S. Analytical procedures are ideal for this research as they require auditors to use professional judgment and appropriate levels of professional skepticism, abilities related to all three cultural characteristics. We find no other study investigating the impact of culture on the application of auditing procedures similar across the studied cultures.We find cultural characteristics do not affect the participants’ abilities to predict income statement balances, but they may influence the ability to predict changes in balance sheet accounts. We also find culture is associated with differences in risk assessments. Our results indicate that participants rarely differentiate accounts that change according to expectation from those that change contrary to expectation, but rather alter their risk assessments to match the direction of balances that increase or decrease.     

Sourcing Co-Created Products: Should Your Suppliers Collaborate on Cost Reductions?

Review of Industrial Organization - We study how a multi-product downstream firm should source from the upstream market—single-source versus multi-source—in a situation where the...     

Managing transformational change: the role of human resource professionals

In the past decade human resource management issues featured prominently in debates over the competitiveness and human resource professionals were expected to ascend to positions of greater influence in corporate strategy making and implementation. Despite numerous calls for a paradigm shift towards a more ‘strategic’ focus for human resource management research, developments in both practice and research fell far short of expectations. Thus, the process of transforming human resource policy into a strategic asset for employees, individual firms or the American economy is not yet complete. The paper suggests that the ‘strategic’ human resource management models of the 1980s were too limited and reactive in character because they depended so heavily on the values, strategies and support of top executives and line managers. A model capable of achieving sustained and transformational change needs to incorporate more active roles of other stakeholders in the employment relationship, including government, employes and union representatives as well as line managers and top executives. The paper starts by reviewing the evidence on innovations in human resource management in the past decade and then outlines the implications of the change model for human resource management and industrial relations theory, policy and practice. Special emphasis is given to the role of human resource professionals as potential change agents or facilitators of the transformational process.     

Het quotiënt van Von Neumann bij regressie-analyse

Some remarks are made concerning the application of the VON NEUMANN ratio in testing the residuals of a regression against serial correlation.
Special attention is paid to the fact that in general the VON NEUMANN ratio increases when first differences of the original variables are used.     

Corporate Insurance and Debt: The Case of China*

Finance theorists have long argued that corporate purchases of property insurance can reduce the probability and hence the expected costs of financial distress. And by so doing, the corporate use of insurance can reduce borrowing costs and/ or increase debt capacity, reduce the overall cost of capital, and increase firm value. This article attempts to apply this argument to the case of publicly traded companies in China, which provides a particularly interesting environment given the significant presence of both foreign direct investment and state shareholdings in its corporate sector. From their study of several hundred Chinese companies during the period 1997‐2003, the authors report the following conclusions: Companies with higher borrower costs tend to purchase more property insurance, which in turn has the effect of increasing their debt capacity. Smaller companies are more likely than larger firms both to insure their assets and to purchase more property insurance (as a percentage of assets), reflecting their greater vulnerability to financial shocks and larger potential benefit from insurers' real advisory services (such as loss prevention advice). Companies with more and larger growth opportunities are more likely to purchase insurance, reflecting their higher expected costs of financial distress (from possible underinvestment) than firms with limited growth opportunities. Companies with higher levels of state ownership tend to insure their assets to a greater extent, suggesting that the managers of such companies insure to protect their job security, particularly as the availability of state subsidies to the Chinese corporate sector has declined since market reforms were initiated in 1978.