Linking control systems to business unit strategy: impact on performance

Rooted in continguency theory, this paper examines linkages between strategy, incentive bonus system and effectiveness at the strategic business unit (SBU) level within diversified firms. Data from 58 SBUs reveal (1) that greater reliance on long-run criteria as well as subjective (non-formula) approaches for determining the SBU general managers' bonus contributes to effectiveness in the case of “build” SBUs but hampers it in the case of “harvest” SBUs, and (2) that the relationship between extent of reliance on short-run criteria and effectiveness is virtually independent of SBU strategy.     

Tax Reforms, Debt Shifting and Tax Revenues: Multinational Corporations in Canada

An analysis of Canadiancorporate income tax revenues during the 1984–94 periodshows a relative shifting of tax revenue shares between Canadianand foreign-controlled corporations, and a substantial changein the debt levels of foreign-controlled corporations, as wellas Canadian-based multinationals. We claim that these changesmay have been associated with the tax reforms undertaken by theUnited States and Canada in the mid-1980s resulting in the relativechange in the tax rates between the two countries. We also hypothesizethat if this difference persists and in Canadian-controlled corporationscontinue to aggressively expand abroad, the Canadian corporatetax base could experience further pressure.     

Entrepreneurial finance: Banks versus venture capital

We analyze how entrepreneurial firms choose between two funding institution: banks, which monitor less intensively and face liquidity demands from their own investors, and venture capitalists, who can monitor more intensively but face a higher cost of capital because of the liquidity constraints that they impose on their own investors. Because the firm's manager prefers continuing the firm over liquidating it and aggressive (risky) continuation strategies over conservative (safe) continuation strategies, the institution must monitor the firm and exercise some control over its decisions. Bank finance takes the form of debt, whereas venture capital finance often resembles convertible debt. Venture capital finance is optimal only when the aggressive continuation strategy is not too profitable, ex ante; the uncertainty associated with the risky continuation strategy (strategic uncertainty) is high; and the firm's cash flow distribution is highly risky and positively skewed, with low probability of success, low liquidation value, and high returns if successful. A decrease in venture capitalists’ cost of capital encourages firms to switch from safe strategies and bank finance to riskier strategies and venture capital finance, increasing the average risk of firms in the economy.     

The art of conversation: eliciting information from experts through multi-stage communication

We examine the strategic interaction between an informed expert and an uninformed decision maker, extending the analysis of Crawford and Sobel (Econometrica 50 (1982) 1431). We modify their model to allow for more extensive communication between the two parties and show that face-to-face communication between the expert and the uninformed decision maker followed by a written report from the expert leads to improved information transmission. In (almost) all cases, there exists an equilibrium in our modified model that ex ante Pareto dominates all of the equilibria identified by Crawford and Sobel. This remains true even if the expert's bias is so great that in their model no information would be disclosed.     

The fear of globalizing capital markets

It is generally accepted that free flow of goods benefits both economies without serious risks. The situation with the free flow of capital is different. Many policy makers and economists are skeptical not only about the benefits of free flow of capital, but also see uncontrolled capital flows as risky and destabilizing. Other economists, however, firmly believe that free capital flows will lead to a more efficient allocation of resources and greater economic growth. Nevertheless, the debate has little empirical evidence to rely on. We hope to fill that gap in this paper. We study the benefits and risks associated with capital flows by examining the experience of emerging economies around the time that foreign investment in stock markets was allowed. We investigate the impact of capital flows on stock returns, stock market efficiency, inflation, and exchange rates. We also examine the effect on different kinds of volatility that might arise as a consequence of capital flows: volatility of stock returns, volatility of inflation rates, and volatility of exchange rates. We find no evidence of an increase in inflation or an appreciation of exchange rates. Stock returns reflect a lower cost of capital after liberalization. There is no increase in stock market volatility and the volatility of inflation and exchange rates actually decreases. Stock markets become more efficient as determined by testing the random walk hypothesis.     

Space tourism: Research recommendations for the future of the industry and perspectives of potential participants

This paper has two objectives. Firstly, it proposes a set of research dimensions for the further investigation of the emerging space tourism industry and secondly, it examines the perceptions of potential space travel participants on key factors that influence their motivation, behaviour and decision-making. The research methodology adopted in this study involved collecting quantitative data from British residents in Southern England to explore and understand their perceptions of space tourism. In addition, qualitative data was gathered by interviewing key informants connected to the space tourism industry including Virgin Galactic, Airbus and EADS Astrium to understand their views on people’s motivations, perceptions and the future of the industry. Data analysis shows that intentional need for adventure and exploration is the motivational force in space tourism. Willingness to undertake space travel is also influenced by the perception to risk, which plays a central role in potential tourist behaviour. Furthermore, factors such as type of space travel (orbital/sub-orbital),type of launch and design of the spacecraft, location of spaceports, training required, duration, insurance, health and reputation of the operating company also seem to have some influence on tourist decision-making. The paper contends that while global research dimensions are necessary it is also important to understand perceptions on a country-specific and regional basis.     

Colliding Employer‐Employee Perspectives of Employee Turnover: Evidence from a Born‐Global Industry

Set in the context of internationalization of the global division of labor, this article provides a deeper exploration of qualitative themes of conflicting accounts of employees’ reasons to quit and managerial strategies to prevent employee turnover in six business process outsourcing firms operating in India. Such differences in cognition and action between the two constituencies suggest that the decision to quit is not a linear and rational process as highlighted in most extant models of employee turnover. Our findings suggest that employees are attached more to a place or people they work with rather than the organization per se. Intergenerational differences between Generation Y knowledge workers and Generation X managers and the ineffectiveness of espoused human resource practices suggest the presence of “push” human resource management (HRM) systems. Our findings have implications for employee turnover models, intergenerational theory and high‐commitment HRM, and practitioners. © 2015 Wiley Periodicals, Inc.     

Dynamic financial contracting with persistent private information

We study a dynamic agency model where the agent privately observes the firm's cash flows that are subject to persistent shocks. We characterize the policy dynamics and implement the optimal contract by financial securities. Because bad performance distorts investors' beliefs downward, the agent has less incentive to misrepresent information. The agent's compensation is less than what he can divert and is convex in performance. As private information becomes more persistent, (i) the agent is compensated more by stock options; (ii) firm credit limits vary more with history, dropping after bad performance; (iii) the firm is financially constrained for longer time.