Italian Corporate Governance, Investment, and Finance

Italian industrial structure and financial markets have several distinct features. Italian firms are relatively small, few trade publicly and no corporate bond market exists. The limited types of external funds available to Italian firms makes them prone to financing constraints. We examine a panel containing over 1100 Italian firms. We find that firm size does not appear correlated with the severity of financing constraints. We also find that small firms are frequently mature. Our results suggest that young firms face financing constraints, while mature firms may develop relationships with lenders that lower the costs of external funds. Small, young firms appear to face the tightest financing constraints. Many firms are affiliatedwith pyramidal business groups. We find that affiliation with pyramidal businessgroups appears to reduce the effect of financing constraints. Our results haveimportant implications for government policy to promote small firm growth in Italy.     

An Austrian Theory of the Firm

The modern Theory of the Firm uses the concept of rent and makes implicit assumptions about equilibrium. An Austrian (Market Process) Theory of the Firm should have something to say about each of these. Two strategic perspectives are analyzed, the neoclassical microeconomic perspective (using the Ricardo-Marshall approach to rent) and the Market Process perspective (using the Fetter approach to rent). In a neoclassical world, rents indicate unsolved or unexploited inefficiencies as every hypothetical outcome is viewed against the standard of perfect competition. By contrast, in the Market Process world there is no single ideal standard by which to measure any particular outcome. All action takes place in an open ended universe in which the future is continually being created, in which competition is a discovery process.     

Freedom and the market

Those who believe that the free market is positively related to both economic efficiency and individual freedom are prone to regard resistance to the establishment of the global market essentially free from any serious sociopolitical constraint as a politically insignificant expression of impatience, ignorance, and hypocrisy. This article attempts to endow the manifestation of discontent with the status quo evident in public protests in Seattle and Washington DC with political significance through explicating it as an expression of a fundamental conflict between economic efficiency and individual freedom inherent in the global implementation of the principle of self-regulating markets. This analysis of the antiglobalization movement is conducted from the perspective of the theoretical foundation of the evaluation of the dynamics of capitalism by Polanyi, Hayek, and Keynes, and its conclusions are brought to bear upon the validity of their contesting views of the relationship between economic efficiency and individual freedom.     

Innovation objectives,knowledge sources,and the benefits of breadth

Given the inherent risk of innovative activity, firms can improve the odds of success by pursuing multiple parallel objectives. Because innovation draws on many sources of ideas, firms also may improve their odds of successful innovation by accessing a large number of knowledge sources. In this study, we conduct one of the first firm‐level statistical analyses of the impact on innovation of breadth in both innovation objectives and knowledge sources. The empirical results suggest that broader horizons with respect to innovation objectives and knowledge sources are associated with successful innovation. We do not find diminishing returns to breadth in innovation objectives, which suggests that firms may tend to search too narrowly. We interpret these results in light of well‐known cognitive biases toward searching in relatively familiar domains. Copyright © 2009 John Wiley & Sons, Ltd.     

The Gender Gap in Funeral Directors: Burying Women with Ready‐to‐Embalm Laws?

Over the last few decades, the gender composition of funeral directors in the United States has changed dramatically as women have entered this traditionally male‐dominated occupation. To practise as funeral directors, women (and men) must be licensed in all but one state. The most extensive training requirements exist in the 27 states with ‘ready‐to‐embalm’ laws, which require funeral directors to be embalmers. Using a sample of 45,989 licensing records from 40 states, we find that 18.1 per cent of funeral directors were women in 2006. However, the proportion is significantly lower in states with ready‐to‐embalm laws. Our regressions imply that these laws reduce the proportion of female funeral directors by 24 per cent. More generally, we find that the number of funeral directors per capita is 17 per cent lower, on average, in states with ready‐to‐embalm laws.     

Effects of Supplier and Customer Integration on Product Innovation and Performance: Empirical Evidence in Hong Kong Manufacturers

While the beneficial impacts of supplier and customer integration are generally acknowledged, very few empirical research studies have examined how an organization can achieve better product performance through product innovation enhanced by such integration. This paper thus examines the impact of key supplier and customer integration processes (i.e., information sharing and product codevelopment with supplier and customer, respectively) on product innovation as well as their impact on product performance. It contributes to existing literature by asking how such integration activities affect product innovation and performance in both direct and indirect ways. After surveying 251 manufacturers in Hong Kong, this study tested the relationships among information sharing, product codevelopment, product innovativeness, and performance with three control variables (i.e., company size, type of industry, and market certainty). Structural equation modeling with correlation and t‐tests was used to test the hypothesized research model. The findings indicate a direct, positive relationship between supplier and customer integration and product performance. In particular, this study verifies that sharing information with suppliers and product codevelopment with customers directly improves product performance. In addition, this study empirically examines the indirect effects of supplier and customer integration processes on product performance, mediated by innovation. This has seldom been attempted in previous research. The empirical findings show that product codevelopment with suppliers improves performance, mediated by innovation. However, the sampled firms cannot improve their product innovation by sharing information with their current customers and suppliers as well as codeveloping new products with the customers. If the adoption of supplier and customer integration is not cost free, the findings of this study may suggest firms work on particular supplier and customer integration processes (i.e., product codevelopment with suppliers) to improve their product innovation. The study also suggests that companies codevelop new products only with new customers and lead users instead of current ones for product innovation. For managers, this study has demonstrated that both information sharing and product codevelopment affect performance directly and indirectly. Managers should put more emphasis on these key processes, especially when linked with product innovation. Managers should consider involving their suppliers and customers in the early stages of design. Information sharing with suppliers is also important in product development. As suggested by this study, extensive effort on supplier and customer integration should be made to directly augment current product performance and product innovation at the same time.     

Hierarchical Arrow Social Welfare Functions

Supported by SNF Grant No: DMS 8803556.     

HOUSEHOLD AND ENTERPRISE SAVING AND CAPITAL FORMATION IN THE UNITED STATES: A MARKET TRANSACTIONS VIEW

Contrary to conventional macro theory, it is not the consumption function in terms of either the permanent income or the life-cycle theory of saving that has furnished the saving for enterprise capital formation in the United States. Household sector accounts indicate that household gross saving, correctly measured, did not exceed household gross capital formation in the United States over the period since 1947. Furthermore, historical data on enterprise saving and capital formation in the United States, and cross-section tax return data of U.S. corporations indicate that the gross saving for many enterprise sectors has been equal to or greater than their gross capital formation. There are exceptions, however: these same sources indicate that public utilities have borrowed substantially to finance their capital formation. Finally, it is argued that employer pension and insurance reserves held by financial institutions for future benefit payments represent retained income of a nature similar to undistributed profits, and that these constitute a source of saving in the economy.     

A maximum likelihood approach to estimating dynamic models with unobserved independent variables

A maximum likelihood method to estimate the parameters of dynamic models containing unobserved independent variables is proposed. The approach is to maximize the likelihood of the residuals produced by the recursive Kalman filter equations applied to the model in state-space form. A simulation study is presented comparing the proposed method to the instrumental variable approach. An example using real data is given which estimates models of the Permanent-Income Hypothesis.     

Austrian theories of entrepreneurship: Insights from complexity theory

This paper examines various Austrian theories of entrepreneurship through the lens of complexity theory, more specifically via the concept of a dancing fitness landscape. Problems in many fields (including economics) can be characterized as attempting to find the highest peak on a fitness landscape (which corresponds to an efficient or optimal resource allocation). A rugged fitness landscape is one characterized by many peaks and troughs, while a dancing fitness landscape is one where the peaks and troughs change over time due either to exogenous or endogenous activity. I argue that several key disagreements among Austrian economists can be better understood through the metaphor of a fitness landscape. The implications of this insight for various branches of Austrian economics are also considered. This study is timely as radical Austrian views are starting to percolate into business schools leading to increased debate among management scholars about the precise nature of the entrepreneurial process (Chiles et al. 2007; Sarasvathy and Dew 2008; Alvarez et al. 2010).