Precision and Manipulation of Non-financial Information: The Curious Case of Environmental Liability

This paper develops a model showing how the environmental liability regime and the precision of the disclosed environmental performance indicator affect managers’ incentives (1) to reduce actual pollution and (2) to manipulate the reported pollution. I assume a company with a separation of ownership and control which can be held liable for environmental damages and distinguish between a negligence regime and strict liability. The results suggest that if there is no manipulation but only a lack of precision of the disclosed environmental performance indicator, a negligence rule induces lower actual pollution levels than strict liability even though a negligence rule is considered to be more lenient. If managers are able to manipulate the disclosed environmental performance indicator, they will do so and actual pollution levels will generally increase. While manipulation makes it easier for shareholders to escape liability under a negligence regime, shareholders suffer from manipulation under strict liability due to higher actual pollution and higher expected damage compensation payments. Therefore, the manipulation level is higher under a negligence regime. My analysis contributes to the environmental performance and disclosure literature by showing that the liability regime is an important determinant affecting environmental reporting and actual pollution decisions.     

Erin Anderson and the Path Breaking Work of TCE in New Areas of Business Research: Transaction Costs in Action

This review article synthesizes Erin Anderson's academic contribution, with an emphasis on two path breaking aspects of her work, namely the operationalization of TCA in different contexts and the refinement of the theory. We review the measures that she developed to reflect key TCE constructs, and identify five contexts in which Erin Anderson's application of TCE concepts broke new paths. These are employee or representative salesforces, choice of foreign entry mode, new market entry and innovation, countertrade, and ethics. We highlight a number of ways in which her research integrates other theories to transaction cost economics, thereby deepening our understanding of key issues involving make or buy decisions. Finally, we draw attention to directions for future research identified through her work.     

Capital structure effects of international expansion

This study investigates and qualifies the impact of internationalization on the capital structure of a firm. Previous studies have associated firm internationalization with foreign sales or foreign assets. However, an increase in sales volume generated abroad does not necessarily mean that a firm has actually invested in a new foreign country. This study examines non-financial firms included in the main developed stock indexes that report a new geographical area of operation. It reveals that, at less advanced levels of internationalization, growth in foreign volumes and new geographic expansion lead to differential decision-making in capital structure choices.This study concludes that (1) when the target foreign market is developed, the new market entry does not lead to significant changes in capital structure, whatever the past experience of the firm. (2) The capital structure of well-diversified firms is not significantly modified following a new foreign entry. (3) Both domestic firms and firms only active in developed markets significantly increase their debt to equity ratio when expanding into a region or country where they had no operation before. Well-diversified firms clearly exhibit a different behavior compared to firms in less advanced levels of internationalization.     

The Impact of European Works Councils on Management Decision-Making in UK and US-based Multinationals: A Case Study Comparison

The operation of European Works Councils (EWCs) is taking management and employee representatives in MNCs into uncharted territory. In particular, for companies headquartered in Anglo‐Saxon economies there is little domestic tradition of statutory employee consultation. Drawing on comparative case studies, this article investigates the impact of EWCs on the process and outcomes of corporate‐level management decision‐making in UK and US‐based MNCs. Variation in EWC impact arises from the interaction of structural factors, such as business focus, management organisation and pre‐existing industrial relations arrangements, and agency factors, including management policy and the cohesion of employee representatives.     

Order of entry,trial diffusion,and elasticity dynamics: An empirical case

This paper considers the diffusion process of new brands in order to estimate marketing mix elasticities and order-of-entry effects. Using an empirical case, we test hypotheses regarding the role of order of entry on brand trial processes within a new category. Consistent with research hypotheses, the results demonstrate that the diffusion rate of a brand's trials and its pricing and advertising elasticities vary systematically as a function of competitive entry. Competitive influences (which are negative) increase as order of entry is delayed. Short-term price elasticities are found to be an inverted U relationship with the order of entry, whereby early followers have the highest elasticities, as compared to the pioneer and to later followers. Advertising elasticities decline as the number of competitors increases.     

Integrated Management of Land Use Systems under Systemic Risks and Security Targets: A Stochastic Global Biosphere Management Model

Interdependencies among land use systems resemble a complex network connected through demand–supply relationships. Disruption of this network may catalyse systemic risks affecting food, energy, water and environmental security (FEWES) worldwide. We describe the conceptual development, expansion and practical application of a stochastic version of the Global Biosphere Management Model (GLOBIOM), used to assess competition for land use between agriculture, bioenergy and forestry at regional and global scales. In the stochastic version of the model, systemic risks of various kinds are explicitly covered and can be analysed and mitigated in all their interactions. While traditional deterministic scenario analysis produces sets of scenario‐dependent outcomes, stochastic GLOBIOM explicitly derives robust outcomes that leave the systems better‐off, independently of which scenario applies. Stochastic GLOBIOM is formulated as a stochastic optimisation model that is critical for evaluating portfolios of robust interdependent decisions: ex‐ante strategic decisions (production allocation, storage capacities) and ex‐post adaptive (demand, trading, storage control) decisions. As an example, the model is applied to the question of optimal storage facilities, as buffers for production shortfalls, to meet regional and global FEWES requirements when extreme events occur. Expected shortfalls and storage capacities have a close relationship with Value‐at‐Risk (VaR) and Conditional Value‐at‐Risk (CVaR) risk measures. A Value of Stochastic Solutions is calculated to illustrate the benefits of the stochastic over the deterministic model approach.     

National influences on European Works Councils in UK‐ and US‐based companies

The view that the role of European Works Councils (EWCs) is shaped predominantly by national industrial relations (IR) traditions in the company's country of origin derives largely from the experience of EWCs in companies based in continental Europe. This article argues that a more differentiated approach to the influence of national IR factors on EWCs needs to be developed to take account of the circumstances of companies headquartered in the UK and the US, whose national IR arrangements do not provide a strong institutional model for the EWC and, in the case of US‐based companies, where headquarters management has little or no direct involvement in the EWC. Findings from comparative case studies of EWCs in eight UK‐ and US‐based multinationals suggest that their character is shaped by the interplay between ‘country‐of‐origin’ factors,‘country‐of‐location’ factors and structural, company‐specific considerations.     

Asymmetric foreign exchange risk exposure: Evidence from U.S. multinational firms

This paper examines how U.S. multinational firms are affected by foreign currency movements. In light of detailed exchange rate data, we find that 29% of our sample of 935 U.S. firms with real operations in foreign countries is significantly affected by currency movements between 1990 and 2001. Results show moreover that U.S. stock returns react asymmetrically to currency movements. By introducing nonlinearity in foreign currency risk exposure, we noticeably increase the precision and the significance of exposure estimates. We demonstrate moreover that asymmetries are more pronounced towards large versus small currency fluctuations than over depreciation and appreciation cycles.     

The Impact of Pillar II Funding: Validation from a Modelling and Evaluation Perspective

We extend the Common Agricultural Policy Regionalised Impact Modelling System (CAPRI) with a regional computational general equilibrium (CGE) model to estimate the effects of the Pillar II of the Common Agricultural Policy. Our aim is to assess the modeling approach by comparing the scenario results with observations from the evaluation reports for rural development, supplemented with expert interviews and findings from the literature. For this purpose, an ex‐post scenario is developed for Germany that models the effect of the Pillar II measures in 2006. We observe a moderate impact, namely, an increase in agricultural income (5%) and agricultural land use (0.15%), particularly grassland, and a substitution of arable land with grassland. This effect leads to a total increase in agricultural production, particularly of beef, and to an increase in total greenhouse gas emissions and total nitrogen surplus for Germany. Greenhouse gas emissions and nutrient surpluses per ha, however, are reduced. We observe that farm investment programmes displace private investment. The evaluation reports confirm the moderate impact and our major results, as does the comparison with other literature. However, the conclusions about agri‐environment measures and their impact on income differ. The most important difference between our results and the evaluation reports and majority of the present literature is that we also quantify the joint effect between the whole economy and policy measures, with some contradictory effects.