Showing papers in "Managerial and Decision Economics in 2014"
TL;DR: In this paper, the authors adopt the position that enterprise risk management constitutes a dynamic capability, and examine whether a firm's ERM capability allowed it to respond effectively to the financial crisis of 2008.
Abstract: The dynamic capabilities framework has emerged as a growing area of research within business disciplines—the framework seeks to explain how and why firms adapt successfully to changes in their environments. Yet, whether such capabilities are effective in periods of environmental changes that can be characterized as a crisis remains an unexplored area of research. This paper adopts the position that enterprise risk management (ERM) constitutes a dynamic capability, and examines whether a firm's ERM capability allowed it to respond effectively to the financial crisis of 2008. We find that superior ERM capability was associated with smaller decline in stock price during the downturn and superior profitability during the upturn. The results suggest that firms may need different types of dynamic capabilities to react and respond to different dimensions of environment and types of change. Copyright © 2013 John Wiley & Sons, Ltd.
85 citations
TL;DR: In this article, the authors investigate the incentives of firms' owners to commit voluntarily to corporate social responsibility (CSR) activities in an oligopolistic market and find that CSR activities are welfare enhancing for consumers and firms and thus, they should be encouraged.
Abstract: We investigate the incentives of firms' owners to commit voluntarily to corporate social responsibility (CSR) activities in an oligopolistic market. The socially responsible attributes attached to products are considered as credence goods, with consumers forming expectations about their existence and level. We show that hiring an ‘individually’ socially responsible CEO and delegating to him the CSR effort and market decisions acts as a commitment device for the firm's owners and credibly signals to consumers that the firm will undertake the ‘missioned’ CSR activities. We also find that CSR activities are welfare enhancing for consumers and firms and thus, they should be encouraged.
67 citations
TL;DR: In this paper, a two-part contract consisting of a wholesale price and corporate social responsibility (CSR) component is used by a manufacturer to fully coordinate and control its retailer. But the authors do not consider the impact of CSR on the distribution of products.
Abstract: We analyze a stylized distribution channel (bilateral monopoly) model where an upstream manufacturer sells output to a downstream retailer. In a two-stage linear demand game setting, we show that a two-part contract, consisting of a wholesale price and corporate social responsibility (CSR) component, can be utilized by the manufacturer to fully coordinate and control its retailer. Thus, a CSR contract can be used in place of the traditional two-part tariff scheme (wholesale price and fixed franchise fee) to optimally coordinate the marketing channel. Our model provides a novel theoretical profit-maximizing rationale for the strategic use of CSR. Copyright © 2013 John Wiley & Sons, Ltd.
65 citations
TL;DR: In this article, the authors used a unique data set of individual video game titles to estimate the effect of an exhaustive set of observable characteristics on the likelihood of a video game becoming a block-buster title.
Abstract: This study uses a unique data set of individual video game titles to estimate the effect of an exhaustive set of observable characteristics on the likelihood of a video game becoming a block-buster title. Due to the long-tailed distribution of the sales data, both ordinary least squares and logistic regression models are estimated. The results consistently show that blockbuster video games are more likely to be released by one of the major publishers for popular hardware platforms. Results also show that games of higher quality are significantly more likely to sell a greater number of units than those of a lower quality.
41 citations
TL;DR: In this paper, the authors find GPOs to be procompetitive and suggest an antitrust policy that preserves the benefits of GPO operations while protecting consumers from any competitive shortcomings, and propose an auction-based solution.
Abstract: Group purchasing organizations (GPOs) consolidate the purchasing power of their members and negotiate contracts with input suppliers on their behalf. GPOs have received attention from the Department of Justice and Federal Trade Commission because of concerns over monopsony power and standardization of hospital production costs. GPOs have been criticized in the literature for their contracting practices, which may appear to be exclusionary, and their funding mechanism, which may lead to incentive incompatibility. We analyze these competitive concerns in turn. We find GPOs to be procompetitive and suggest an antitrust policy that preserves the benefits of GPO operations while protecting consumers from any competitive shortcomings. Copyright © 2013 John Wiley & Sons, Ltd.
35 citations
TL;DR: This article used professional baseball data to evaluate the impact of social pressures on subjective decisions made by officials and found that umpires show tendencies consistent with both centrality bias and favoritism toward players with higher status in the league.
Abstract: This paper uses professional baseball data to evaluate the impact of social pressures on subjective decisions made by officials. Umpires show tendencies consistent with both centrality bias and favoritism toward players with higher status in the league. Results also indicate that the odds of a strike are lower for batters in close proximity to the official throughout the game. Implications extend beyond sport to issues regarding closeness of contact in employee–manager relationships and pay and promotions decisions in the workplace. Given the persistent monitoring of officials in professional baseball, this phenomenon could be more prevalent in less scrutinized positions in other industries. Copyright © 2013 John Wiley & Sons, Ltd.
34 citations
TL;DR: In this paper, the authors examine how fluctuations in the amount of capital flowing into venture funds affect the financing of innovative startup companies and how economic downturns affect such financing and argue that the nature of the economic downturn can cause differential effects on the investment pattern.
Abstract: This study examines how fluctuations in the amount of capital flowing into venture funds affect the financing of innovative startup companies and how economic downturns affect such financing. We argue that the nature of the economic downturn can cause differential effects on the investment pattern. We find that venture capital firms invest more in early-stage companies than in later-stage companies when the amount of capital flowing into the market increases. We also find that venture capital firms invest less in early-stage companies than in later-stage companies during an economic downturn associated with the real sector, and that they invest more in early-stage companies than in later-stage companies during an economic downturn associated with the financial sector. This study contributes to the entrepreneurship literature by demonstrating how macroeconomic factors affect venture capital investment decisions. The study also delineates the implications of seeking market entry via venture capital financing by entrepreneurial companies. Copyright © 2013 John Wiley & Sons, Ltd.
26 citations
TL;DR: In this paper, the authors studied how alternative managerial delegation contracts in a duopoly product market interact with wage decisions taken by a central (industry-wide) union in the labor market and pointed out that both firm profitability and welfare outcomes can be superior under both sales delegation and relative profit delegation, depending on various factors such as the degree of product differentiation and the competition regime.
Abstract: This paper studies how alternative managerial delegation contracts in a duopoly product market interact with wage decisions taken by a central (industry-wide) union in the labor market. Interestingly, results prove to be more varied with respect to findings by the managerial delegation literature with exogenous production costs. Most notably, it is pointed out that, in equilibrium, both firm profitability and welfare outcomes can be superior under both sales delegation and relative profit delegation, depending on various factors such as the degree of product differentiation and the competition regime. Copyright © 2013 John Wiley & Sons, Ltd.
26 citations
TL;DR: In this article, the authors examined the effects of acquirer characteristics on method of payment of Chinese acquirers on the basis of a sample of 1370 mergers and acquisitions that occurred between 1998 and 2008.
Abstract: This study examines the effects of acquirer characteristics on method of payment of Chinese acquirers on the basis of a sample of 1370 mergers and acquisitions that occurred between 1998 and 2008. Using both buy and hold abnormal returns and calendar time abnormal returns approaches, we find that Chinese acquirers experience pre-acquisition abnormal returns ranging from 14.29% to 121% over the period of 12–36 months prior to the acquisition relative to three different portfolio benchmarks. In the pre-bid period, acquisitions financed by shares outperform acquisitions financed by cash. However, in the post-acquisition period, we document no significant difference between cash-financed and equity-financed acquisitions. The study also finds that acquirer market value, Tobin's Q, state ownership and leverage have significant effects on the method of payment. Copyright © 2013 John Wiley & Sons, Ltd.
26 citations
TL;DR: In this paper, the influence of intra-industry and extraindustry networks on firm performance was examined by using data on 1264 UK venture-capital-backed start-up companies.
Abstract: This study examines the influence of intra-industry and extra-industry networks on firm performance by using data on 1264 UK venture-capital-backed start-up companies. The venture's network was operationalized by connecting together the various portfolio companies sharing the same investor. Regression results show that the venture's network has a strong impact on firm's success. Yet, whereas extra-industry ties are directly and positively linked to the likelihood of the venture to reach a successful exit, intra-industry ties exert a negative impact on companies' performances. However, interaction effects show that once a firm establishes a sufficient number of extra-industry ties, it is able to profit from the network in its industry of operation. Overall, these findings show that an optimal balance of ties is achieved through a diverse set of connections incorporating both intra-industry and extra-industry ties.
26 citations
TL;DR: The authors analyzes a model in which owners of competing firms can hire biased managers for strategic reasons and show that independent of the mode of competition, that is, price or quantities, owners hire aggressive managers.
Abstract: This paper analyzes a model in which owners of competing firms can hire biased managers for strategic reasons. We show that independent of the mode of competition, that is, price or quantities, owners hire aggressive managers. This result contrasts with the classic literature on strategic delegation. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this paper, the authors apply a unique data set of about 340,000 market transactions from 36 smaller and larger customers of German cement producers and show that a price screen would have allowed particularly larger customers to detect the upstream cement cartel before the competition authority.
Abstract: Cartel detection is usually viewed as a key task of either competition authorities or compliance officials in firms with an elevated risk of cartelization. We argue that customers of hard core cartels can have both incentives and possibilities to detect such agreements on their own initiative through the use of market-specific data sets. We apply a unique data set of about 340,000 market transactions from 36 smaller and larger customers of German cement producers and show that a price screen would have allowed particularly larger customers to detect the upstream cement cartel before the competition authority. The results not only suggest that monitoring procurement markets through screening tools has the potential of substantial cost reductions – thereby improving the competitive position of the respective user firms – but also allow the conclusion that competition authorities should view customers of potentially cartelized industries as important allies in their endeavour to fight hard core cartels.
TL;DR: In this paper, the authors investigate how quantitative and qualitative (indirect) network effects impact pricing and trading decisions on a Business-to-Business marketplace and find that while the quantity of suppliers on board is crucial during the early stage of a marketplace, supplier quality matters much more in the mature stage.
Abstract: This article aims at investigating how quantitative and qualitative (indirect) network effects impact pricing and trading decisions on a Business-to-Business marketplace. Using an original data set collected on MFG.com, one of the most prominent B2B platforms in the U.S.A., we find that the market share of a marketplace depends on both the quantity and quality of suppliers, but that quality effects tend to substitute for quantity effects as the size of the marketplace increases. These results suggest that while the quantity of suppliers on board is crucial during the early stage of a marketplace, supplier quality matters much more in the mature stage. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this paper, the authors examine the impact of private equity investments on innovation and economic growth of entrepreneurial firms and conclude that both public and private investments have a positive effect on innovation performance.
Abstract: There is great interest in evaluating the impact of private equity investments on innovation and economic growth. However, there is no direct empirical evidence on the effects of such transactions on the innovation strategies of entrepreneurial firms. We fill this gap by examining a rich project-level data set consisting of entrepreneurial firms receiving Small Business Innovation Research (SBIR) program research awards. We find that SBIR firms attracting private equity investments are significantly more likely to license and sell their technology rights and engage in collaborative research and development agreements. Our results suggest that private equity investments accelerate the development and commercialization of research-based technologies, thus contributing to economic growth. We conclude that both public and private investments have a positive effect on innovation performance. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this article, an empirical analysis of 491 UK recent secondary management buyouts (SMBOs) was conducted and the authors found strong evidence of a deterioration in long-run abnormal returns following SMBO deals.
Abstract: On the basis of an empirical analysis of 491 UK recent secondary management buyouts (SMBOs), we find strong
evidence of a deterioration in long-run abnormal returns following SMBO deals. SMBOs also perform worse than primary buyouts in terms of profitability, labor productivity, and growth. We find no evidence for superior performance of private equity (PE)backed SMBOs, compared with their non-PE-backed counterparts. It appears that a PE firm’s reputation and change in management are important determinants of improvements in profitability and labor productivity, respectively. High debt and high percentage of management equity tend to be associated with poor performance measured by profitability and labor productivity. Notably, none of the buyout mechanisms (i.e., financial, governance, operating) normally associated with performance improvements generate growth during the secondary buyout phase. The results are robust to the use of alternative performance measures, alternative benchmarks, and the possibility of sample selection bias.© 2013 The Authors. Managerial and Decision Economics published by John Wiley & Sons, Ltd.
TL;DR: In this paper, a Cournot model was used to investigate the influence of product market competition on whether CEOs with higher or lower levels of overconfidence are hired and whether they overinvest in innovation.
Abstract: How does product market competition influence whether CEOs with greater or lower levels of overconfidence are hired and whether CEOs overinvest in innovation? In a Cournot model in which firms hire a CEO to take charge of research and development (R&D) investment and production decisions, this paper shows that CEO overconfidence and overinvestment can be explained as an equilibrium outcome. More importantly, the intensity of product market competition and the equilibrium CEO overconfidence level (and R&D investment) exhibit an inverted U-shaped relationship. As the product market tends toward perfect competition, all firms hire a realistic CEO and do not overinvest. Copyright © 2014 John Wiley & Sons, Ltd.
TL;DR: This paper conducted two empirical studies to test two hypotheses: (1) rivals' customer satisfaction increases a firm's own customer satisfaction; and (2) rivals" customer satisfaction reduces a firms' sales.
Abstract: We conduct two empirical studies to test two hypotheses: (1) rivals' customer satisfaction increases a firm's own customer satisfaction; and (2) rivals' customer satisfaction reduces a firm's sales. Study One uses a panel dataset of annual store-level customer satisfaction data from a supermarket chain for the periods 1998–2001. Study Two considers a range of industries by using a panel dataset of brand-level customer satisfaction ratings from the American Customer Satisfaction Index spanning the periods 1994–2003. Results from both studies provide support for our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this article, the authors investigated the impact of corporate ownership and control on the outcome of financial distress and found that the likelihood of financial stress resulting in insolvency depends on whether firms have controllers, the type of controllers and their cash flow ownership.
Abstract: This paper investigates the impact of corporate ownership and control on the outcome of financial distress. It is argued that the likelihood of financial distress resulting in insolvency depends on whether firms have controllers, the type of controllers and their cash flow ownership. Using a sample of 484 UK firms, 81 of which filed for insolvency, we show that financially distressed firms with controllers are more likely to be insolvent than widely held firms, where the probability of insolvency is greater when controllers are family or financial institutions. However, the probability of insolvency reduces significantly as the controllers' cash flow ownership increases beyond 10%. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this paper, the authors used conjoint analysis to assess how trade-offs are decided when evaluating opportunities considering both individual and business criteria, and found that there is a significant difference in the degree of importance attached to the business sector, capital intensity, technology maturity, market potential and return on investment potential when individuals evaluate an entrepreneurial opportunity.
Abstract: Although prior research has established that entrepreneurs have idiosyncratic perceptions about opportunity attributes, we do not yet understand the level of importances attached to attributes when evaluating opportunities. This article uses conjoint analysis to assess how trade-offs are decided when evaluating opportunities considering both individual and business criteria. We hypothesize differences in the perceived importances of opportunities and the unique constellations therein. The results indicate that there is a significant difference in the degree of importance attached to the business sector, capital intensity, technology maturity, market potential and return on investment potential, when individuals evaluate an entrepreneurial opportunity. The business sector was identified as the principal determinant of opportunity attractiveness, followed closely by the market growth rate, which reflects emerging market conditions. By contextualizing the findings, it is suggested that emerging economies impose higher bureaucratic burdens on entrepreneurs, increasing uncertainty as well as operational and transactions costs of firms; therefore, reducing the incentive to invest in capital or technology. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this article, a comparative examination of the consequences of leveraged buyouts and corporate takeovers on employment growth and wage growth was provided. But they did not find strong support for intervention in the market for corporate control on the grounds of protecting employees' welfare.
Abstract: This paper provides a comparative examination of the consequences of leveraged buyouts (LBOs) and corporate takeovers on employment growth and wage growth. Employing both difference-in-differences combined with propensity score matching and the control function approach, we find evidence that (i) wages remain unchanged after either a private equity (PE)-backed or non-PE-backed LBO, (ii) wages remain unchanged after an unrelated takeover and (iii) related takeovers have negative employment consequences, possibly because of rationalisation. Our evidence does not find strong support for intervention in the market for corporate control on the grounds of protecting employees' welfare.
TL;DR: In this article, the robustness of FI to different first-stage asymmetries is investigated in a game that is initially fully symmetric, and the results from a laboratory experiment confirm that FI is robust.
Abstract: Existing experimental studies tested the forward induction (FI) prediction, an equilibrium selection criterion, in a battle-of-the-sexes game and found limited support due to a confounding focal point. The focal point arises from an asymmetrically offered outside option in the first stage of the game. The robustness of FI to different first-stage asymmetries, however, is still unknown. To investigate this issue, the paper sheds light on the interplay of FI and (i) payoff asymmetries and (ii) endogenously generated asymmetries (in a game that is initially fully symmetric). The results from a laboratory experiment confirm the robustness and power of the FI prediction. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this paper, the authors present the results of an experimental study on jump bidding in takeover auctions with entry costs and analyzes how the size of the entry costs affects the bidders' behavior and their expected profits.
Abstract: This paper presents the results of an experimental study on jump bidding in takeover auctions with entry costs. It provides support for signaling hypothesis behind jump bidding and analyzes how the size of the entry costs affects the bidders' behavior and their expected profits. It also shows that jump bidding allows the reallocation of the surplus from the seller to the first bidder but has little effect on the social surplus and the profits of the second bidder. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this paper, the authors construct an international dataset of agricultural companies receiving external private equity and show that the attributes of the assets involved in production are important determinants of financial structure, a particularly important attribute in agricultural production.
Abstract: Unlike most other mature industries, family firms, partnerships, and cooperatives dominate the agricultural production sector, with few corporations and limited access to capital derived from a source other than retained earnings and existing owners. However, the use of external equity capital in agriculture has increased dramatically since 1990. This funding source allows farms to exploit entrepreneurial opportunities not easily financed by debt. Following O. Williamson, we view debt and equity as alternative governance structures and argue that transaction cost economics offers insights on firms' financial structure beyond those provided by agency theory. We relate capital structure to asset specificity, a particularly important attribute in agricultural production. We construct an international dataset of agricultural companies receiving external private equity and show that the attributes of the assets involved in production are important determinants of financial structure. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this article, a duopoly model was used to study the conditions under which a predatory hiring equilibrium exists, where the match between the worker and the new employer is relatively poor and the old employer has a shallow pool of replacement candidates.
Abstract: There is a growing concern over predatory hiring practices that are aimed at eliminating competitors. Using a duopoly model in which firm's profits depend on the quality of the worker-employer match, this paper studies the conditions under which predatory equilibrium exists. I find that predatory hiring can occur when the match between the worker and the new employer is relatively poor and the old employer has a shallow pool of replacement candidates. Post-employment lawsuits do not affect the range of predatory equilibrium if the parties take into account expected damages payment.
TL;DR: The authors examined the sensitivity of employment to sales contractions in a negative growth scenario for high-tech entrepreneurial ventures using the lens of transaction cost economics and empirically tested the moderating effect of venture capital financing on the employment-sales relationship.
Abstract: This article examines the sensitivity of employment to sales contractions in a negative growth scenario for high-tech entrepreneurial ventures. Using the lens of transaction cost economics, we move from the centrality of human capital for these firms to theoretically discuss and empirically test the moderating effect of venture capital financing on the employment-sales relationship. In doing so, we take into account (i) the identity of the investor, distinguishing independent, corporate and governmental venture capital investors, and (ii) the presence and composition of a syndicate. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this paper, the authors examined the structure of university boards of trustees and the role of trustees in university governance and found that larger boards are not related to poorer performance and that having more trustees selected by the alumni may lead to better performance.
Abstract: This paper examines the structure of university boards of trustees and the role of trustees in university governance. The analysis focuses on how trustees are selected at private universities, the role of trustees in representing stakeholder interests, and how these choices are related to institutional mission. A unique data set on board composition in 1968 and 2005 provides the opportunity to examine the empirical relationships between university characteristics, board structure, and performance. The results suggest that larger boards are not related to poorer performance and that having more trustees selected by the alumni may lead to better performance. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this paper, the impact of pre-emptive competition for a leader's position on the investment strategies for market entry, production capacities, and product differentiation is examined, and it is shown that pre-emption provides the opportunity for the follower to expedite investing and to enhance investment value by capitalizing on the leader's insufficient capacity.
Abstract: This paper examines the impact of pre-emptive competition for a leader's position on the investment strategies for market entry, production capacities, and product differentiation. In the absence of pre-emptive competition, the leader's production capacity exceeds the follower's, and the leader earns excess returns. In contrast, in its presence, the leader's production capacity decreases below the follower's, and the follower's investment value exceeds the leader's when the follower enters the market. These results suggest the new insight that pre-emptive competition provides the opportunity for the follower to expedite investing and to enhance investment value by capitalizing on the leader's insufficient capacity. Copyright © 2013 John Wiley & Sons, Ltd.
TL;DR: In this paper, the authors provide an overview of file sharing networks and explore the relationship between technological, economic, and legal aspects of file-sharing, and examine the role of network architecture in a copyright holder's choice of enforcement strategy.
Abstract: This paper provides an overview of internet file sharing networks and explores the relationship between technological, economic, and legal aspects of file sharing. I chronicle the evolution of content sharing technology since the 1990s and examine the role of network architecture in a copyright holder’s choice of enforcement strategy. I also describe how users and developers of file sharing networks have responded to various enforcement tactics. The target audience of this survey consists of economists and legal scholars interested in the technology and economics of file sharing networks and the enforcement of intellectual property rights on these networks.
TL;DR: In the past decade, we have witnessed rapid growth in a variety of specialist alternative investment vehicles including venture capital, crowd funding, business angel funds, later-stage private equity, hedge funds, sovereign wealth funds, infrastructure funds, and real-estate funds as mentioned in this paper.
Abstract: In the past decade, we have witnessed rapid growth in a variety of specialist alternative investment vehicles including venture capital, crowd funding, business angel funds, later-stage private equity, hedge funds, sovereign wealth funds, infrastructure funds, and real-estate funds. The importance of venture capital and angel investment for new firms, especially in high-growth, high-technology sectors, is well known. However, alternative investments span a wide range of company types, from small, early-stage ventures with high-growth rates but little cash flow to large firms inmature industries that generate substantial cash flow. Alternative investment vehicles introduce new forms of financing with different objectives and diverse forms of involvement by investors in portfolio firms. Alternative investors differ widely in skills, goals, experience, and investment time horizons. They often invest across a variety of institutional environments, transferring standard investment approaches from one sector or country to another. Because these alternative equity stakes are generally less liquid than shares in publicly traded enterprises, their growth raises a host of important issues for the organization and governance of portfolio companies, for the structure of industries heavily dependent on alternative investment pools, and for
TL;DR: In this paper, the authors test and cannot reject the hypothesis that retail pricing of natural gas is transparent for commercial and residential customers served by regulated local distribution companies in the United States.
Abstract: We test and cannot reject the hypothesis that retail pricing of natural gas is transparent for commercial and residential customers served by regulated local distribution companies in the United States. The periods of adjustment to a wholesale price change are 1.54 months for the commercial price and 1.69 months for the residential price. These findings support the view that regulated local distribution companies quickly adjust retail prices to fully capture any change in the wholesale natural gas price. Copyright © 2013 John Wiley & Sons, Ltd.