Organizational economics and the food processing industry
01 Jan 2004-
TL;DR: In this article, the authors examine the two prevalent organizational theories, Transaction Cost Economics and Agency Theory, through a study of the food processing industry and make predictions from each theory regarding the aspects of capital structure and firm expansion.
Abstract: OF THESIS ORGANIZATIONAL ECONOMICS AND THE FOOD PROCESSING INDUSTRY The food processing industry is dominated by large corporations. These firms play a critical role in forming the derived demand faced by agricultural producers, but little is understood about how these companies make strategic choices. Organizational economics provides a framework for exploring the firm’s decision process. However, several theories exist in this discipline, operating in fundamentally different ways. This paper examines the two prevalent organizational theories, Transaction Cost Economics and Agency Theory, through a study of the food processing industry. This sector is thoroughly analyzed in order to make predictions from each theory regarding the aspects of capital structure and firm expansion. With accounting data for a sample of food processing firms, these predictions are then tested empirically using an ICAPM model in a cross-section of expected stock returns. Our results indicate that Agency Theory is the relevant organizational model for food manufacturers, making it the appropriate tool for evaluating the actions of these firms in agricultural markets.
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01 Jan 1997
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24 citations
Posted Content•
TL;DR: In this article, the authors compare the economic organization of agriculture in the United States and the European Union and highlight the interaction between the institutional environment and the arrangements established to govern agricultural transactions.
Abstract: This paper outlines a research program comparing the economic organization of agriculture in the United States and European Union. Both have highly developed agricultural sectors but their organizational arrangements vary widely. Comparative analysis not only provides a broad set of firms and industries to compare, but also highlights the interaction between the institutional environment and the arrangements established to govern agricultural transactions. We first assess the common trend toward consolidation and vertical integration, turning next to the economic organization of formal and informal networks. While history and path dependence explain some of the variety among U.S. and European practices, other local conditions are important as well. We conclude by assessing the policy implications of recent changes in economic organization.
16 citations
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TL;DR: In this article, Jensen argues that shareholders condition their valuation decisions on firms' reputations regarding free cash flow abuse and test this notion by examining share price responses to equity offers, which generally exacerbate the cash flow problem.
Abstract: Michael C. Jensen argues that there are agency costs associated with free cash flow. This study extends that argument and posits that shareholders condition their valuation decisions on firms' reputations regarding free cash flow abuse. The authors test this notion by examining share price responses to equity offers, which generally exacerbate the cash flow problem, for firms differentiated by their recent acquisitive behavior. The results suggest that shareholders react more favorably to equity issue announcements if firms have acquired only assets related to their core business than to other equity issue announcements. Copyright 1991 by University of Chicago Press.
79 citations
01 Jan 1989
TL;DR: The Capital Asset Pricing Model (CAPM) is an example of an equilibrium model in which asset prices are related to the exogenous data, the tastes and endowments of investors as discussed by the authors.
Abstract: Two general approaches to the problem of valuing assets under uncertainty may be distinguished. The first approach relies on arbitrage arguments of one kind or another, while under the second approach equilibrium asset prices are obtained by equating endogenously determined asset demands to asset supplies, which are typically taken as exogenous. Examples of the former range from the static arbitrage arguments which underlie the Modigliani-Miller theorem to the dynamic arbitrage strategies which are the basis for the Option Pricing Model: such arbitrage based models can only yield the price of one asset relative to the prices of other assets. The Capital Asset Pricing Model (CAPM) is an example of an equilibrium model in which asset prices are related to the exogenous data, the tastes and endowments of investors although, as we shall see below, the CAPM is often presented as a relative pricing model.
74 citations
TL;DR: In this article, the impacts of capital quasi-fixity on capital and non-capital input decisions made in the U.S. Food and Kindred Products industry from 1965 to 1991 were investigated.
Abstract: Investment in new technology affects structural change and economic performance through its effect on capital and input composition. This is particularly important for capital-intensive industries such as food processing, which lack short-run flexibility due to adjustment costs. This study considers the impacts of capital quasi-fixity on capital and noncapital input decisions made in the U.S. Food and Kindred Products industry from 1965 to 1991. A cost-based production theory model is used to evaluate investment motivations for three capital components. Productivity growth accompanying changing input patterns is then discussed, focusing on capital and farm input demand.
69 citations
TL;DR: The Efficient Consumer Response (ECR) initiative as mentioned in this paper is an industry-wide effort that brings together food manufacturers, distributors, brokers, and retailers to increase efficiency through new forms of cooperation and coordination.
Abstract: The food supply chain moves food from the farm gate to the consumer, transforming raw commodities into products that can be conveniently purchased, prepared, and consumed. The chain is comprised of food procurement and manufacturing companies, wholesale/distribution firms, brokers, food service firms and restaurants, and retail grocery firms. It is remarkable for its efficiency, diversity of firm sizes and types, and responsiveness to consumers. "Reengineering" is the radical redesign and restructuring of business processes (Hammer). In place of incremental adjustments to changing conditions and opportunities, it calls for a rethinking of business activities, information flows, and organizational forms from a whole systems perspective. Reengineering is evident throughout the food supply chain and the broader food system, but perhaps the most comprehensive reengineering effort is the grocery industry's Efficient Consumer Response (ECR) initiative. This industry-wide effort is bringing together food manufacturers, distributors, brokers, and retailers. The aim is to increase efficiency through new forms of cooperation and coordination that are often based on
69 citations