nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2007‒04‒14
twelve papers chosen by
Joao Jose de Matos Ferreira
University of the Beira Interior

  1. The Relationship between Corporate Governance Indicators and Firm Value: A Case Study of Karachi Stock Exchange By Attiya Y. Javed; Robina Iqbal
  2. Business ethics and corporate responsibility:a new perspective By Bhanu Murthy, K.V.
  3. Exploring the relationship between scientist human capital and firm performance . the case of biomedical academic entrepreneurs in the SBIR program By Toole, Andrew A.; Czarnitzki, Dirk
  4. Dynamic R&D incentives with network externalities By Cerquera Dussán, Daniel
  5. Multi-Product Firms and Flexible Manufacturing in the Global Economy By Carsten Eckel; J. Peter Neary
  6. Trade Marks and Performance in UK Firms: Evidence of Schumpeterian Competition through Innovation By Christine Greenhalgh; Mark Rogers
  7. Once bitten, twice shy? : The performance of entrepreneurial restarts By Metzger, Georg
  9. A Strategic Guide on Two-Sided Markets Applied to the ISP Market By Cortade, Thomas
  10. Can Measurement Error Explain the Weakness of Productivity Growth in the Canadian Construction Industry? By Peter Harrison
  11. The Determinants of Corporate Risk in Emerging Markets: An Option-Adjusted Spread Analysis By Eduardo Cavallo; Patricio Valenzuela
  12. The Relationship between ICT Investment and Productivity in the Canadian Economy: A Review of the Evidence By Andrew Sharpe

  1. By: Attiya Y. Javed (Pakistan Institute of Development Economics, Islamabad); Robina Iqbal (Quaid-i-Azam University, Islamabad)
    Abstract: We investigated whether differences in quality of firm-level corporate governance can explain the firm-level performance in a cross-section of companies listed at Karachi Stock Exchange. Therefore, we analysed the relationship between firm-level value as measured by Tobin’s Q and total Corporate Governance Index (CGI) and three sub-indices: Board, Shareholdings and Ownership, and Disclosures and Transparency for a sample of 50 firms. The results indicate that corporate governance does matter in Pakistan. However, not all elements of governance are important. The board composition and ownership and shareholdings enhance firm performance, whereas disclosure and transparency has no significant effect on firm performance. We point out that those adequate firm-level governance standards can not replace the solidity of the firm. The low production and bad management practices
    Keywords: Corporate Governance, Firm Performance, Tobin’s Q, Agency Problem, Board Size, Shareholdings, Disclosures, Leverage, Code of Corporate Governance
    JEL: G12 G34 G38
    Date: 2007
  2. By: Bhanu Murthy, K.V.
    Abstract: Starting from the famous but controversial statement of Peter Drucker (1981) - “There is neither a separate ethics of business nor is one needed”, this paper goes on to argue that business ethics and social responsibility are not unrelated. It shows how it is necessary to distinguish between business philosophy and philosophy of business. Through this distinction it develops a framework that relates the two – business ethics and CSR. It goes on to argue that there is a paradigm shift in the philosophy of business. This shift leads to a framework wherein a new perspective on business ethics and social responsibility emerges. It is coined as Corporate Responsibility. It consists of (a) good governance (b) corporate social responsibility (“CSR”) (c) environmental accountability. It discusses the role of top managers in achieving Corporate Responsibility through Organizational Transformation. This is the integrated approach to Corporate Responsibility that needs to be incorporated into International Standards of Social Responsibility. However, the major challenge is of evolving a strategy for laying down standards that take care of major issues and provide standards that are measurable, objective and universal. The three central issues of International Social Responsibility Standards are: 1. Acceptance of the tri-focal approach – Governance, Responsibility and Accountability. 2. Approach to methods of measurement is resolved. 3. The mandatory versus voluntary issue can be resolved only if issues of measurement and their universal applicability is resolved.
    JEL: M21 D02 D21
    Date: 2007–04–09
  3. By: Toole, Andrew A.; Czarnitzki, Dirk
    Abstract: Do academic scientists bring valuable human capital to the companies they found or join? If so, what are the particular skills that compose their human capital and how are these skills related to firm performance? This paper examines these questions using a particular group of academic entrepreneurs – biomedical research scientists who choose to commercialize their knowledge through the U.S. Small Business Innovation Research Program. Our conceptual framework assumes the nature of an academic entrepreneurs’ prior research reflects the development of their human capital. We highlight differences in firm performance that correlate with differences in the scientists’ research orientations developed during their academic careers. We find that biomedical academic entrepreneurs with human capital oriented toward exploring scientific opportunities significantly improve their firms’ performance of research tasks such as “proof of concept” studies. Biomedical academic entrepreneurs with human capital oriented toward exploring commercial opportunities significantly improve their firms’ performance of invention oriented tasks such as patenting. Consistent with prior evidence, there also appears to be a form of diminishing returns to scientifically oriented human capital in a commercialization environment. Holding the commercial orientation of the scientists’ human capital constant, we find that increasing their human capital for identifying and exploring scientific opportunities significantly detracts from their firms’ patenting performance.
    Keywords: Academic Entrepreneurship, SBIR Program, Human Capital, Biotechnology
    JEL: D21 J24 L65 O32
    Date: 2007
  4. By: Cerquera Dussán, Daniel
    Abstract: This paper studies the incentives to undertake uncertain R&D initiatives in a dynamic duopoly network industry. It is shown that network externalities positively affect the incentives to invest in R&D. In the model, competition resembles a preemption race and, therefore, market performance implies an overinvestment in R&D in comparison with the social optimum. Moreover, network externalities have an important impact in the dynamic evolution of the industry. Although in the long-run a single firm dominates the market (i.e. wins the race), short-run competition is very fierce and concentrated on neck-and-neck technological configurations. This short-run competition is fiercer and longer, the higher the level of network externalities. Policy measures that increase technological diffusion (i.e. mandatory licensing), increase the level of competition and/or prolong the short-run competition have an important positive impact on consumer welfare and on firms’ R&D incentives.
    Keywords: Network externalities, Innovation, Imperfect Competition, Dynamic Games
    JEL: C73 D85 L13 O31
    Date: 2006
  5. By: Carsten Eckel; J. Peter Neary
    Abstract: We present a new model of multi-product firms (MPFs) and flexible manufacturing and explore its implications in partial and general equilibrium. International trade integration affects the scale and scope of MPFs through a competition effect and a demand effect. We demonstrate how MPFs adjust in the presence of single-product firms and in heterogeneous industries. Our results are in line with recent empirical evidence and suggest that MPFs in conjunction with flexible manufacturing play an important role in the impact of international trade on product diversity.
    Keywords: Multi-Product Firms, Flexible Manufacturing, General Oligopolistic Equilibrium (GOLE), International Trade, Product Diversity
    JEL: F12 L13
    Date: 2006
  6. By: Christine Greenhalgh; Mark Rogers
    Abstract: This paper uses novel data on trade mark activity of UK manufacturing and service sector firms to investigate whether trade marks improve the profitability and productivity of firms. We first analyse Tobin`s q, the ratio of stock market value to book value of tangible assets. We then investigate the relationship between trade mark activity and productivity, using a value added production function. Finally we examine interactions between firms IP activity, to explore creative destruction and growth via innovation. We find trade marks are positively related to both Tobin`s q and to productivity. Also in the short run greater IP activity by other firms in the industry reduces the value added of the firm, but this same competitive pressure has later benefits via productivity growth, also reflected in higher stock market value. This describes the Schumpeterian process of competition through innovation, restraining profit margins while increasing product variety and quality.
    Keywords: Trade Marks, Market Value, Productivity, Manufacturing, Services
    JEL: O30 L60 L80
    Date: 2007
  7. By: Metzger, Georg
    Abstract: The aim of this paper is to analyze the effect of entrepreneurial experience on firm growth. According to the human capital theory, individuals who have higher ‘human capital’ are more successful than others. Entrepreneurial experience is a kind of human capital and, therefore, should affect firm performance positively. In reality, however, not all types of experience indicate enhanced knowledge alone. Bad experience, here the experience of failure, might equally be a signal for entrepreneurial weakness and, thus, an argument for exercising restraint in possible further business ventures. The ambiguous effects of this failure experience on firm success necessitate an in-depth analysis of the issue. Therefore, this paper contains an empirical comparison of firms involving experienced entrepreneurs and novice firms. The analysis shows that entrepreneurial experience affects firm growth positively. Accounting for failure experience separately reveals a negative effect. Interpreting this finding in combination with other control measures indicates that failed entrepreneurs indeed behave more cautiously regarding firm growth.
    Keywords: Business Failure, Firm Growth, Entrepreneurial experience
    JEL: G33 J23 M13
    Date: 2006
  8. By: Wong, Poh Kam; Lee, Lena; Foo, Maw Der
    Abstract: Prior studies have found that knowledge gained from work experience is a way to gather insights for business opportunity recognition. However, little is known about the specific types of knowledge that lead to business founding. Utilizing concepts from knowledge spillovers and from the opportunity recognition literatures, this paper argues that through an organization’s technological innovation activities, employees develop specialized knowledge that provides them with the entrepreneurial opportunities to found new businesses. Besides highlighting the positive relationship between technological innovation activities in organizations and the propensity of individuals leaving the organizations to start new businesses, this paper also provides a more fine-grained explanation of the types of technological innovation activities that can lead to business founding. We argue that knowledge acquired through product innovations is more easily appropriated by individuals for commercial uses, while knowledge acquired through process innovations must be integrated with other parts of the organization to be valuable. This study proposes that product innovation activities in an organization more so than process innovation activities in an organization are related to new business founding. Implications for opportunity exploitation and ways to appropriate knowledge spillovers are discussed.
    JEL: M0 M00
    Date: 2007–04
  9. By: Cortade, Thomas
    Abstract: This paper looks at a new body of literature that deals with two-sided markets and focuses on the Internet Service Provider (ISP) segment. ISPs seem to act as a platform enabling transactions between web sites and end consumers. We propose a strategic guide for ISPs that covers features of two-sided markets such as strong externalities and discuss how these market characteristics can affect competition policy.
    Keywords: Platform; externalities; price allocation; competition policy.
    JEL: L51 L96 L86
    Date: 2006–03
  10. By: Peter Harrison
    Abstract: According to Statistics Canada productivity estimates, the rate of growth of real output per hour in the construction industry in Canada over the 1981-2006 period was 0.53 per cent per year, one-third of the business sector average. This article examines evidence for and against the hypothesis that measurement error explains this below average productivity performance. The article finds that the use of input cost indexes to adjust nominal output to obtain real output, instead of the more appropriate use of output price indexes, for certain sub-industries of the construction sector represents the most likely source of measurement error. This procedure may result in a downward bias to labour productivity growth in the construction sector of up to 0.44 percentage points per year. It is thus likely that measurement error explains some, but not all, of the gap in labour productivity growth between the construction industry and the business sector.
    Keywords: Real labour productivity, Construction industry, Business sector, Input cost indexes, Measurement error, Productivity gap.
    JEL: C40 C80 C82 L74 O40 O51
  11. By: Eduardo Cavallo (Inter-American Development Bank); Patricio Valenzuela (International Monetary Fund)
    Abstract: This study explores the determinants of corporate bond spreads in emerging markets economies. Using a largely unexploited dataset, the paper finds that corporate bond spreads are determined by firm-specific variables, bond characteristics, macroeconomic conditions, sovereign risk, and global factors. A variance decomposition analysis shows that firm-level characteristics account for the larger share of the variance. In addition, the paper finds two asymmetries. The first is in line the sovereign ceiling “lite” hypothesis which states that the transfer of risk from the sovereign to the private sector is less than 1 to 1. The second is consistent with the popular notion that panics are common in emerging markets where investors are less informed and more prone to herding.
    Keywords: Corporate Bond Spreads; Sovereign Ceiling; Default Risk; Emerging Market
    JEL: E43 F30 F34 G15
    Date: 2007–04
  12. By: Andrew Sharpe
    Abstract: The objective of this report is to shed light on the relationship between information and communications technologies (ICT) and productivity in the Canadian economy.The key conclusion of the report is that ICT has been the driving force behind the acceleration of productivity growth in Canada and the United States since 1996. However, the potential of ICT has not been fully exploited and we will continue to see significant ICT contributions to productivity growth in coming years. The role for government is to develop appropriate policy frameworks so that the productivity-enhancing effects of ICT can be fully realized.
    Keywords: Productivity, ICT, Productivity drivers, Policy frameworks, ICT investment, ICT capital.
    JEL: O00 O11 O16 O31 O40 L60
    Date: 2006–12

This nep-cse issue is ©2007 by Joao Jose de Matos Ferreira. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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