nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2007‒09‒09
fifteen papers chosen by
Joao Jose de Matos Ferreira
University of the Beira Interior

  1. Contract Enforcement, Comparative Advantage and Long-Run Growth By Ottaviano, Gianmarco I P
  2. The Drivers and Implications of Business Divestiture – An Application and Extension of Prior Findings By Carolin Decker
  3. Internationalizing R&D Co-opetition: Dress for the Dance with the Devil By Schmiele, Anja; Sofka, Wolfgang
  4. New Orientations in Ethnic Entrepreneurship: Motivation, Goals and Strategies of New Generation Ethnic Entrepreneurs By Baycan-Levent, Tuzin; Nijkamp, Peter; Sahin, Mediha
  5. Policy and Product Differentiations Encourage International Transfer of Environmental Technologies By Hattori, Keisuke
  6. Performance evaluation of portfolio insurance strategies using stochastic dominance criteria By J. ANNAERT; S. VAN OSSELAER; B. VERSTRAETE
  7. The Impact of Organizational Structure and Lending Technology on Banking Competition By Degryse, Hans; Laeven, Luc; Ongena, Steven
  8. The impact of firm-type dominance on regional manufacturing growth By Salvary, Stanley
  9. Location of value added activities in hi-tech industries. The case of pharma-biotech firms in Italy. By Luciano Fratocchi; Alberto Onetti; Alessia Pisoni; Marco Talaia
  10. How to measure the spillover effect? By Toro González, Daniel
  11. A New Indicator of Competitiveness for Italy and the Main Industrial and Emerging Countries By Finicelli, Andrea; Liccardi, Alessandra; Sbracia, Massimo
  12. Monotone Comparative Statics for Games with Strategic Substitutes By Roy, Sunanda; Sabarwal, Tarun
  13. Personal experience: a most vicious and limited circle!? : on the role of entrepreneurial experience for firm survival By Metzger, Georg
  14. An empirical note on growth and convergence across Russian regions By Solanko, Laura
  15. Corporate Social Responsibility and the Environment: A Theoretical Perspective By Thomas P. Lyon; John W. Maxwell

  1. By: Ottaviano, Gianmarco I P
    Abstract: The effects of the quality of institutions on economic development and comparative advantage have been so far investigated separately. This paper proposes a theoretical framework in which trade patterns and growth rates are jointly determined by international differences in contract enforcement that affect firms' organizational decisions. In a two-country dynamic Ricardian model with endogenous innovation and hold-up problems, the value chain consists of two activities, innovation and production. Entry in the market happens through R&D and entrants face two decisions. The 'location decision' determines where to place R&D laboratories and production plants. Through the 'ownership decision' firms choose whether to perform innovation and production within the same vertically integrated structure or not. In this framework, the quality of contract enforcement drives the ownership decision, which affects R&D returns, research intensity and growth. Balance of payments adjustments cause movements in relative wages, which affect the location decision and, therefore, the pattern of sectoral specialization and international trade.
    Keywords: economic growth; incomplete contracts; innovation; theory of the firm
    JEL: D23 F10 L23 O30 O40
    Date: 2007–08
  2. By: Carolin Decker
    Abstract: The purpose of this study is to extend the current understanding of business divestiture by investigating its potential for triggering strategic reorientation. A divestiture involving strategic reorientation is here denoted as a strategic business exit, otherwise it is a status quopreserving business exit. The motives for divestiture specified in prior studies are mainly associated with firm financial performance and corporate strategy. Most studies investigate their impact on divestiture separately though both may interact. This study contributes to research by, first, distinguishing divestiture types, and, second, empirically testing the influence of performance and strategy both separately and in conjunction on the choice between strategic and status quo-preserving business exit with secondary data on 213 divestitures during 1999-2004 which were undertaken by a cross-industry sample of 91 firms listed in the German CDAX. The findings mainly indicate that firm financial performance is a stronger predictor of strategic business exit than corporate strategy.
    Keywords: Divestiture, Exit, Strategic Reorientation, Performance, Strategy, Diversification.
    JEL: G34 L11 L25 M10
    Date: 2007–09
  3. By: Schmiele, Anja; Sofka, Wolfgang
    Abstract: Competitors can be valuable sources and partners for innovation activities. Against the background of international expansion of firms and increased international competition, the R&D collaborations with international competitors (international co-opetition) is becoming an increasingly interesting way to gain access to well guarded knowledge from abroad. However, to be able to benefit from these paradox alliances, a certain level of international co-opetition readiness is required. On the one hand, this readiness is important to protect the companies’ intellectual property that should not be leaked to competitors. On the other hand, the firm has to be able to absorb and utilize the knowledge and capabilities of the collaborating competitor. Hence, we envision co-opetition as a balancing act between appropriability practices and absorptive capacities in a cross-border context. We test these dual hypotheses for a broad sample of roughly 1,000 innovative firms in the German manufacturing sector. We find that co-opetition with international competitors requires a shift in appropriability practices from informal methods (secrecy, lead time) towards formal ones (like patents and copyrights). Besides, we discover that the readiness for international co-opetition can be achieved by developing international collaboration experience through collaborations with international customers or suppliers.
    Keywords: Co-opetition, R&D collaboration, internationalization, innovation management
    JEL: D83 F23 O31 O32
    Date: 2007
  4. By: Baycan-Levent, Tuzin (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Nijkamp, Peter; Sahin, Mediha
    Abstract: The literature on ethnic entrepreneurship has identified a blend of structural and cultural factors that influence the step towards ethnic entrepreneurship. An important issue is whether ethnic entrepreneurs produce for their own ethnic niches or whether they try to cover a wider market of customers. This difference between so-called internal and external orientation has been the subject of many recent empirical investigations. An internal orientation may offer a more protected market, but will never lead to market expansion (break-out strategy). An external orientation requires more skills, diversified communication channels and access to government policy support measures. The concentration of ethnic entrepreneurs in traditional sectors has led many studies to focus mainly on this internal orientation, while there is a limited number of studies that address non-traditional sectors and external orientations of ethnic entrepreneurs. Against this background, the present study aims to deal with new departures for ethnic entrepreneurship in terms of motivation, sectoral choice, business goals and strategies of new generation ethnic entrepreneurs. What is the motivation and orientation of new generation ethnic entrepreneurs? How far are new generation ethnic entrepreneurs from their ethnic groups or their ethnic niches in the market? Can an innovative orientation –external orientation- help to break out from the local ethnic dependency or to escape from a lock-in situation in an ethnic enclave? Can the different motivations and orientations of new generation ethnic entrepreneurs help in realizing effective break-out strategies? In order to answer these questions the study focuses on external orientations of new generation ethnic entrepreneurs, while it addresses in particular the way -and the extent to which- the choice for entrepreneurship is made by higher educated ethnic young generations.
    Date: 2007
  5. By: Hattori, Keisuke
    Abstract: This paper investigates the welfare effects of international transfers of environmental technologies in open economies with international oligopoly and transboundary pollution, and shows that policy differentiation between donor and recipient countries and/or product differentiation between donor and recipient firms play a critical role in bilateral agreement on the transfer policy. The results come from the fact that the policy differentiation weakens the strategic relationships in environmental policy setting between governments and that the product differentiation weakens the strategic relationships in quantity choices between firms.
    Keywords: Technology Transfer; Environmental Tax; Oligopoly; Product Differentiation
    JEL: Q56
    Date: 2007–09–05
    Abstract: The continuing creation of portfolio insurance applications as well as the mixed research evidence suggests that so far no consensus has been reached about the effectiveness of portfolio insurance. Therefore, this paper provides a performance evaluation of the stop-loss, synthetic put and constant proportion portfolio insurance techniques based on a block-bootstrap simulation. Apart from more traditional performance measures, we consider the Value-at-risk and Expected Shortfall of the strategies, which are more appropriate in an insurance context. An additional performance evaluation is given by means of the stochastic dominance framework where we account for sampling error. A sensitivity analysis is performed in order to examine the impact on performance of a change in a specific decision variable (ceteris paribus). The results indicate that a buy-and-hold strategy does not dominate the portfolio insurance strategies at any stochastic dominance order. Moreover, both for the stop-loss and synthetic put strategy a 100% floor value outperforms lower floor values. For the CPPI strategy we find that a higher CPPI multiple enhances the upward potential of the CPPI strategies, but harms the protection level in return. As regards the optimal rebalancing frequency, daily rebalancing should be preferred for the synthetic put and CPPI strategy, despite the higher transaction costs.
    Keywords: Portfolio insurance; Performance evaluation; Stochastic dominance; Block-bootstrap simulation
    JEL: G11
    Date: 2007–06
  7. By: Degryse, Hans; Laeven, Luc; Ongena, Steven
    Abstract: Recent theoretical models argue that a bank’s organizational structure reflects its lending technology. A hierarchically organized bank will employ mainly hard information, whereas a decentralized bank will rely more on soft information. We investigate theoretically and empirically how bank organization shapes banking competition. Our theoretical model illustrates how a lending bank’s geographical reach and loan pricing strategy is determined not only by its own organizational structure but also by organizational choices made by its rivals. We take our model to the data by estimating the impact of the lending and rival banks’ organization on the geographical reach and loan pricing of a singular, large bank in Belgium. We employ detailed contract information from more than 15,000 bank loans granted to small firms, comprising the entire loan portfolio of this large bank, and information on the organizational structure of all rival banks located in the vicinity of the borrower. We find that the organizational structures of both the rival banks and the lending bank matter for branch reach and loan pricing. The geographical footprint of the lending bank is smaller when rival banks are large and hierarchically organized. Such rival banks may rely more on hard information. Geographical reach increases when rival banks have inferior communication technology, have a wider span of organization, and are further removed from a decision unit with lending authority. Rival banks’ size and the number of layers to a decision unit also soften spatial pricing. We conclude that the organizational structure and technology of rival banks in the vicinity influence local banking competition.
    Keywords: authority; banking sector; competition; hierarchies; technology
    JEL: G21 L11 L14
    Date: 2007–08
  8. By: Salvary, Stanley
    Abstract: Availability of financial capital and location decisions are variables that influence regional manufacturing output. This study maintains that a region’s manufacturing growth depends upon the region’s firm-type dominance. That is, the type of firms that dominate the region’s manufacturing output can be classified as non-local (national or foreign - NF) vs. local and large vs. small. Accordingly, for policy analysis, regions can be classified by firm-type dominance. This distinction is important since, invariably, location decision options and availability of financial capital are more favourable for the larger NF firms than for local firms. In an attempt to assess the impact of firm-type dominance, this study draws upon the dominant industry model which has established that, in any given region, there is a dominant industry (the driving force of the region) to which a region’s manufacturing growth is linked. The information on the impact of firm-type dominance on a region's manufacturing output may enable policy-makers to design workable (or revise existing) manufacturing diversification policies.
    Keywords: state-regions and industry-regions; chemical industry region; regional policy analysis; manufacturing growth; firm-type dominance; availability of financial capital; dominant industry model; manufacturing firms' location decisions; regional economic development; foreign-owned manufacturing plants.
    JEL: R1 R12 R11
    Date: 2007–08–23
  9. By: Luciano Fratocchi (Department of Mechanical Thermal and Managerial Engineering - University of L’Aquila - Italy); Alberto Onetti (Department of Economics, University of Insubria, Italy); Alessia Pisoni (Department of Economics, University of Insubria, Italy); Marco Talaia (Department of Economics, University of Insubria, Italy)
    Abstract: This paper aims at analysing the main features of the activities carried out by the Italian biotech industry. This topic is so wide and various that particularly we decided to focus on the value added activities of the so-called “pharma-biotech”, i.e. pharmaceutical firms that have diversified in the biotech business or pharmaceutical spin-offs. First of all we try to identify the main activities carried out by the studied companies. Particularly, we focus on R&D carried out on biotech, trying to measure its extent both in terms of employees involved and of percentage of total investments. Moreover, we provide a picture of the range of R&D activities performed and the contribution arising from the cooperation with actors in and out of the industry. It is worth pointing out the exploratory scope of this paper that at the present is not yet able to provide through managerial guidelines for decision makers. With this respect, the sample is composed of companies operating in Italy in specific business within the biotech industry. More specifically, in order to reach earlier presented goals, attention was paid on the so called red biotech segment, that is biotech companies which develop drugs and diagnostics. This segment - which is predominant at worldwide level - was further divided accordingly to the adopted business model: born-biotech companies (more focused on R&D activities) and pharma-biotech companies (generally operating also manufacturing and sales activities). The research interest was finally focused on the latter segment, which was divided among pharma-oriented and biotech-oriented companies. The paper is structured in four main sections. In the first one, the most relevant features of biotech firms are discussed on the base of a literature review. In the second paragraph, adopted methodology is presented and sample main characteristics are discussed. In the third section, the main results regarding the localization of R&D activities study carried out on the biotech activities in Italy are presented. The conclusions complete the paper.
    Keywords: Biotech, Localization, R&D, MNCs, Value added activities
    Date: 2007–09
  10. By: Toro González, Daniel
    Abstract: Limited information of the Research and Development (R&D) investment at firm level generates difficulties to measure the impact of this kind of investment in other firms, called spillover effect. I develop a simple theoretical model oriented to capture the spillover effect and we show that when a firm increases the investment in R&D, the spillover effect is also increased.
    Keywords: Spillovers; research and developement; R&D; externalities
    JEL: D62 O32
    Date: 2007–09–01
  11. By: Finicelli, Andrea; Liccardi, Alessandra; Sbracia, Massimo
    Abstract: This paper presents the new competitiveness indicators of the Bank of Italy. While the old ones were calculated with reference to 25 industrial or OECD countries, the new indicators are available for 62 countries, including the main emerging and developing economies. In order to extend the country coverage, we have used a new methodology to compute country weights, introduced by the Federal Reserve, which is entirely based on trade flows; by contrast, the previous IMF-BIS methodology adopted for the old indicators required also data on the domestic production of the manufacturing sector — figures that are rarely available for non-industrial countries. In addition, we have adjusted the trade flows of China and Hong Kong as suggested in the literature, in order to reduce the distortions due to the entrepôt trade of these two countries. Results show that methodological differences have a negligible impact on competitiveness indicators; on the other hand, the effect of the country coverage may be quite remarkable. In Italy’s case, the old and new indicators show a similar dynamics in the period from January 1980 to September 2005; differences in levels, well-contained between 1980 and 1993, grow thereafter reaching a maximum of 5.5 percentage points. During the recent phase of dollar depreciation began in February 2002, Italy recorded a sharp decline in competitiveness. In addition to the United States, the countries that mostly contributed to this negative performance were Japan, China, Hong Kong and Taiwan. These losses were partly offset by the gains recorded with respect to several central and eastern European countries.
    Keywords: Real Effective Exchange Rate; Entrepôt trade; Competitiveness;
    JEL: C43 F31 F10
    Date: 2005–12–05
  12. By: Roy, Sunanda; Sabarwal, Tarun
    Abstract: This paper studies comparative statics of equilibria in models where the optimal responses under consideration are (weakly) decreasing in endogenous variables, and (weakly) increasing in exogenous parameters. Such models include parameterized games of strategic substitutes. The analysis provides a sufficient condition for existence of increasing equilibria at a higher parameter value. This condition is presented first for best-response functions; it can be translated easily to payoff functions with one-dimensional individual strategy spaces, and it has a natural analogue to best-response correspondences. The condition is tight in the sense that with a weakenened condition, the same result may not obtain. The results here apply to asymmetric equilibria, and are applied to two classes of examples -- Cournot duopoly and tournaments. Moreover, sufficient conditions are presented to exhibit strong comparative statics of equilibria (that is, every equilibrium at a higher parameter value is greater than a given equilibrium at a lower parameter value), and to show existence of increasing equilibrium selections.
    Keywords: Monotone comparative statics; Weakly decreasing functions; Strategic substitutes; Payoff functions
    JEL: C60 C72
    Date: 2005–05
  13. By: Metzger, Georg
    Abstract: The analysis in this paper gives attention to effects on firm survival which come from entrepreneurial experience. It is likely that different kinds of experience result in different firm developments and therefore in different types of firm exit. Particular emphasis is placed upon the effects of failure experience. The results provide evidence that both the kind of experience and the type of exit matter. Negative experience, namely the experience of failure, is found to heighten the risk of failing again. This finding indicates that business failures are largely not exceptions, but rather a sign of the entrepreneurs’ lack of ability.
    Keywords: Entrepreneurial Experience, Business Failure, Firm Survival
    JEL: G33 L25 L26 M13
    Date: 2007
  14. By: Solanko, Laura (BOFIT)
    Abstract: This empirical note uses publicly available Goskomstat data to investigate income growth and convergence across Russian regions. Using data for 1992-2001, we find strong sigma divergence simultaneously with beta convergence. he results indicate that per capita income in Russian regions may be converging towards two separate steady states. The poorest regions seem to be converging among themselves, while growth experiences among other regions have been highly heterogeneous.
    Keywords: convergence; divergence; Russia; regions; growth
    Date: 2007–09–06
  15. By: Thomas P. Lyon (Ross School of Business, University of Michigan); John W. Maxwell (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: We survey the growing theoretical literature on the motives for and welfare effects of corporate greening. We show how both market and political forces are making environmental CSR profitable, and we also discuss morally-motivated or altruistic CSR. Welfare effects of CSR are subtle and situation-contingent, and there is no guarantee that CSR enhances social welfare. We identify numerous areas in which additional theoretical work is needed.
    Keywords: corporate social responsibility, environment, self-regulation, preemption, private politics
    JEL: Q58 D51
    Date: 2007

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