Decision support for firm performance by real options analytics

This paper develops a real options decision support tool for raising the performance of the firm. It shows how entrepreneurs can use our intuitive tool quickly to assess the nature and type of action required for improved performance. This exploits our estimated econometric relationship between precipitators of entrepreneurial opportunities, time until exercise, and firm performance. Our 3D chromaticity plots show how staging investments, investment time, and firm performance support entrepreneurial decisions to embed, or to expedite, investments. Speedy entrepreneurial action is securely supported with this tool, without expertise in econometric estimation or in formulae for real options valuation

The Relationship between E-Marketing Strategy and Performance: A Conceptual Framework in a Web Context

While building on the contingency theory, this paper proposes a conceptual framework that links five factors: a) internal forces, b) external forces, c) past web and firm performance, d) current web and firm performance, and e) e-marketing strategy in terms of the strategy defined for the 4Ws (Web-Design, Web-Promotion, Web-Price, and Web-CRM). Future research is encouraged to build on this framework to test how internal and external forces of the firm, along with its past performance, influence the determination of e-marketing strategy and how in turn, e-marketing strategy impacts on performance at the web and firm levels.

Does Information Technology Investment Influences Firm’s Market Value? The Case of Non-Publicly Traded Healthcare Firms

Managers make informed information technology investment decisions when they are able to quantify how IT contributes to firm performance. While financial accounting measures inform IT’s influence on retrospective firm performance, senior managers expect evidence of how IT influences prospective measures such as the firm’s market value. We examine the efficacy of IT’s influence on firm value combined with measures of financial performance for non-publicly traded (NPT) hospitals that lack conventional market-based measures. We gathered actual sale transactions for NPT hospitals in the United States to derive the q ratio, a measure of market value. Our findings indicate that the influence of IT investment on the firm is more pronounced and statistically significant on firm value than exclusively on the accounting performance measures. Specifically, we find that the impact of IT investment is not significant on return on assets (ROA) and operating income for the same set of hospitals. This research note contributes to research and practice by demonstrating that the overall impact of IT is better understood when accounting measures are complemented with the firm’s market value. Such market valuation is also critical in merger and acquisition decisions, an activity that is likely to accelerate in the healthcare industry. Our findings provide hospitals, as well as other NPT firms, with insights into the impact of IT investment and a pragmatic approach to demonstrating IT’s contribution to firm value

Reciprocally Interlocking Boards of Directors and Executive Compensation

Is executive compensation influenced by the composition of the board of directors? About 8% of chief executive officers (CEOs) are reciprocally interlocked with another CEO—the current CEO of firm A serves as a director of firm B and the current CEO of firm B serves as a director of firm A. Roughly 20% of firms have at least one current or retired employee sitting on the board of another firm and vice versa. I investigate how these and other features of board composition affect CEO pay by using a sample of 9,804 director positions in America\u27s largest companies. CEOs who lead interlocked firms earn significantly higher compensation. Also, interlocked CEOs tend to head larger firms. After controlling for firm and CEO characteristics, the pay gap is reduced dramatically. However, when firms that are interlocked due to documented business relationships are considered not interlocked, the measured return to interlock is as high as 17%. There also is evidence that the return to interlock was higher in the 1970s than in the early 1990s

Do Market Pressures Induce Economic Efficiency?: The Case of Slovenian Manufacturing, 1994-2001

The Slovenian transition represents a slow but steady liberalization of constraints on competition. Using a unique longitudinal data set on all manufacturing firms in Slovenia over the period 1994-2001, this study analyzes how firm efficiency changed in response to changing competitive pressures, holding constant firm attributes. Results show that the period was one of atypically rapid growth of total factor productivity (TFP) relative to levels in OECD countries, and that the rise in firm efficiency occurs across almost all industries and firm types: large or small; state or private; domestic or foreign-owned. Changes in firm ownership type have no impact on firm efficiency. Rather, competitive pressures that sort out inefficient firms of all types and retain the most efficient, coupled with the entry of new private firms that are at least as efficient as surviving firms, prove to be the major source of TFP gains. Market competition from new entrants, foreign-owned firms, and international trade also raise TFP in the industry. Results strongly confirm that market competition fosters efficiency.http://deepblue.lib.umich.edu/bitstream/2027.42/40007/3/wp621.pd

Financial constraints and innovation: Why poor countries don't catchup

We examine micro-level channels of how financial development can affect macroeconomic outcomes like the level of income and export intensity. We investigate theoretically and empirically how financial constraints affect a firm's innovation and export activities, using unique firm survey data which provides direct measures for innovations and firm-specific financial constraints. We find that financial constraints restraint heability of domestically owned firms to innovate and export and hence to catch up to the technological frontiers. This negative effect is amplified as financial constraints force export and innovation activities to become substitutes although they are generally natural complements

The moderating effect of brand orientation on inter-firm market orientation and performance

While prior research has shown that market and brand orientation are key contributors to successful business performance, research to date has not fully explored how inter firm collaboration for these two key orientations can enhance business performance. The purpose of the paper is to investigate the relationship between inter-firm market and performance; to test for the moderating role of brand orientation in that relationship. A total of 169 completed pairs of surveys were collected of small and medium enterprises operating internationally in a variety of industries in Switzerland. The results show that inter-firm market and brand orientation are two antecedents of marketing and financial performance. The impact of inter-firm market on marketing and financial performance is significant when the brand orientation is favorable. This study extends previous research by examining the moderating role of brand orientation on inter firm market orientation, which is important, especially for firms wanting to increase their brand reputation by entering into partnerships with other firms. Further research is indicated, to identify the key moderators of the driving force of inter-firm market in relation to business performance and the reason why maintaining a strong brand presence is important in the international marketplace

Firm relocation: state of the art and research prospects

This paper deals with firm relocation. Firm relocation is a particular form of locational adjustment of the firm and one of the possible ways to adjust to changes in markets, preferences of consumers, environmental regulations, technological progress etc. In section 2 we will treat the neo-classical, the behavioural, and the institutional approaches respectively. Next, a historical review of firm relocation research is presented, in section 3. It starts with the "classical studies" of the first post-war period, followed by a description of what can be called the golden era of firm relocation studies according to the large number of studies: the nineteen sixties and seventies. This section ends with an overview of firm relocation studies of the last decades of the previous century. In section 4 we present an example an empirical study that addresses relevant firm relocation for the present era by means of a statistical model estimated on data for individual firms of the Netherlands. We conclude the chapter with a discussion of why and how the firm relocation research frontier can be pushed forward and give suggestions for further research also in relation with policy.

The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity

This paper builds a dynamic industry model with heterogeneous firms that explains why international trade induces reallocations of resources among firms in an industry. The paper shows how the exposure to trade will induce only the more productive firms to enter the export market (while some less productive firms continue to produce only for the domestic market) and will simultaneously force the least productive firms to exit. It then shows how further increases in the industry's exposure to trade lead to additional inter-firm reallocations towards more productive firms. These phenomena have been empirically documented but can not be explained by current general equilibrium trade models, because they rely on a representative firm framework. The paper also shows how the aggregate industry productivity growth generated by the reallocations contributes to a welfare gain, thus highlighting a benefit from trade that has not been examined theoretically before. The paper adapts Hopenhayn's (1992a) dynamic industry model to monopolistic competition in a general equilibrium setting. In so doing, the paper provides an extension of Krugman's (1980) trade model that incorporates firm level productivity differences. Firms with different productivity levels coexist in an industry because each firm faces initial uncertainty concerning its productivity before making an irreversible investment to enter the industry. Entry into the export market is also costly, but the firm's decision to export occurs after it gains knowledge of its productivity.

Why foreign ownership may be good for you

We develop a general equilibrium two-country model with heterogeneous producers and rent sharing at the firm level due to fairness preferences of workers. We identify two sources of a multinational wage premium. On the one hand, there is a pure composition effect because multinational firms are more productive, make higher profits, and therefore pay higher wages. On the other hand, there is a firm-level wage effect: A multinational firm pays higher wages in its home market than an otherwise identical national firm since it has higher global profits. We analyse how these two sources interact in determining the multinational wage premium in a setting with two identical countries, and show that in this case the wage premium is fully explained by firm characteristics. We then allow for technology differences between countries and find that a residual wage premium exists in the technologically backward country, but not in the advanced country. --multinational firms,wage premium,heterogeneous firms