Firms Shift Research Articles

Competitive Effects of Collaborative Arrangements: Impact of the MPEG-2 Pool on Outsiderss Innovative Performance

Recent empirical research suggests that modern patent pools might be anti-innovative. In this paper, first I investigate the effect of the MPEG-2 pool, the first modern patent pool, on the patenting rate of firms outside the pool. Results confirm previous findings and show a substantial decline in outsiders’ patenting rate after the pool formation. Subsequently, I explore three mechanisms that can potentially explain this negative impact. The results suggest that the observed reduction is mainly due to a shift in firms’ investment from additional patentable technological exploration toward implementing the pool technology in their products. I do not find support for arguments linking the decline to an increase in the litigation risks or a decrease in the financial performance of outsiders after the pool formation.

Stability or restructuring? Macroeconomic dynamics under soft budget constraint problems

In this paper, we examine how a decrease in firms’ productivity or the degree of financial market imperfection affects macroeconomic dynamics when the bank has an incentive to misallocate its credit. We develop a model that incorporates a soft budget constraint into a simplified version of Kiyotaki and Moore (1997) environment and show that soft budget constraint problems may arise if the economy becomes less productive or the financial market is less developed. Because of this shift in firms’ productivity, not only do more bad projects survive, but profitable new entrants are crowded out, so that, as in transition economies and Japan in the 1990s, the recession is not only prolonged, but also becomes more severe in the long term.

The Effect of Financial Constraints on Tax-Motivated Income Shifting by U.S. Multinationals

When a U.S. multinational corporation shifts income from the U.S. to foreign jurisdictions, it incurs costs and reaps benefits. The benefits may be reduced if the shifted income must be returned to the U.S. as a dividend in the short term and face the same U.S. tax it would have if the income had not been shifted. Firms, then, have incentive to defer repatriation of earnings and to fund domestic cash needs with external financing. The cost of external financing, however, is increasing in financial constraints, leading to the prediction that constrained firms will be unable to defer repatriation and, therefore, will reap no benefits from shifting. Consistent with this prediction, we find that financially constrained firms shift less income from the U.S. to foreign countries than their unconstrained peers. We estimate that financially constrained firms shift out 20% less of pre-shifted income than unconstrained firms. Translating this percentage to dollar values, the mean (median) constrained firm shifts $16 million ($7 million) out of the U.S. each year while the mean (median) unconstrained firm shifts $321 million ($134 million) out of the U.S. each year. Assuming that the inability to defer repatriation is the primary constraint preventing the U.S. worldwide tax system from being a de facto territorial system, we use our findings to estimate that changing to a pure territorial tax system would increase outbound income shifting by U.S. multinationals by 8%.

Management Of Accrual Components In Response To Corporate Income Tax Rate Changes: Evidence From Korea

Changes in the statutory corporate income tax rate provide firms with an opportunity to reduce their tax burden by shifting their taxable income from higher to lower tax rate years. One negative consequence of shifting taxable income across years is higher variation in book income for financial reporting purposes. Taxable income and book income are closely related in most countries, and, in general, reporting volatile book income across years is not a favorable signal to investors. This study investigates how firms shift taxable income and concurrently mitigate book income fluctuation by managing accrual components separately when the statutory income tax rate changes. Unlike prior studies, we decompose discretionary accruals into two components and examine distinctive patterns of accrual management in Korea, where book-tax conformity is high and aggressive tax avoidance is restricted. We find that firms manage book-tax accruals for taxable income shifting and manage book-only accruals to mitigate book income fluctuation. Furthermore, we find the extent of book-tax and book-only accruals management varies depending on the firms tax and financial reporting costs. The results of this study provide clear and compelling evidence of firms opportunistic accrual management behavior in response to statutory tax rate reduction.

Institutional Regime Shift in Intellectual Property Rights and Firms' Patenting Strategies in China

This study develops a new conceptual framework to understand the differential impact of formal institutional regime shift in intellectual property rights on the innovation and patenting strategies of Chinese and Western firms operating in China. We argue that compared with Western firms, Chinese firms will more likely resort to alternative informal practices that are deeply rooted in the traditional Chinese philosophies to safeguard their intellectual assets from expropriation. Moreover, the complex and ambiguous interdependence between institutional forces in China makes it more feasible for Chinese firms to adopt such informal approaches. Using the major China patent law reform of 2001 as a natural experiment, we find results consistent with our key arguments: With the strengthening of (a previously weak form of) patent protection, Chinese firms do not increase the adoption of such protection for their internationally valuable innovations as much as Western firms do. However, the difference becomes less salient in regions with more robust legal institutions that foster R&D and innovation, and when Western firms operate longer in China. This study advances our understanding of how institutions can shape the strategic innovative behaviors of Chinese and Western firms in the transitional economy of China.

Spatial evolution and locational determinants of high-tech industries in Beijing

Using datasets on high-tech industries in Beijing as empirical studies, this paper attempts to interpret spatial shift of high-tech manufacturing firms and to examine the main determinants that have had the greatest effect on this spatial evolution. We aimed at merging these two aspects by using firm level databases in 1996 and 2010. To explain spatial change of the high-tech firms in Beijing, the Kernel density estimation method was used for hotspot analysis and detection by comparing their locations in 1996 and 2010, through which spatial features and their temporal changes could be approximately plotted. Furthermore, to provide quantitative results, Ripley’s K-function was used as an instrument to reveal spatial shift and the dispersion distance of high-tech manufacturing firms in Beijing. By employing a negative binominal regression model, we evaluated the main determinants that have significantly affected the spatial evolution of high-tech manufacturing firms and compared differential influence of these locational factors on overall high-tech firms and each sub-sectors. The empirical analysis shows that high-tech industries in Beijing, in general, have evident agglomeration characteristics, and that the hotspot has shifted from the central city to suburban areas. In combination with the Ripley index, this study concludes that high-tech firms are now more scattered in metropolitan areas of Beijing as compared with 1996. The results of regression model indicate that the firms’ locational decisions are significantly influenced by the spatial planning and regulation policies of the municipal government. In addition, market processes involving transportation accessibility and agglomeration economy have been found to be important in explaining the dynamics of locational variation of high-tech manufacturing firms in Beijing. Research into how markets and the government interact to determine the location of high-tech manufacturing production will be helpful for policymakers to enact effective policies toward a more efficient urban spatial structure.

(How) Do Taxes Affect Capital Structure?

Ignoring the cost of debt in firms’ financing decisions leads to an overstatement of the effect of taxes. Separately identifying the impact of the cost of debt, I find the effect of taxes on firms’ overall debt usage to be insignificant. Rather than influencing the total debt in firms’ capital structure, taxes affect the relative composition of debt. Firms shift from private intermediated debt to public bond debt in response to increases in marginal tax rates. Firms’ debt policy is most sensitive to tax rates in high interest rate environments.

On the Relationship between Manufacturing and Innovation: Why Not All Technologies Are Created Equal

This paper demonstrates the relationship between manufacturing location and innovation trajectories, and why theory should not expect the same relationship for all technologies and industries. I focus on emerging technologies in two polar-opposite industries - automobiles and photonic semiconductors (the latter for telecom, computing, and military applications). In both cases, my results show that when US firms shift production from the US to countries like China, the most advanced technologies that were developed in the U.S. are no longer profitable. Production characteristics are different abroad, and earlier technologies can be more cost-effective in countries like China. While these economics lead firms to abandon producing the most advanced technologies, in only one situation is there a barrier to pursuing innovation in the most advanced technologies back the US. I conclude by introducing a classification system to explain how the relationship between manufacturing and innovation may differ by technology. Within this framework, particularly important may be policies to support manufacturing, technology development, and commercialization activities by early-stage, high-technology, small and medium sized enterprises with immature processes.

Economic Downturn and Financing Innovative Startup Firms

How does economic downturn affect the financing of young innovative startup firms? In the context of venture capital firms financing innovative firms during economic downturns, we hypothesize that the decision to finance young innovative firms depends largely on the nature of the economic downturn. Specifically, we hypothesize that venture capital firms are less likely to invest in early-stage innovative firms during an economic downturn that is directly related to the technology sector, and are more likely to invest in early-stage innovative firms during an economic downturn that is not directly related to the technology sector. This is mainly because venture capital fundraising activity decreases during economic downturns, which makes venture capital firms shift investments between early-stage startup companies and later-stage startup companies depending on the situation of the public equity market. Our empirical analyses support our hypotheses. This study contributes to the entrepreneurship literature ...

Post-Dominant Design Technological Shift: Analysis of Subsystem-Level Evolution of Complex Product

Using the systems view of the product, I argue that the emergence of a dominant design does not necessarily lead to a period of incremental innovation and subsequent product discontinuity; rather, firms shift focus of innovation to another part of the product at a subsystem level following the emergence of a dominant design. I carefully performed both the historical analysis of technology evolution and detailed patent content analysis for the automotive emissions control system and empirically confirmed that there was significant shift in the focus of innovation to another subsystem, electronics, following the emergence of a catalyst-based dominant design. Moreover, the rate of innovation during the post-dominant design period is found to be lower than that of the pre-dominant design period. Findings of this study highlight the importance of the “match complexity” view of researchers that emphasizes system integration capability for managing contemporary complex technology evolution.

Beyond Upgrading: Gendered Labor and the Restructuring of Firms in the Dominican Republic

In the literature on global commodity chains, industrial upgrading describes the process whereby firms shift to more secure or more profitable niches within or between industries through organizational learning facilitated by networks. While the framework of upgrading identifies key dynamics of competition between capitals, it nonetheless sidelines inquiry into how such imperatives condition and are conditioned by labor. To address this conceptual weakness, I argue that studies of the restructuring of production networks can be enriched through a feminist analysis of value. In particular, the efforts of firms to reposition themselves in networks should be considered in light of struggles to rework the basis of labor’s value to capital, a process of reproducing and recombining interlocking social differences into novel combinations of exploitable workers. I explore this process through an in-depth case study of a large garment firm in the Dominican Republic, in which upgrading involved the reworking of skilled and unskilled work, animated by gendered practices and norms, that led to the masculinization of skilled sewing and the feminization of new service engineering functions.

Intertemporal Income Shifting in Expectation of Lower Corporate Tax Rates: The Tax Reforms in Central and Eastern Europe

This paper examines if firms shift income out of years with high corporate tax rates into years when tax cuts are anticipated. Such intertemporal shifting can be one explanation for the stability of corporate tax revenues in Central and Eastern Europe, despite the major decline in the corporate tax rates and overall narrowing of the tax base starting in the late 90s. Using firm-level panel data for Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia from 1999 to 2005, the estimates indicate that the lower corporate tax rates induced a considerable increase in taxable income. Most of this increase, however, was due to short-term shifting of income to years with lower tax rates leading to non-transitory responses ranging from zero to 151, depending on the specification employed. Splitting the sample by firm size shows that income shifting is an appealing tax saving strategy for small and to a lesser extent medium-sized enterprises, but not for big firms. A further disaggregation by country reveals that the driving country behind the results is Romania.

Inside Debt and Debt Incentives: Evidence from the 2008 Financial Crisis

We study the rationale for firms’ use of inside debt by exploiting the relation between firms’ default risk and inside debt (pension and deferred compensation). The classical principal-agent theory indicates that the agency costs of debt are higher when the firm’s debt is riskier. We test whether firms that are likely to face more severe agency problems of debt provide more debt incentives. We provide evidence that less distressed firms use more inside debt. The 2008 financial crisis significantly increases firms’ default risk. This exogenous shift in firms’ default risk offers an opportunity to provide evidence on the potential causal relation between default risk and inside debt. Based on a difference-in-differences approach, we find that firms with increased default risk during the crisis period increase their inside debt significantly less than those firms with decreased default risk. Overall, we find little evidence to support the hypothesis that inside debt is used to alleviate the agency costs of debt. Anecdotal evidence suggests that personal tax concerns appear to be an important determinant for inside debt usage.

Introduction

For more than a decade, academics have developed an increasing fascination for Asian popular music as a subject for research. This has arisen during a time when popular music studies has gained momentum as a fruitful field of scholarly enquiry, and also coincides with a firm shift away from the privileging of Anglophone- centric popular music from North America or the United Kingdom as the popular music norm.

Financial reforms and corporate finance in emerging markets: An analysis of dividend policy among public listed firms in Pakistan

This paper analyzes the dividend behavior of 535 Pakistani listed companies during 1988 to 2005 using the Probit regression model. The findings validate the theoretical prediction for positive and significant impact of last year dividend on the current year dividend decision. More profitable and liquid firms have a higher probability to declare the dividends. Furthermore, firm size, ownership, equity and tax are positively related to the dividend declaration decision. The firms' dividend behavior differs significantly across Industries. The secondary market development has a significant effect on dividend decision and financial liberalization has been associated with shift of firms from debt market to equity market.

Do Firms Shift within Non-Recurring Items to Manage Earnings under SFAS 146?

Do Firms Shift within Non-Recurring Items to Manage Earnings under SFAS 146?

Relationship between the Synovialization and the Clinical Results after Anterior Cruciate Ligament Reconstruction Using Tibialis Tendon Allograft

The purpose of this study was to evaluate the relationship between the second-look arthroscopic findings of synovialization and the clinical results after the arthroscopic anterior cruciate ligament (ACL) reconstruction with the fresh-frozen tibialis tendon allograft. Fifty-seven patients could be examined with the second-look arthroscopy after the ACL reconstruction with tibialis tendon allograft. The average duration from reconstruction to second-look arthroscopy was 18.4 months (range, 4 –48 months). The patients were classified, according to the extent of synovialization, into 3 groups; 37 cases (64.9%) in group A (good), 15 cases (26.3%) in group B (partial), and 5 cases (8.8%) in group C (poor). The clinical results were compared in each group. The 2000 International Knee Documentation Committee (IKDC) subjective knee score was 80 or more in 31 cases (83.8%) in group A, 9 (60%) in group B, and 1 (20%) in group C respectively. All thirty seven cases (100%) in group A had negative or 1+firm end-point Lachman test and negative pivot shift test, however, only 2 cases (40%) in group C. KT-1000 arthrometer measurement was less than 5 mm in 37 (100%) in group A, 14 (93.3%) in group B, and 2 (40%) in group C. According to the 2000 IKDC knee examination form, 37 (100%) in group A, 14 (93.3%) in group B, and 2 (40%) in group C respectively were normal or nearly normal. The synovialization of the graft had positive correlation with the clinical results after the ACL reconstruction with fresh-frozen allograft.

User knowledge in innovation in high technologies: an empirical analysis of semiconductors

As the knowledge boundaries between producer and user firms shift, so do the loci of innovative activity. This study focuses on semiconductors as a case of a high technology industry in which application-specific knowledge became increasingly important in research and design and semiconductor devices were increasingly customised to meet the needs of diverse user markets. The study consists of an empirical analysis of firm-level patent data over two decades. The findings show that user companies innovated extensively and patented their innovations in semiconductors in the two decades between 1984 and 2003. The findings also reveal that major differences existed in the patenting behaviour of various categories of user firms.

Resource Allocation within Firms and Financial Market Dislocation: Evidence from Diversified Conglomerates

When external capital markets are stressed they may not reallocate resources between firms. We show that resource allocation within firms' internal capital markets provides an important force countervailing financial market dislocation. Using data on U.S. conglomerates we empirically verify that firms shift resources between industries in response to shocks to the financial sector. We estimate a structural model of internal capital markets to separately identify and quantify the forces driving the reallocation decision and illustrate how these forces interact with external capital market stress. The frictions in internal capital markets drive a large wedge between productivity and investment: the weaker (stronger) division obtains too much (little) capital, as though it is 12 (9) percent more (less) productive than it really is. The cost of accessing external capital funds quadruples during extreme financial market dislocations, making resource allocation within firms significantly cheaper. The estimated model allows us to simulate the propagation of the 2007/2008 financial market dislocation. The counterfactual out of sample simulated data is remarkably consistent with the actual data and shows that improved resource allocation in internal capital markets offset financial market stress during the recent financial crisis by 16% to 30% relative to firms with no internal capital markets.

Do Firms Adjust Their Timely Loss Recognition in Response to Changes in the Banking Industry?

ABSTRACTThis paper investigates the impact of changes in the banking sector on firms’ timely recognition of economic losses. In particular, we focus on the entry of foreign banks into India during the 1990s, which likely causes an exogenous increase in lender demand for timely loss recognition. Analyzing variation in both the timing and the location of the new foreign banks’ entries, we find that foreign bank entry is associated with more timely loss recognition and this increase is positively related to a firm's subsequent debt levels. The change appears driven by a shift in firms’ incentives to supply additional information to lenders and lenders seem to value this information. The increase in timely loss recognition is also concentrated among firms more dependent on external financing: private firms, smaller firms, and nongroup firms. Overall, our evidence suggests that a firm's accounting choices respond to changes in the banking industry.