High Asset Specificity Research Articles

The impact of asset specificity on corporate tax avoidance: Do financial constraints and product market power matter?

Our findings reveal that asset specificity significantly enhances corporate tax avoidance, with firms exhibiting lower cash effective tax rates. Firms with higher asset specificity also engage in more aggressive tax avoidance strategies, including tax dodging and long-term tax planning. Additionally, our analysis indicates that the positive impact of asset specificity on tax avoidance is less pronounced in firms with lower ESG performance but is more pronounced in those facing negative demand shocks or operating during periods of economic policy uncertainty. We also find that financial constraints and product market power mediate the relationship between asset specificity and tax avoidance, with financial constraints serving as the dominant economic channel. These findings offer new insights into the factors driving corporate tax avoidance and highlight the complex interplay between asset specificity, financial constraints, product market power, and tax planning strategies.

An analysis of trust governance mechanism in airline-airport relationship with resource dependence theory and transaction cost theory perspectives

Developments have transformed airport operations into more commercially focused centers in the airport sector. This situation has raised the question of how to execute interdependent airport-airline relationships. In interdependent relationships, trust-based governance is the least costly governance structure and is crucial for fostering cooperation in long-term relationships. Trust-based governance is a management approach where relationships and decisions are guided by mutual trust, transparency, and collaboration between parties. When considering the nature of the relationship, it is observed that environmental uncertainty and asset specificity are high. Transaction cost theory suggests that trust governance mechanisms can be the least costly governance structure under high uncertainty and asset specificity. Similarly, resource dependency theory indicates that in situations with high environmental uncertainty, dependencies can be managed through trust governance mechanisms. Therefore, this study analyzes the trust governance mechanism in airport-airline relationships. Drawing from the perspectives of resource dependency theory and transaction cost theory, this research analyzes the trust governance mechanism in airport-airline relationships using case studies of Turkish Airlines and Istanbul Airport relationship is governed by contract-based trust, while the Pegasus Airlines and Istanbul Sabiha Gokcen Airport relationship is based on goodwill-based trust. It can be argued that the history of the airport-airline relationship and the belief in the continuity of the relationship have a positive impact on trust.

Institutional quality, the level of development and Japanese outward foreign direct investment

This paper studies the determinants of Japanese direct investment worldwide and in different country groups. We derive our research hypotheses from the Knowledge-Capital Model and test them empirically using the PPML model and statistical data for 179 target countries between 1995 and 2019. We examine the role of a host’s institutional quality in affecting the cost of FDI. We show that institutional quality matters in attracting Japanese FDI for developed, developing, and transitioning economies. We find the effect of institutional quality to be more pronounced in the latter group of countries, especially concerning industries characterized by high asset-specificity.

Bank Specialization and Zombie Lending

We study whether banks internalize congestion externalities when lending to zombie firms. We conjecture that banks should be better informed about the presence of zombie firms and the congestion externalities that such firms exert on healthy borrowers in industries where banks are specialized and show that banks’ credit supply to zombie firms relates negatively to their industry specialization. This relation is stronger when congestion externalities are likely to have stronger adverse effects, namely when zombie firms take a higher fraction of resources in the industry or when the industry is geographically more concentrated. Additionally, this relation is weaker in industries with higher asset specificity as zombie firms’ default (and potential asset fire sales) could reduce healthy borrowers’ collateral value. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2023.01437 .

Supplier Collaboration and Performance of Food and Beverage Manufacturing Firms in Kenya

Purpose: This study sought to evaluate explored the influence of supplier collaboration on the performance of food and beverage manufacturing firms in Kenya and to find out the moderating effect of supply chain technology on the performance of food and beverage manufacturing firms in Kenya.
 Methodology: The study used exploratory research design and utilized both qualitative and quantitative data in carrying out the study. This study adopted a census survey sampling which was conducted on 270 food and beverage manufacturing firms in Kenya registered by Kenya Association of Manufacturers (KAM, 2022). The target population for the research was all 270 respondents each from the food and beverage manufacturing firms. Both primary and secondary data was used, the primary data was collected using semi structured questionnaire that was administered by the researcher and research assistants. Samples of the questionnaire were pilot tested to test the reliability and validity before full scale data collection. The data was analyzed using the Statistical Package for Social Sciences (SPSS) version 26 software. Quantitative data was analyzed using descriptive statistics and presented in tables and figures. The inferential analysis was further carried out using structural equation modelling, ANOVA and regression coefficients. The results were then presented using tables, figures, graphs and charts.
 Findings: Supplier collaboration significantly influenced performance of food and beverage manufacturing firms in Kenya at both without a moderator and also using the moderating variable, supply chain technology. In the first model without moderator, it recorded a standardized estimate of 0.637 (p<0.001), indicating that as supplier collaboration increases performance of food and beverage manufacturing firms also increases. Fit indices on structural equation modelling revealed a marginal fit with a chi-square test of 216.155 with 86 degrees (P-value 0.0561). The structural path for structural equation modelling from supplier collaboration to supply chain performance remains positive and significant standardized estimate of 0.855 and p-value was 0.001<0.05. Which indicates that the variability of supplier collaboration on the performance of food and beverage manufacturing firms could be explained by 63.7% when no moderator is included and increase to 85.5% when supply chain technology is incorporated thereby indicating a stronger relationship. The other fit indices that gave a satisfactory model fit are RMR=.9019, GFI= .9774, NFI= .9164, RMSEA=.0191 and CFI=.9176 this implies that the model was fit to determine the relationship between supplier collaboration and performance of food and beverage manufacturing firms in Kenya and therein make conclusions and recommendations. ANOVA, regression coefficient ant model summary (R2) were also used and indicated significance of there use all recording p-value of 0.000<0.05. 
 Unique Contribution to Theory, Practice and Policy: While transaction cost theory used in this study was validated by offering cost reduction strategies like outsourcing, accurate order forecasting as increasing the organization bottom line. The study recommends that when creating a supplier collaboration portfolio, companies should pool suppliers with the same activities in one pool but to use technology to mop up suppliers with high asset specificity for components delivering competitive advantage. Meanwhile, suppliers with low asset specificity for suppliers with components which result to less competitive advantage needs to be managed as a separate line of engagement.

Environmental investment growth (EIG) and corporate cost stickiness in China: substantive or symbolic management?

PurposeConsidering the greenwashing risk of symbolic environmental management, this study aims to distinguish the motivation for environmental investment growth (EIG) from the corporate cost stickiness and anti-stickiness perspectives.Design/methodology/approachThis study analyzes the impact of substantive and symbolic environmental management on cost stickiness. Subsequently, competing hypotheses are proposed. Finally, empirical tests are conducted on Chinese A-share listed companies from 2010 to 2019.FindingsEIG significantly improves enterprises’ cost stickiness. The cost of high EIG enterprises does not decrease significantly with a decline in income compared to other enterprises, which is consistent with the motivation for substantive environmental management. Enterprises with high asset specificity and optimistic management expectations show more obvious substantive environmental management. Government and public environmental concerns cause more pronounced substantive environmental management.Practical implicationsAn evaluation of corporate environmental responsibility should take into account both what the company has disclosed and what it has actually done.Social implicationsGovernments and the public should have a comprehensive understanding of corporate environmental management. They need to strengthen their ability to recognize symbolic environmental management and support substantive environmental management.Originality/valueFundamental to the evaluation of corporate environmental responsibility, this study distinguishes the motivations for corporate EIG disclosures from the cost stickiness perspective to avoid the risk of greenwashing. Hypotheses on the impact of substantive and symbolic environmental management on cost stickiness are presented. This study verifies the substantive environmental management characteristics of listed Chinese companies.

A Mercantilist Brand: The British East India Company and Madeira Wine, 1756–1834

This study analyzes the long-term power of mercantilist firms and brands in industries characterized by high uncertainty and asset specificity. It contrasts the reputation-building and protection strategies employed in two similar industries in Portugal in the eighteenth and early nineteenth centuries; namely, those of Madeira and Port wine. The Portuguese crown created a collective brand for Port in 1756, the first regional appellation in the world. Madeira wine only received similar protection in the late twentieth century. This study argues that the Madeira wine industry relied on a different type of mercantilist proto-brand—a diffuse and multi-faceted “global” umbrella brand—of the British East India Company, which during its heyday more than rivaled the power of the Portuguese state as a product certifier and endorser.

Looming market failure in cloud computing: a new institutional economics perspective

PurposeIn recent times, high demand for cloud-based services has led to substantial focus in extant literature from technological and business perspectives. However, the prevailing market imperfections have not drawn much interest. This study aims to emphasize on potential sources of market imperfections from new institutional economics (NIE) perspective and attempts to bring forth the importance of public policy in cloud computing ecosystem.Design/methodology/approachThis study takes a review-based deductive approach to present a set of propositions which highlight potential causes leading to suboptimal performance of cloud-based services.FindingsLack of clarity around ownership and property rights, high asset specificity, existence of information asymmetry and bounded rationality of the provider and consumer, lead to higher transaction cost for providers and consumers, discouraging participation. This would lead to moral hazard and adverse selection and create market imperfections. Appropriate contractual guidelines, standards, legal framework and policy measures will reduce the risk of such imperfections.Research limitations/implicationsAs the focus of the study is to forward the propositions and not to empirically test them, future researchers can adopt data-driven studies to validate those propositions.Practical implicationsTo ensure equity in the cloud-market, government and industry bodies should work towards enabling both the small and large players to use cloud-based services efficiently and effectively. Appropriate public policy measures can help remove potential market imperfections, encourage better participation and adoption of cloud-based services.Originality/valueThis study identifies potential market imperfections in cloud computing ecosystem through the lens of the theoretical frameworks of NIE.

Strategies for managing the political risk of investing in infrastructure projects, in developing countries

PurposePolitical risk has been identified as a major impediment to the success of foreign invested projects, in developing countries. Infrastructure projects are especially sensitive to host-country political climates. Governance in emerging economies can be unstable, which adversely impacts infrastructure projects, given their high capital-intensity, long operational periods and high asset specificity. While the detrimental impact of political risk is well documented, the mitigation of such impacts on infrastructure projects remains largely unexamined. This study, therefore, addresses this by exploring the available identified political risk management (PRM) strategies based on resilience theory and evaluating their effectiveness.Design/methodology/approachA mixed-method approach was employed to identify PRM strategies. Firstly, a comprehensive literature review identified 40 potential PRM strategies. However, the applicability of those 40 strategies was uncertain due to the scarcity of PRM studies. Thus, expert interviews, drawing on the insights of Chinese infrastructure industry professionals with experience in FII, were applied to review the identified strategies. This process reduced the pool of applicable strategies to 34. Subsequently, 356 questionnaires were sent out to investors from China, Australia and Singapore, with 218 valid responses returned. Based on the data collected from the surveys, statistical analysis was used to evaluate and classify applicable PRM strategies.FindingsResults reveal the most effective top five strategies for offsetting the detrimental effects of political risk on foreign infrastructure investment to be: (1) selection of suitable markets and projects; (2) maintaining good relationship with government; (3) purchasing political insurance; (4) utilizing capable contractors from both host country and home country; and (5) adopting an appropriate entry mode. The 34 strategies were further consolidated into four meta-strategies through factor analysis, resulting in the formulation of a strategy selection matrix.Originality/valueThe findings of this study offer a rational means by which infrastructure investment practitioners considering projects in developing countries, may arrive at an optimal political risk mitigation strategy. The findings also offer government of host countries directives to improving the political environment in order to attract foreign investment flows into local infrastructure projects.

Institutional quality, asset specificity, and foreign direct investment

This article demonstrates that MNC's foreign direct investment decision is linked with institutional quality and hinges on the asset-specificity intensity of FDI. Using a comprehensive global FDI database between 2003 and 2019, our results show that MNCs tend to engage in FDI of high asset-specificity in countries with superior institutional quality, while they launch FDI of low asset-specificity in countries with inferior institutional quality. Moreover, when engaging in FDI of high asset-specificity, MNCs take property rights institutions more seriously, and prefer the sole proprietorship model to the joint venture model there.

Combining transaction characteristics and governance mechanisms to suppress opportunism in construction projects: qualitative comparative analysis

PurposeThe understanding of how to mitigate opportunism in construction projects is still limited and conflicting. The complexity of causalities and interdependence among antecedents of opportunism (transaction characteristics and governance mechanisms) is the major obstacle to current research. This study takes a holistic perspective to explore the different combinations of conditions that lead to high opportunism and low opportunism in project management.Design/methodology/approachThrough 2 phases of the interview and questionnaire survey, the 91 valid survey data were collected from the buyer–seller relationships in construction projects and analyzed by adopting fuzzy-set qualitative comparative analysis.FindingsA single transaction characteristic is rarely sufficient to explain opportunism, and combinations of different transaction characteristics and governance mechanisms (performance ambiguity, asset specificity, buyer's requirement certainty, informal control, and formal control) have different effects on opportunism. In the case of extremely unsatisfactory transaction characteristics, even the combination of formal and informal control cannot prevent high opportunism. The combination including low-formal control and high-asset specificity easily leads to high opportunism. Besides, performance ambiguity is a vital factor in mitigating high opportunism or achieving low opportunism.Originality/valuePrevious studies have always addressed the role of one or some factors independently and separately. This study is one of the first to explore the different combinations of conditions that result in high opportunism and low opportunism in project management based on transaction costs economics and agency theory.

Asset Specificity of Nonfinancial Firms

AbstractWe develop a new data set to study asset specificity among nonfinancial firms. Our data cover the liquidation values of each category of assets on firms’ balance sheets and provides information across major industries. First, we find that nonfinancial firms have high asset specificity. For example, the liquidation value of fixed assets is 35% of the net book value in the average industry. Second, we analyze the determinants of asset specificity and document that assets’ physical attributes (e.g., mobility, durability, and customization) play a crucial role. Third, we investigate several implications. Consistent with theories of investment irreversibility, high asset specificity is associated with less disinvestment and stronger effects of uncertainty on investment activities. We also find that the increasing prevalence of intangible assets has not significantly reduced firms’ liquidation values.

An Analysis of Transaction Costs Involved in the Urban Village Redevelopment Process in China

A well-designed institutional arrangement for urban village redevelopment projects (UVRPs) must consider transaction costs, but academic papers discussing it from the perspective of transaction cost economics are lacking. This paper applies theory of transaction cost economics to analyse the types and sizes of transaction costs and who bears these costs during redevelopment when implementing UVRPs in China. This paper finds that transactions in UVRPs have high asset specificity, high uncertainty and low frequency, which easily results in high levels of transaction costs. Based on 439 UVRPs collected from seven cities, this paper finds that UVRPs implemented with top–down institutional arrangements remain prevalent in China. Based on semi-structured interviews with participating parties, this paper proves that the sizes and types of transaction costs and the distribution of these costs borne by different participating parties vary with the change of stage under dissimilar institutional arrangements. This implies that a high level of transaction costs at one stage does not necessarily mean the costs stay high at another stage. Transaction costs have essential implications for process efficiency, so policymakers need to consider transaction costs and use hybrid institutional arrangements to enhance the efficiency and sustainability of policies.

Development Derailed: Policy Uncertainty and Coordinated Investment

We quantify the sensitivity of investments to policy uncertainty by drawing on the Northern Pacific’s massive land grant and the ensuing political battle that generated significant uncertainty to title from 1879 to 1894. Focusing on irrigation because of its high asset specificity, our analysis exploits the spatially exogenous extent of the grant to identify causal effects on investment, inclusive of spillovers to secure land because coordinated investment is generally necessary to capture the scale economies of irrigation. We find that the uncertainty significantly deterred and delayed irrigation investment in Montana, which lowered the state’s economic activity by up to 5 percent. Large numbers of settlers are occupying such [railroad grant] lands, and it is important to them to know whether they can receive their titles from the United States, or whether they will be required to purchase from the railroad companies. The prevailing uncertainty necessarily retards improvements and impairs values. (Noah C. McFarland, General Land Office Commissioner, US Department of the Interior 1882, p. 11)

As relações contratuais entre a indústria de fiação de seda e os sericicultores: abordagem a partir da Nova Economia Institucional (NEI).

Sericulture is an ancient and important agro-industrial activity. Thereby, the aim of this article was to analyze the contractual relationships established between sericulturists and the silk industry. The research was designed using qualitative and quantitative techniques. In 2017, 42 sericulturists from the municipality of Diamante do Sul, state of Paraná, were interviewed. It was found that the industry is responsible for the supply of machines, equipment, inputs, animals and technical assistance to sericulturists. Regarding the formal conditions of the contract, it was found that it is formally structured, renewed annually and does not have a stipulated expiration date. It was also found that there is high asset specificity, transactions are recurrent, low uncertainty and the presence of limited rationality, with reduced perception of opportunism. It is concluded that the parties maintain a contractual relationship of the classic type, with neoclassical characteristics, and that the industry operates in the monopsony structure, but this activity provides income generation and occupations to the family farmers involved.

Governance structures in cooperative slaughterhouses: a study on the chain of differentiated beef in the state of Paraná

Abstract: This study sought to discuss the governance structures adopted between livestock producers and their cooperative slaughterhouses in the chain of differentiated beef in the state of Paraná. The theoretical basis used was the Transaction Cost Economics and Measurement Costs Economics, complemented by the specificities of cooperatives. We conducted interviews with three key agents and eleven representatives of six cooperative slaughterhouses operating in this system. As result, we observed that the cooperatives have similar objectives and requirements, although there are differences in the levels of formality or flexibility. Although transactions are recurrent and have been successful, they involve a high asset specificity, depend on subjective measurements, and are still exposed to market uncertainties, which leaves room for the generation of conflicts and disincentives to quality. Despite this, the relational and reputational aspects associated with trust and partnership between the parties are elements that enable reduced transaction and measurement costs in these structures. At first, the measurements conducted by the cooperatives had an important role in the construction of trust between the parties and for value distribution. In a second moment, the trust built enabled the reduction of measurement costs.

Service quality and the optimum number of members in intermunicipal cooperation: The case of emergency primary care services in Norway

AbstractIntermunicipal cooperation (IMC) is often used as a mean to reap scale benefits. Most studies on the effects of IMC focus on cost savings, while service quality is overlooked. In this study, the focus is set on input quality in a service characterized by high asset specificity and need for redundancy: emergency primary care. We analyze how mode of governance affect performance by (1) measuring whether IMC versus single‐municipal production affects input quality and (2) identifying optimum scale of operation; effect of the number of participants in the cooperation on input quality. The findings indicate that cooperation weakens the input quality of medical workforce, but that this negative effect is balanced out as the number of participants increases, indicating that cooperation needs to reach a certain size to achieve optimum scale of operation. Concerning equipment, both cooperation in general and an increasing number of participants decrease the input quality.

Choice of Rural Collective Construction Land Sales and Rental Markets at the Theoretical Framework of Williamson’s Transaction Costs: Evidence from Nanhai District, Guangdong Province, China

The rural collective construction land (RCCL) market imperfections, as well as informal regulations, may have contributed to high transaction costs. Well-functioning land markets play an essential role in land-use revenue, land-use efficiency, and land allocation efficiency for the rural collective economic organization (RCEO). Therefore, specific land-use patterns and detailed transaction rules for the land rental market and land sales market, respectively, make a contribution to a suitable market model with lower transaction costs and higher market efficiency. Through an empirical investigation in Nanhai District, Gungdong Province, this article builds on the theoretical framework of Williamson’s transaction costs, where the asset specificity, uncertainty, and transaction frequency have a significant influence on the RCCL market model choice. Probit model results show that (1) the RCEO prefers to choose the land sales market when the RCCL market has higher asset specificity so that the land sales market can counteract transaction costs by creating land revenue for long-term investments. Thus, the land sales market is a more appropriate choice when the trading land is a large area in a great location. (2) The rental market choice is more suitable for the RCCL market with higher transaction uncertainty. Therefore, the RCEO can detail transaction rules for the land sales and rental markets, respectively. We propose that local governments need to announce regulations for the longest contract period and the land development planning (floor area ratio, building density, floor height, etc.) of different land-use types (industrial land and commercial land) for the land sales market and the land rental market.

Asset specificity and relationship performance: A meta-analysis over three decades

In buyer-supplier relationships firms may find it convenient or economical to unilaterally invest in high levels of assets exclusively dedicated to a specific transaction. While they can be associated with potential benefits, such investments dedicated to a specific relationship incorporate risks as their utility and value are tied to the relationship continuation. This study investigates the direct effects of high asset specificity on relationship performance by focusing on the theoretical tensions between Transaction Cost Economics (TCE) and Relational Exchange Theory (RET). A meta- analysis of 33 articles is adopted to investigate the empirical literature on the topic. The results show a positive effect of high asset specificity on relationship performance. However, by unveiling some inconsistencies in the empirical literature, this study also proposes a possible reconciliation of TCE and RET perspectives, with the intention of depicting a more comprehensive view of the phenomenon.

Economic Policy Uncertainty and Vertical Integration: An Analysis from the Perspective of Supply Chain

During recent years, global economic uncertainty has risen sharply. The effect of economic policy uncertainty on business activities has become a research hotspot in academia, while previous studies mainly focus on the independent individuals of companies. It is considered that companies are closely related with others from upstream and downstream industries, thereby market transaction costs significantly influence the survival and development of companies, especially in the presence of high economic policy uncertainty. Therefore, this paper explores the impact of economic policy uncertainty on vertical integration from the perspective of supply chain. Vertical integration is defined that companies control adjacent production stages vertically on the supply chain, internalizing transactions between external companies into internal production activities.To be specific, using a sample of listed companies from manufacturing industry during 2000-2018 in China, as well as the vertical integration indicator manually sorted out and calculated, this paper investigates the effect of economic policy uncertainty on vertical integration. The result shows that the higher economic policy uncertainty is, the more inclined companies are to pursue vertical integration. The robustness test and instrumental variable estimation show that this basic result is valid and robust. The heterogeneity analysis conducted at firm-, industry-, and region-level shows that for non-state-owned companies, companies with higher asset specificity, and companies from high-tech industries, more competitive industries, more volatile industries, and the eastern region, the effect of economic policy uncertainty on vertical integration is greater. Further, this paper explores the mechanism about how economic policy uncertainty influences vertical integration. The result shows that economic policy uncertainty significantly decreases the investment intensity of upstream suppliers and downstream distributors, and leads to higher financing constraints, thereby inducing the propensity of vertical integration. More than that, this paper analyzes the reason why economic policy uncertainty has a greater impact on upstream industries from three perspectives: government regulations on the upstream and downstream industries, the proportion of state-owned enterprises distributed in upstream and downstream industries, and the capital intensity of upstream and downstream industries.This paper has the following contributions: From the perspective of supply chain, it explores the impact of economic policy uncertainty on micro enterprise operation; from the perspective of economic policy uncertainty, it enriches the research on the influencing factors of vertical integration, and provides new empirical evidence from China’s manufacturing industry. In addition, from the perspective of supply chain management, this paper provides policy recommendations and management implications for local governments and enterprises to deal with emergencies and the resulting economic policy uncertainty.