High Capital Intensity Research Articles

Merit and rent in a growing economy

In the framework of Romer’s (1990) growth model, we endogenize human capital accumulation as the risky outcome of an effort choice. Policies favouring the accumulation of physical capital may reduce the incentives to effort, leading the economy on a balanced path with a high capital intensity and a low growth rate.

Transport Infrastructure, City Productivity Growth and Industry Reallocation: Evidence from China

This paper examines the effects of economic integration resulting from highway construction on aggregate productivity and the spatial distribution of industries. To do so, I construct a unique dataset of bilateral transportation costs between Chinese cities, digitized highway network maps, and firm-level census. I first derive and estimate a market access measure for cities in China from 1995 to 2005 using estimated bilateral transportation costs. Then I examine the channels through which highway infrastructure facilitated aggregate productivity growth and sectoral reallocation across space. I find that highway infrastructure in China promoted aggregate TFP growth through the entry of new firms and the reallocation among existing firms. I also find that highways led to a spatial reallocation of industries in China. Industries with large weight-to-value ratio, high capital intensity, and low product differentiation grew disproportionately faster than other industries in cities that experienced large increases in market access.

Системная модель долгосрочного технико-экономического развития

The results of the research of dissemination of technical and economic paradigms
 in developed economies are given. A system model of long-term technical and
 economic development is developed. The model assumes the simultaneous
 existence in the economy of several subsystems of different technical and
 economic paradigms. Each techno-economic paradigm is a new stage
 of development and different from the previous paradigm of higher productivity.
 Each subsequent industrial techno-economic paradigm provides higher
 productivity due to higher capital intensity and energy intensity of production.
 In the post-industrial techno-economic paradigms the higher performance
 is provided at a lower capital intensity and energy intensity of production due
 to a higher volume of information used. Beginning, transition to domination, the
 beginning of the withering away of each paradigm is accompanied by the
 formation of an upward half-wave of Kondratieff cycle. Econometric models
 of Kondratieff cycles and econometric models of real GDP per capita is obtained,
 provided technical and economic paradigms in developed countries. The fourth
 techno-economic paradigm provides the real per capita GDP value from 1929
 to 3258 dollars Gehry-Hemis 1990. The fifth techno-economic paradigm provides
 a real GDP per capita value of 11,606 to 12,883 dollars Gehry-Hemis 1990. The
 sixth techno-economic paradigm provides a real GDP per capita value of 22 360
 to 28 385 dollars Gehry-Hemis 1990.

Human Capital, Management Quality, and the Exit Decisions of Entrepreneurial Firms

We model the employee incentive problem jointly with a firm’s exit decision. Our model predicts that firms in industries where human capital is important are more likely to go public and use high-powered, stock-based compensation. We also show that the higher the management quality, the more likely a firm is to go public than to be acquired. Regarding life cycle, a firm with high capital intensity and/or high management quality will choose to go public at a younger age.

Investment risks in power generation: A comparison of fossil fuel and renewable energy dominated markets

Due to their high capital intensity, weather dependent renewable energies (RES) such as solar and wind face considerable investment risks in power markets. In addition, their uncertain production volumes also affect the investment risks of other plant types through the impact on power prices and residual demand. Increasing RES shares thus potentially increase overall investment risks in power markets, which many analysts consider to be a potential problem. Against this background, this paper compares investment risks of different technologies in markets with increasing shares of variable RES. It further analyses how generation mixes are affected by these investment risks if the risks are evaluated on a stand-alone basis or in a plant portfolio context of a private firm. For this purpose, a stylized investment and dispatch model is used to conduct Monte Carlo simulations from which risk measures are derived. The results show that capital intensive RES face the highest stand-alone risks, since their profits are most affected by the power price risk. However, the results further indicate that the stand-alone risks of variable RES decrease with their share in the market because of a negative correlation of output and price risk. In addition, RES have a risk benefit in firm plant portfolios in terms of constituting a hedge against losses of fossil fuel plants. This positive portfolio effect, however, rapidly decreases and becomes negative with increasing RES shares in the market.

Value creation and sustainability in knowledge-based strategies

Purpose– The purpose of this paper is to place the value creation process within sustainable growth strategies. Building on Drucker (1968, 1999a, b), Pulic (2000, 2004, 2008) and other papers by the same authors (Iazzolino and Laise, 2013) the specific aim of this research is to propose an accounting-based framework able to: distinguish between knowledge-intensive firms (KIFs) and nonknowledge intensive firms (nonKIFs); and investigate the contribution of the two sets of firms (KIFs and nonKIFs) to overall sustainability, from a social point of view, of the economic system.Design/methodology/approach– The paper uses the notion of value added (VA) (Pulic, 2000, 2004, 2008) as the main indicator to measure the value creation in a knowledge economy context. As regard the first point of the framework, the approach is based on the analysis of VA and its components, starting from a reinterpretation of the concept of value added intellectual coefficient made by the same authors of this paper. An empirical analysis based on the composition of VA in ten Italian industries, by using an overall sample of 1,000 firms, has been carried out and is described in the paper. As regards the second point, the paper analyses, from a theoretical point of view, the necessary conditions to set up a sustainable value creation strategy in social terms, using the conceptual categories introduced by Drucker (1968, 1999a, b) and Pulic (2000, 2004, 2008).Findings– From results of the empirical analysis it emerges that: first, in traditional industries the weight of the cost of employees on VA (human capital investments) is less than the other sectors (low human capital intensity). In these sectors the value creation strategy is mainly based on “dead knowledge,” embedded in machines (physical capital); and second, in nontraditional industries (consulting, advertising, research, etc.) the economic value creation is mainly based on “living knowledge,” embedded in human resources (high human capital intensity). In these sectors we have lower productivity of work (VA/human capital) and higher employment.Practical implications– The framework proposed makes it possible to reduce the risk of myopic valuation of economic performance. Through this methodology it is possible to highlight the effects of sustainable strategies based on knowledge investments oriented toward the stakeholder value theory and corporate social responsibility. The approach can be very useful for top managers and for accountants, as it underlines the importance of the VA income statement and constructs a strong link to the themes of knowledge management.Originality/value– The originality and the value of this methodological proposal can be appreciated by taking into account that in the literature there is no accounting-based methodology that is able to identify: the knowledge-intensive firms; and the firms that can contribute to overall social sustainability, within the set of all firms.

Energy Consumption and the Size of the Informal Economy

Abstract In this paper, the authors empirically investigate the relationship between energy consumption and the size of the informal economy. Relying on panel data regression models, their results show that at the aggregate level, energy intensity is inversely related to the size of the informal sector, providing actual empirical evidence on the presence of high labor and low capital intensity in the informal economy. Furthermore, the authors also find some support towards the presence of non-linearity and asymmetry in this relationship.

Monopsony in the Labor Market, Minimum Wages and the Time Horizon: Some Unresolved Issues

This article discusses development of optimal solutions for monopsony in the labour market for the long run (when labour and capital are both flexible). It is shown that binding minimum wages up to a certain degree pushes the monopsonists to choose a high capital intensity of production, just as high as or even higher than that chosen when there is no regulation for minimum wages. Thereby, we demonstrate the existence of re-switching effects in the tradition of Piero Sraffa. The second part of the paper recalculates and analyzes earlier results by making use of the rather general constant elasticity of substitution production function. Based on a numerical solution for optimal monopsony under different regimes (no minimum wage, minimum wages of different values, etc.), we formulate a two-period game between the government and the monopsonistic firm (‘minimum wage game’). Finally, we analyze the relationship between the elasticity of substitution on the one hand and likely levels of employment on the other hand, after introduction of minimum wages.

ЗАРУБЕЖНЫЙ И ОТЕЧЕСТВЕННЫЙ ОПЫТ СТИМУЛИРОВАНИЯ ИНВЕСТИЦИОННОЙ ПРИВЛЕКАТЕЛЬНОСТИ АГРАРНОГО СЕКТОРА ЭКОНОМИКИ

The agricultural sector is considered as one of the least investment-attractive sectors in Russia due to its high capital intensity, the dependence on natural climatic conditions, significant fixed costs, and poor management. Government creates regulatory and socio-economic conditions for the agricultural sector development, so it is advisable to study the experience of developed countries in the matters of government support and regulation of the agricultural sector and the strengthening of its investment attractiveness. The author analyzed the measures of state regulation in the EU countries, China, and the USA and concludes that the governments of these countries pay close attention to the development of production and market infrastructure and provide the extensive support for the farmers, and the circumspect agricultural policy allows foreign countries competing in the domestic and foreign markets and provides high performance of the agricultural sector. Taking into account the current situation in the economy and the major issues of domestic agricultural production, the author formulated the main directions of the application of foreign experience of the agricultural sector state regulation in Russia. The author determined the goals, the objectives and the tools of domestic agricultural state policy with the account of the foreign experience. The author showed possible positive consequences of the investors’ attraction to the agricultural sector of economy, formulated possible measures of active state regulation towards the strengthening of investment attractiveness of agricultural sector, and made the conclusion about the necessity of balanced government intervention in the investment activity of agricultural manufacturers with the simultaneous integrated legal support in order to ensure stable development of Russian agricultural sector.

Internationalisation and performance of SMEs: exploring the moderating effects of intangible assets and capital intensity

This study explores the exporting-performance (EP) relationship by analysing a sample of 546 Italian manufacturing SMEs for the period 2009-2011. We hypothesise a positive relationship between export intensity and profitability: the data support this hypothesis, verified by an OLS regression in which we control for past performance, size, age, leverage and industry and we introduce capital intensity and intangible assets intensity as explanatory variables in light of a RBV approach. Our verified second hypothesis concerns the negative moderating effect of capital intensity on the relationship between exporting and profitability: for firms with a low level of capital intensity increasing exporting intensity is beneficial, while firms with a greater stock of technical assets do not experience a positive marginal 'learning-by-exporting' effect; this results have relevant practical implications as they indicate that less structured SMEs can benefit more from exporting than those with higher capital intensity.

The Effect of Ownership and Financing on Firm's Inventory and Profitability: An Empirical Analysis

We use a large-scale, firm-level panel dataset on Chinese manufacturing firms to examine the effect of ownership structure on inventory, the relationship between inventory and profitability and the effect of the availability of external financial resources on inventory for each ownership type firms. In addition, we test a number of the operational level factors examined in the prior literature such as capital intensity, gross margin, and sales growth in the setting of an emerging market (i.e., China). Our key findings are: (1) State owned firms, on average, have the higher inventory, than private firms. Relative to private firms, state owned firms hold inventories that are, on average, 4 million dollars higher. (2) The inventory for state owned firms decreases while that for foreign firms increases when external financial resources become more available to non-state firms. Interestingly, foreign firms may have lower inventory than private firms when the external financial resources are not sufficiently available but higher inventory than private firms when the external financial resources are sufficiently available. (3) Firms with lower inventory are associated with greater financial performance as measured by both returns on assets (ROA) and returns on sales (ROS). (4) And finally, firms with lower gross margin, higher capital intensity, higher cost of capital and higher sales growth have lower inventory. We discuss the theoretical and managerial implications of the findings.

Selecting the process arrangement for preparing the gas turbine working fluid for an integrated gasification combined-cycle power plant

Introduction of a combined-cycle technology based on fuel gasification integrated in the process cycle (commonly known as integrated gasification combined cycle technology) is among avenues of development activities aimed at achieving more efficient operation of coal-fired power units at thermal power plants. The introduction of this technology is presently facing the following difficulties: IGCC installations are characterized by high capital intensity, low energy efficiency, and insufficient reliability and availability indicators. It was revealed from an analysis of literature sources that these drawbacks are typical for the gas turbine working fluid preparation system, the main component of which is a gasification plant. Different methods for improving the gasification plant chemical efficiency were compared, including blast air high-temperature heating, use of industrial oxygen, and a combination of these two methods implying limited use of oxygen and moderate heating of blast air. Calculated investigations aimed at estimating the influence of methods for achieving more efficient air gasification are carried out taking as an example the gasifier produced by the Mitsubishi Heavy Industries (MHI) with a thermal capacity of 500 MW. The investigation procedure was verified against the known experimental data. Modes have been determined in which the use of high-temperature heating of blast air for gasification and cycle air upstream of the gas turbine combustion chamber makes it possible to increase the working fluid preparation system efficiency to a level exceeding the efficiency of the oxygen process performed according to the Shell technology. For the gasification plant’s configuration and the GTU working fluid preparation system be selected on a well-grounded basis, this work should be supplemented with technical-economic calculations.

CAPITAL INTENSITY DAN RISIKO SISTEMATIS

This research attempts to analyse the effect of capital intensity on systematic risk. The sample firms in this research are non-financial firms listed on Jakarta Stock Exchange. Samples retrieved base on purposive sampling method with object to gain sample according to research aim. The result of this research shows (1) firms with high capital intensity have higher systematic risk than firms with low capital intensity, (2) dummy capital intensity has positive and significant effect on systematic risk, (3) level of capital intensity has positive and significant effect on systematic risk.

The Role of Parent-Firm Characteristics in Affiliate Activities in South Korean Foreign Direct Investment

ABSTRACTWe examine the role of parent-firm characteristics in affiliate activities, including local sales, exports to Korea, and exports to third countries. We find that parent-firm characteristics apparently affect the selling behaviors of affiliates. First, affiliate local sales increase with higher research and development (R&D) intensity and capital intensity but with lower parent wages. Affiliate exports to Korea decrease with higher capital intensity and lower wages, and affiliate exports to third countries rise with higher R&D intensity. We also analyze the extent to which affiliate activities are influenced by country and industry characteristics, and the results coincide with those of conventional motivations for foreign direct investment (FDI).

How is the hospitality and tourism industry different? An empirical test of some structural characteristics

Structural characteristics, such as competition, risk, leverage and capital intensity, directly impact the strategic management of firms operating within an industry. We provide an empirical test and formally compare the structural characteristics of the hospitality and tourism (HT) industry with other industries. Our results, based on a sample of firms from the S&P 1500 index over 21 years, show that the HT industry has higher leverage, higher risk, higher capital intensity and higher competitive rivalry than other industries in the U.S. economy. The formal identification and recognition of these differences provides justification for using the HT industry as a context for testing business theories, and can explain differences in decision-making and firm outcomes such as financial and social performance, as well as efficiency, growth, and survival of HT firms.

Economic and Financial Flow Generation in Tomato Industry in Italy

In many Italian regions, firms operating in tomato industry have made significant investments in plants and machinery and often sell products to large food retail chains that require large stocks of inventory and have an average time of over 150 days for the payment of receivables. These management characteristics amplify capital requirements, in large part financed, increasing debt levels. Also, because of the increasing costs of raw materials in recent years, many firms in the tomato processing sector in Italy have suffered a corporate crisis and even bankruptcy. Therefore, tomato processing firms need to properly control management, particularly in applying indicators that express the sustainability of the financial cycle. To achieve this goal, the article analyzes the annual account data of a sample of 54 tomato processing firms in Italy across a five-year period, showing that economic margins traditionally applied to assess the sustainability of the management cycle differ significantly from financial margins. Moreover, the annual account data of the sample firms highlight the difficulties in credit access, expressed by applying a multiple regression model to analyze return on equity and flow on equity generation. To deepen the analysis, the considered methods could be applied to other agri-food firms, particularly if characterized by high capital intensity.

Renewable electricity producing technologies and metal depletion: A sensitivity analysis using the EROI

More and more attention is being paid to renewable technologies because they are seen as a great opportunity to disengage our society from its dependence on fossil fuels. Such flow-based energy resources that rely on solar energy are supposed to lead us toward a sustainable energy future. However, because of their high capital intensity, renewable technologies require large amounts of matter, including both common and rare metals. These metals require energy for their production, and more specifically for their extraction. The energy cost associated with metal extraction is linked to mineral ore grade, meaning that as depletion progresses, energy cost increases. In addition, renewable energy resources deliver less net energy to society compared to fossil fuels, because of their diffuse nature. It is therefore easy to see that a close relationship exists between energy and metal sectors. In this article, we describe more precisely this relationship by investigating how the energy requirement associated with metal extraction could impact the energy-return-on-investment (EROI) of different renewable and nuclear technologies. More precisely, we present a methodology that can be used to calculate the sensitivity of the EROI of a given technology to a specific or to multiple metal ore grade degradation. We found that if considered separately, the qualitative depletion of a given metal has no significant impact on the EROI of renewable and nuclear technologies, unless its concentration approaches very low grade. However, if all metals are considered together, the EROI of these same technologies could be importantly diminished, especially if they tend to very low concentrations.

Profitability and Financial Sustainability Analysis in Italian Aquaculture Firms by Application of Economic and Financial Margins

Agricultural Firms operating in the aquaculture sector in Italy are often characterized by high investment and high capital intensity. In fact, these companies need to develop structures and breeding systems to generate adequate cash flow to repay their investment in fixed assets. In addition, the biological cycle of breeding further extends the need for capital, in this case to finance working capital. There is therefore often a mismatch between the economic and financial cycles, wherein profit margins may differ from financial margins. In this way, such companies have an economic advantage but no sustainable financial cycle. In these cases, several crisis may force companies to default, especially when firns are unable to cover debt repayment. This difficulty is particularly present in Italy, where aquaculture firms are often Small and Medium Enterprises (SMEs) and therefore have greater difficulty than large companies accessing the capital market. Our research evaluates the cost effectiveness and financial sustainability of a sample of forty firms operating in the aquaculture sector in Italy, within a timespan of five years, through comparative analysis of the economic and financial margins. The analysis shows that such firms are capital intensive (TA/VP of median value is 1.16%). Financial debt emerges as the first source of capital then increasing companies’ financial dependence through credit systems and borrowing costs. Firms have a particular absorption in the NWC cycle, with I_DAYS being 143.29 days, AR_DAYS being 72.75 and 145.51 AP_DAYS expressing financial operating cycle (I_DAYS + AR_DAYS - AP_DAYS) with a length of 70.53 days. Profit margins, even if they are correlated with financial margins, are lower on average. The research highlights that economic model worst explains FCFE (F = 0.011 and adjusted R2 = 0.803), while the financial model best explains FCFE (F = 0.000 and adjusted R2 = 0.922). Our research will be further developed through analyzing cooperatives, unincorporated partnerships and sole proprietorships. It may also be useful to undertake a comparative analysis of aquaculture firms operating in other countries of the Mediterranean basin.

Pay Gap Among Executives and Firm Value

We simultaneously study the determinants of the pay gaps among top executives and their impact on firm value. We find that firms that require additional incentives to reduce shirking, such as the ones with high capital intensity and the ones with volatile stock performance, have higher pay gaps than other firms. On the other hand, firms that rely on efficient cooperation to survive and succeed, such as technology-intensive firms and firms with financial distress, tend to have lower pay gaps. We further find that firm value is impaired if the pay gap arrangements deviate substantially from the firm’s optimal range. Corporate governance can explain such deviation. CEO entrenchment is likely to lead to higher than optimal pay gaps. On the other hand, strong governance can result in lower than optimal pay gaps. We also document a substitution effect among various incentive mechanisms. When the alignment of interests improves, the pay gap level reduces and so does the effect of pay gap on firm value.

Trade and Global Income Inequality with Frictional Labor Markets: A Lesson from the Canada–US Free Trade Agreement

This paper develops a two-country trade model with frictional labor market structures to investigate the link between increased openness to trade and cross-country income inequality. Calibrated to US–Canadian data, the model simulation results show that the Canada–US Free Trade Agreement benefited Canada, the country with relatively higher capital intensity, more due to its capacity to flexibly expand in response to an increase in product demand. The results from counterfactual experiments indicate that increased capital intensity in the US is expected to increase gains from trade in both countries while making the distribution of gains less unequal.