Independent Firms Research Articles

Investigation of Corporate Governance in Business Group Affiliated and Independent Firms

This paper investigates whether there is a difference between business group affiliated and independent firms in terms of complying with the corporate governance principles. Based on data drawn from the corporate governance principles compliance reports of Borsa Istanbul (BIST) companies, the results of the study show that group affiliated firms have higher compliance with the corporate governance than the independent ones in general. The difference of the mean scores in compliance with the corporate governance, stakeholders, board of directors principles between group affiliated companies and independent ones is significant. However, the mean values in shareholders and public disclosure and transparency principles do not differ between these groups of firms. This study aims to advance the research on corporate governance and business groups by considering the corporate governance differences between business group companies and unaffiliated ones in an emerging economy.

Stable cartel configurations and product differentiation: The case of multiple cartels

We develop a framework to analyse stable cartelisation when firms can form multiple cartels. This contrasts with the existing literature which generally assumes, without further justification, that at most one cartel may form. We define cartelisation to be stable in the multiple cartels framework if: (i) a firm in a cartel does not find it more profitable to leave the cartel and operate independently, (ii) a firm that operates independently does not find it more profitable to join an existing cartel, (iii) a firm in a cartel does not find it more profitable to join another existing cartel or form a new cartel with an independent firm, and (iv) two independent firms do not find it more profitable to form a new cartel. In the context of quantity competition in differentiated markets, we show that a single cartel is never stable whenever multiple cartels may be formed. We completely characterise the stable cartelisation structure — there is at most one firm that is not a part of any cartel while each of the remaining firms is part of a two-firm cartel. The implication for competition policy is that efforts towards the detection of cartels should also be directed at smaller cartels that may operate in less concentrated markets rather than only on large dominant cartels in concentrated markets.

The implications of smart logistics policy on corporate performance: Evidence from listed companies in China

Since the emergence of smart logistics as a vital paradigm, it has garnered significant interest from independent firms and governments worldwide, including China. This study aims to examine the relationship between Smart Logistics Policy (SLP) and firm performance both theoretically and empirically. Utilizing data from A-share companies listed on the Shanghai and Shenzhen stock exchanges between 2012 and 2017, this study analyzes the relationship between SLP and firm performance using Propensity Score Matching (PSM) and Difference-in-Differences (DID). The results indicate that SLP significantly enhances a firm's financial performance. Additionally, a heterogeneity test on financial performance reveals that the impact of SLP varies based on ownership and industrial sector. Unexpectedly, SLP has a negative impact on corporate social responsibility (CSR) performance. The heterogeneity test on CSR performance shows that the SLP effect on CSR exhibits no significant difference based on ownership. Furthermore, the impact of SLP on CSR is significantly greater for manufacturing firms compared to non-manufacturing firms. Consequently, this study offers theoretical support and empirical evidence regarding the effects of SLP on firm performance.

Optimal transfer prices and technology in decentralized business groups

Decentralized (parent-affiliates) business groups encompass independent firms sharing production resources under common administrative or financial control. Due to the complexity of integrated decision-making, business groups often delegate pricing and technology decisions to separated units. With the growing prevalence of transfer technology in multi-plant operations, there arises a demand for modeling frameworks capturing the joint impact of transfer prices and technology on affiliates’ production. In this paper, we propose an operational methodology to integrate transfer prices and technology, as incentive mechanisms driving affiliates’ production decisions. This consists of a single-leader-multi-follower game where a parent firm (the leader) operates in a single-product market and delegates production to profit-maximizing affiliate firms (the followers). In addition to providing data-driven support for integrated decision-making, our framework reveals how managerial structures respond to the growing significance of intangible technology. In this line, based on the parent’s control of the value chain we present two specifications and solution approaches: full delegation and partial delegation. For the former, we provide an exact characterization of the equilibrium solution; whereas for business groups operating under full delegation, we provide tight lower and upper bounds, computable by state-of-the-art optimization solvers. Our empirical tests rely on a customized version of the Orbis data set. Figures show that our methodology not only integrates the substitutability between transfer prices and technology, as well as their dependency on the parent’s control of the value chain, but also gives rise to a flexible computational approach that is applicable to a wide range of decentralized business groups.

The role of regional tax autonomy, firm size, and business groups in tax avoidance: evidence from Spain

ABSTRACT This paper investigates the influence of regional tax autonomy, firm size, and business group affiliation on corporate tax burden in a large sample of Spanish firms, including non-listed firms, from 2007 to 2016. Our findings reveal that firms located in tax-autonomous regions exhibit lower effective corporate tax rates (ETR), providing new empirical support for the horizontal tax competition theory. Additionally, we identify a positive relationship between firm size and corporate tax burden, aligning with the political cost theory. Furthermore, we find that group-affiliated firms face a higher ETR than independent firms, and that group affiliation attenuates the differences in the tax burden experienced by large and small firms.

Data-Driven Mergers

We study mergers between firms operating in data-connected markets: the data generated as a byproduct of the activity in market A can be used by firms operating in market B. The effects of such a merger depend on whether data trade among independent firms is possible and whether data use benefits consumers or leads to more surplus extraction. When data increases product B’s quality, the merger benefits consumers in both markets if data cannot be traded absent the merger and harms them otherwise. When data are used to extract consumer surplus in market B, the merger increases consumer surplus in market A and reduces it in market B. This paper was accepted by Joshua Gans, business strategy. Funding: This work was supported by Agence Nationale de la Recherche [Grant ANR-17-EURE-0010] (Investissements d’Avenir program) to A. de Cornière; Oxford Internet Institute’s Research Programme on AI, Government, and Policy, funded by the Dieter Schwarz Stiftung gGmbH to G. Taylor; and TSE Digital Center.

Моделирование работы технологической цепи с вертикальными и горизонтальными взаимосвязями участников и учетом спроса

The subject of the article is the study of production structures consisting of a set of independent firms (enterprises interacting with each other through the supply of products through horizontal and vertical links in a single production and technological chain. It is assumed that firms at different levels of the chain not only supply components up, but also sell them on the market, organizing interaction with wholesale buyers. The mechanism of interaction takes into account economic interests, the demand for the company’s products in the market and reflects the situation of equilibrium. The scientific novelty of the study is the deepening of the methodological basis for describing the interaction of participants in the technological chain using matrix modeling based on the principles of constructing matrices of intersectoral balance. Such characteristics of firms and the system as a whole as: final product, gross product, resource volumes are considered. On the basis of the obtained final formulas, the dependences of the economic characteristics of the activity of firms and the system as a whole on the decrease (increase) in prices for resources, on changes in demand are established. The proposed approach to determining the final product of the system seems to be quite reasonable: firstly, the output volumes of the system are linked through the interaction of the manufacturer and seller, taking into account market demand, and, secondly, the volume of sales reflects the economic interests of the parties. The ratio “the price of products on the market – the volume of supply” becomes justified on the part of the demand function (the end consumer), the seller and the manufacturer of products. Such an optimization approach to determining the results of interaction promptly takes into account changes in the market environment and adjusts the performance indicators of participants in the direction of their consistency, which makes it possible to increase the stability of the system. It is established that when the market situation worsens as a result of rising prices for factors of production or a reduction in effective demand, there is a percentage decrease in final output in value terms, but the rate of its reduction is lower. The case of a decrease in demand has a more negative impact on the economy of the firm and the entire system. Thus, the growth rates of the economy and the well-being of the population are determined by the efficiency of complex hierarchical structures with horizontal and vertical relationships.

Downstream Profit Effects of Horizontal Mergers: Horn & Wolinsky and von Ungern-Sternberg Revisited

Abstract Mergers between previously contending firms are a permanent challenge for policymaking as they potentially harm competition. The core incentive to merge is the prospect of higher joint profits of the previously independent firms after the merger. We discuss and compare the core assumptions of Horn and Wolinsky (1988) and von Ungern-Sternberg (1996) that lead to contrary results regarding the attractiveness of horizontal mergers of downstream firms in a 1:2 setting leading to a monopolized 1:1 setting. While the latter finds a merger beneficial for the downstream firms, it harms their joint profit, according to Horn & Wolinsky. We theoretically apply both models to the two settings. We also present extensive sample calculations that quantitatively confirm the two papers’ core insights. Discussing and contextualizing the results, we provide a comprehensive overview of horizontal mergers in the downstream part of vertical structures with bargaining over linear input prices. Due to continuing relevance of horizontal mergers for competition policy and, in particular, in light of the consolidation phase in tech start-ups, the topic is of enduring relevance in policymaking.

Repeated innovations and excessive spin‐offs

AbstractFirms can voluntarily create independent firms to implement their technologically distant innovations and capture their value through capital markets. We argue that when firms repeatedly compete to make innovations, there is inefficient external implementation of innovations and “excessive” creation of such firms. This inefficiency is most exacerbated in the early stages of an industry, when the number of firms is still limited.

문화적 거리가 해외 투자 성과에 미치는 영향에 관한 연구

This study examines the impact of Hofstede's cultural distance on the performance of 295 Korean manufacturing SMEs in foreign countries, categorizing them into subsidiaries and independent firms. The results show that the performance of subsidiaries is higher than that of independent firms when cultural distance is not taken into account. However, when the cultural distances between home and host countries is considered, subsidiaries are more negatively affected by cultural distances than independent firms in terms of overall cultural distance and power distance (PDI), individualism (IDV), and masculinity (MAS). This finding suggests that the flexibility in responding and adjusting independent firms to local cultures with operational autonomy positively contributes to the mitigation of liability of foreignness incurred by cultural distances, and thus provides practical implications for internationalizing firms in seeking efficient strategies to cope with liabilities of internationalization.

Effects of consumers' context‐dependent preferences on product bundling

Bundling can change consumers' choice set and affect their purchase decision. It is well documented that consumers' preferences depend on the bundling context. In this paper, we investigate the effects of consumers' context‐dependent preferences (CDPs) on the firm's optimal bundling strategy in various competitive situations. We consider a market where a monopolist firm in product category A also sells a product in product category B. We analyze three scenarios in category B: (1) an independent firm selling a higher quality product, (2) two independent firms selling the higher quality product, and (3) the monopolist in category A is also a monopolist in category B. We find that CDPs can indeed change the firm's optimal bundling strategy. When the firm has a competitive disadvantage in category B, CDPs encourage the firm to offer the bundle (by either pure bundling or mixed bundling). Furthermore, if category B market is so competitive that the firm possesses negligible market power, mixed bundling can be strictly more effective at increasing the firm's profit than pure bundling because mixed bundling can better take advantage of CDPs. In contrast, if the firm has monopoly power in both categories, CDPs discourage the introduction of the bundle, and pure‐component selling is optimal.

İŞLETME GRUPLARININ ÖZELLİKLERİ: GRUPLARA BAĞLI VE BAĞIMSIZ FİRMALARIN KARŞILAŞTIRILMASI

The present study examines whether business group affiliates engage in social capital and knowledge sharing relations with firms within their groups more than they do with peers outside the group. In addition, this study compares group affiliated and independent firms in terms of performance and innovation. Using survey data from 128 Turkish business group affiliated and independent manufacturing firms, findings indicate that while group firms’ relations within and outside the group show significant differences in terms of tacit, explicit knowledge sharing and social capital in the form of trust, affiliated and independent firms do not differ in terms of performance, innovation and other characteristics, such as institutional support, organizational capital and absorptive capacity. This study contributes to the business group research by examining whether affiliation creates value for firms in an emerging economy.

Management innovation: The role of internal, external factors, and business group affiliation

In this study, we investigate the role of internal and external factors in management innovation. Specifically, we consider employee training and employee creativity as internal factors, whilst consultants, government subsidies, and government contracts are external ones. In addition, we investigate whether the impacts of internal and external factors on management innovation are affected by business group affiliation. Based on a sample of Turkish firms drawn from the World Bank Enterprise Survey, the results indicate that while employee training, employee creativity, government subsidies, and government contracts contribute to management innovation, consultants have no effect. Furthermore, the findings show that business group affiliates benefit more from employee creativity and government contracts in management innovation, whereas independent firms utilize government subsidies more in their management innovation activities. This study contributes to our understanding of the antecedents of management innovation and the moderating role of organizational context in an emerging economy.

The performance of business groups during institutional transition and economic downturn in a developing country

PurposePakistan has experienced financial liberalization with rapid ups and downs in economic growth due to domestic issues during the last 2 decades. Motivated by inconclusive and conflicting time-driven findings about the performance of the business groups, this study examines the performance of business groups in Pakistan for a relatively long period from 2003 to 2018.Design/methodology/approachThe study uses 3,821 firm-year observations from non-financial firms listed on the Pakistan Stock Exchange (PSX). For the estimation, pooled ordinary least squares (OLS) with industry- and year fixed effects and two-step system generalized methods of moments (GMM) are used.FindingsThe study finds that group-affiliated firms outperform independent firms in accounting performance, while underperform in market performance. The outperformance is mainly driven by medium-sized business groups, while underperformance is driven by small and large business groups. Further, the study documents that the underperformance in terms of market performance of firms affiliated with small and large groups is greater before the economic downturn, while outperformance in terms of the accounting measure of firms affiliated with medium-sized groups is greater during the economic downturn. These findings support our time-driven concerns. Overall, the authors' findings are consistent with institutional and transaction cost theories.Practical implicationsBusiness groups are important channels to reduce market inefficiencies. Business groups may enhance the affiliated firms' resources and resistance capacity through active utilization of the internal capital market, specifically when market conditions are not ideal for affiliates. However, effective utilization of internal capital markets depends on group size. Therefore, investors should deliberate on the size of business groups and diversification within business groups.Originality/valueThe authors extend the literature by providing fresh evidence related to the performance of business groups in the Pakistani context while accounting for the role of the size of business groups.

Ecological damage claim program and environmental violations: Evidence from a quasi-natural experiment in China

Whether the ecological damage claim program can resolve negative institutional and intergenerational externalities for pollution matters for sustainable development. We employ a difference-in-differences model and data on a panel of listed firms in heavily polluting industries from 2012 to 2017 to examine the effects of China's ecological damage claim pilot policy on corporate environmental violations. Our results show that the policy significantly decreased environmental violations by firms in the pilot cities compared to those in non-pilot cities. We examined whether environmental enforcement and compliance rates influenced violations and mitigated negative institutional and intergenerational externalities. We found that the policy also produced a deterrent effect on other firms. In addition, we found that the ecological claim policy performed better in areas with high levels of enforcement and environmental attention. We found also that more independent firms and firms with a larger environmental performance gap were more proactive.

Do Tobacco Companies Have an Incentive to Promote "Harm Reduction" Products?: The Role of Competition.

Some cigarette companies have started to talk about replacing cigarettes with less harmful alternatives, which might include nicotine vaping products (NVPs), heated tobacco products (HTPs), and oral nicotine delivery products. We consider market competition as a primary driver of whether cigarette companies follow through on their stated intentions. We focus on the behavior of cigarette companies in the United States. We compare competition in the pre- and post-2012 time periods, analyze the impact of the growth in NVPs on smoking prevalence and cigarette company profits, and examine the potential future role of competition. Since 2006, consumers have broadened their use of non-combustible nicotine delivery products (NCNDPs) to include, inter alia, NVPs, HTPs, and oral nicotine pouches. U.S. cigarette companies have acquired major stakes in each of these product categories which corresponds to a period of rapidly declining adult smoking prevalence, especially among younger adults (ages 18-24 years). The shifting dynamics of the nicotine product marketplace are also reflected in cigarette company stock prices. While cigarette companies are likely to promote HTPs and nicotine delivery products over NVPs, their incentives will be directly related to competition from independent firms, which in turn will depend on government regulation. Although cigarette companies will back alternatives to combusted tobacco when threatened by competition, the prospects for their lasting conversion to NCNDPs will depend on the extent of such competition, which will be influenced by government regulation of tobacco products. Regulations that limit competition from independent firms while also protecting cigarette company profits risk slowing or even reversing recent declines in smoking, especially among youth and young adults. Regulations that reduce the appeal and addictiveness of combusted tobacco products, such as higher cigarette taxes or a reduced nicotine standard, will encourage smokers to quit and/or switch to less harmful non-combusted forms of tobacco. The regulation of non-combustible nicotine delivery products and cigarettes should be proportionate to their relative risks, so that smokers have incentives to switch from combustibles to safer alternatives, and cigarette companies have incentives to promote safer products.

ДИВЕРСИФІКОВАНІ ФОРМАТИ ЕКЗОГЕННОГО НАУКОВО-ТЕХНОЛОГІЧНОГО ОБМІНУ БАГАТОНАЦІОНАЛЬНИХ КОРПОРАЦІЙ

The exogenous transfer of BNP technologies under the conditions of technoglobalism plays a key role in the development of corporate ecosystems of open innovation. The main driving forces of its rapid structural dynamics in recent decades are the active development of international production by multinational firms and a significant increase in the level of its knowledge intensity. This makes it impossible for BNP to maintain its competitive leadership solely at the expense of internal company knowledge bases, sources and resources. Exogenous transfer of BNP technologies is the material basis of global processes of micro-integration of scientific and technological exchange, during which multinational firms are in the process of permanent modernization of organizational, economic and institutional forms of participation in global knowledge sharing. As the range of BNP partners involved in corporate knowledge creation chains expands, the effectiveness of functionally distinct structural components of global innovation networks increases significantly based on the diversification of sub-contractual relations of multinational firms with universities, research institutes, laboratories and centers, business schools, venture capital companies, business incubators, coworking centers, innovative companies of small and medium businesses, state institutions of standardization and metrology, etc. In the processes of exogenous technological transfer of BNP, the mechanisms of outsourcing part of corporate R&D to external independent firms, mergers and acquisitions of technological companies, their strategic alliances, venture financing, joint innovative entrepreneurship, financing of startups, etc. demonstrate the highest effectiveness. In their synergistic action, they ensure not only the systematic networking of scientific research activities of BNP and their development of global value chains in the field of research and development, but also the large-scale expansion of their innovative potential in conducting R&D in the most pioneering directions of fundamental and applied research as a guarantee of sustainable competitive leadership in techno-globalization conditions.

Evaluation of Technological Knowledge Transfer between Silicon Fen Firms and University of Cambridge Based on Patents Analysis

Silicon Fen (SF) is a cluster of high-tech firms located around the University of Cambridge (UoC) in the UK. This article, for the first time, investigates the technological bonds between SF firms and UoC based on patent analysis covering the period of 1999–2021. We provide a short history of SF, highlighting its early formation and growth, and the role of spin-off firms on its evolution. We employ joint patents generated by UoC and various business sectors of SF to calculate the values of technological collaboration strength (TCS). It is found that the majority of joint patents (61%) are generated by the Pharma/Biotech sector of SF with the highest value of TCS (16.45 × 10−3). Moreover, the patent’s economic values across various business disciplines in SF are calculated based on the total counts of citations. Our observations suggest that senior university academics making spin-off firms in a business cluster around their university can effectively facilitate university–firm technological collaboration. Furthermore, the relatively strong technological bond between UoC and the Pharma/Biotech sector of SF is confirmed to be influenced by the collaboration of the university with its own spin-off firms rather than large independent firms in SF. The outcomes of this research contribute to the knowledge of the collaboration between a main research university and a cluster of firms located in its geographical proximity.

Business groups and corporate bond costs: Evidence from China

We examine the effect of business groups on corporate bond costs. Using a sample of corporate bonds issued by Chinese privately owned firms from 2007 to 2019, we show that business group-affiliated firms issue bonds at higher yield spreads than independent firms. The results hold after addressing the endogeneity issues of self-selection, selection bias, and financing decisions. We do not find that corporate governance plays a role in mitigating the negative impact of business groups on bond costs. Business groups negatively affect bond costs through tunneling and risk spillover channels, whereas financing advantage is not a transmission channel.

The “indie” premium: how independent firms create product value across cultures

PurposeAlthough firm growth through the acquisition of independent players is at a record high, market reports reveal a parallel increase in independent firms that enjoy noticeable consumer support across industries and threaten MNC-owned brands in several countries. Despite this evident contrast, no research has investigated how independent firms stack up against their non-independent counterparts from a consumer perspective. This study examines this standoff and proposes that independent firms outperform their non-independent contenders in fostering perceptions of product craftmanship and warmth in specific product categories and cultures.Design/methodology/approachThree experimental studies were conducted across five countries (Study 1: N = 360; USA and China – Study 2: N = 487; UK and India – Study 3: N = 323; Italy). Data were analysed using experimental techniques (Analysis of Variance) and conditional process analyses (Moderated Mediation) using PROCESS.FindingsThe findings suggest that (1) firm independence fosters perceptions of product craftmanship and warmth in individualistic cultures, (2) consumers view products sold by independent firms as warmer and more authentic than products sold by non-independent firms in hedonic but not in utilitarian product categories, (3) the positive effects of firm independence on product craftmanship and warmth are neutralized for vertically collectivist cultures (India) and reversed in horizontally collectivist cultures (China), (4) loss of firm independence leads to higher drops in perceived craftmanship and product preference when it is caused by a takeover from a foreign multinational (compared to a domestic corporation).Originality/valueThis research provides a first account of how perceptions of firm independence drive assessments of product craftmanship and authenticity, elicit feelings of warmth and build product preference. The findings inform decisions of multinational corporations regarding (1) how to communicate the acquisition of independent firms in local markets, (2) how to balance an international brand portfolio in culturally diverging markets and different product industries, (3) how to optimize brand architecture through the relative exposure of the corporate brand image vis-à-vis the image of standalone brands owned by the corporation and (4) offer smaller independent players an alternative positioning strategy to differentiate from global competitors enjoying the resources or support of bigger corporations.