Intensive Firms Research Articles

Information asymmetry and the effect of financial openness on firm growth and wage in emerging markets

We examine whether the effect of financial openness on firm growth and wages depends on information asymmetry faced by foreign investors. We conduct a firm-year level panel regression analysis using 25 emerging market country panels for 1990–2011. We find that financial openness favors firms with lower information asymmetry (larger firms, cross-listed firms, export intensive firms), which grow faster than firms with higher information asymmetry. Further, financial openness leads to a widened wage difference between large and small firms. Finally, the asymmetric growth of large firms relative to small firms disappears as the information environment of the host country improves.

Value relevance of aggregated and disaggregated earnings in India: Significance of intangible intensity

This paper explores the relative performance of aggregate earnings and disaggregated earnings components (accruals and cash flows) to describe the market values of equity and earning persistence in India. Further, we explore the difference in value relevance of earning and earning components to explain market values of equity and earning persistence between intangible and non-intangible intensive firms. We adopted the Barth et al. (1999, 2005) linear information structure, which is based on the Ohlson (1999) model. Our findings suggest that the disaggregated earnings outperform aggregated earnings to explain market values of equity and earning persistence, irrespective to the nature of a firm’s intangible intensity. However, the incremental explanatory power of disaggregated earnings is higher in intangible intensive firms compared to non-intangible intensive firms. Moreover, the incremental value relevance of accruals is higher than the incremental explanatory power of cash flows in intangible intensive firms and lower for non-intangible intensive firms.

Innovation through tradition in design-intensive family firms

PurposeSeveral studies show that identity is a critical success factor in design-intensive industries, leading managers and executives to identify solutions that enable firms to simultaneously innovate while preserving their link with the past. Accordingly, scholars have recently revealed the role of the so-called innovation through tradition strategy. Thus, the purpose of this study/paper is to understand how design intensive firms may exploit knowledge pertaining to the past.Design/methodology/approachThe research contributes to this line of inquiry by conducting a longitudinal analysis of two leading Italian design-intensive firms, B&B Italia and Cassina S.p.A. Specifically, through almost 30 h of interviews with 11 key informants and the analysis of various secondary sources, a unique database of over 900 products covering the period of 1960-2016 was developed.FindingsThe findings reveal that both firms leverage knowledge from the past mainly to preserve firm identity, as indicated by the two indicators used to capture the use of knowledge pertaining to the past (i.e., design tradition intensity and design tradition depth). In addition, the study shows that the values of these indicators significantly increase when ownership control shifts from family-based to fund-based.Originality/valueThe paper looks at design artifacts as a source of knowledge, exploring how they can support firms in reinforcing their identity. The original contribution to the design through traditional literature is in unveiling the product signs dimension of this particular innovation strategy.

How do banks finance R&D intensive firms? the role of patents in overcoming information asymmetry✰

We examine how banks finance R&D intensive firms, focusing on the role of patents in overcoming information asymmetry in bank lending. Consistent with moral hazard in due diligence and monitoring, we find that lead arrangers retain a larger share of syndicated loans when lending to R&D intensive firms. Patents can partly overcome moral hazard problems, as banks retain a smaller share of R&D intensive firms’ loans if these firms have patents as a signal of the quality of their inventions. Our results are robust to alternative explanatory variable definitions and syndicate structure measures, different samples and subperiods, and difference-in-difference estimations.

Board Size, Firm Type, and Stock Return Volatility

We analyze the association of board size and stock return volatility for different firm types. First, we find significant evidence that the association is non-linear over all firms. Second, we find that this differs for different firm types. While complex firms show a negative linear relationship between board size and volatility, research and development intensive firms exhibit a stronger u-shaped relationship. This shape is incompatible with the explanation in previous studies that larger boards experience communication and coordination problems which lead to lower volatility. Third, we provide evidence for an alternative explanation, namely that having more directors improves monitoring, but only up to a point. Our results hold for a battery of robustness checks, including a variety of endogeneity tests.

Is productivity of Indian pharmaceutical industry affected with the introduction of product patent act?

PurposeThe purpose of this paper is to empirically study the impact of product patent regime on the productivity of different categories such as ownership, R&D, size and product-wise of Indian pharmaceutical firms using non-parametric data envelopment analysis.Design/methodology/approachThe present study has applied Ray and Desli’s Malmquist productivity index and its decomposition to measure total factor productivity (TFP) change, pure technical efficiency change, scale efficiency change and technical change under variable returns to scale (VRS) technology assumption for 141 Indian pharmaceutical firms during 2000-2001 to 2014-2015.FindingsThe study found the negligible impact of product patent regime on productivity. The technological change has played a positive role in the growth of productivity, whereas technical efficiency change depicts the judicious utilization of resources for improving performance. From the results, it is found that R&D intensive firms depict better stability in the TFP than the non-R&D firms. However, Granger causality between R&D and productivity found no relationship. Productivity is more directly affected by investment in fixed assets rather than in R&D, which focusses on incremental value additions in a largely branded/plain generic product market. In case of ownership, private foreign firms found to have registered progress in TFP while others have recorded marginal regress, which probably could be attributed to the superior marketing and management skills of the foreign firms, besides possessing proprietary technology. Both small and large firms have shown positive growth in the new regime as compared to the pre-patent regime. These small firms are able to compete with large firms because of their up-gradation of the technological base by improving access to better foreign technology. TFP growth for all the firms can be attributed to improvement in technology, and innovation in terms of high capital-output ratio. Further, the paper tried to identify the determinants of productivity from panel random effect regression, and it is found that export intensity, age and the new patent regime have negative and significant relationship with productivity, whereas other variables such as R&D, ownership, size and capital imports are insignificant. In the end, the results of sensitivity analysis have confirmed the validity of the selected variables.Practical implicationsThe results suggest that Indian pharmaceutical firms need substantive improvement in TFP by improving managerial and scale efficiency. Indian pharmaceutical industry (IPI) needs to improve productivity across the network and drive cost excellence initiatives across the spend base through operational excellence and digital initiatives. The results of this paper can be applied in framing policies for future growth and improvement in the productivity of IPI.Originality/valueThe paper aims to make several new contributions to the existing literature. Most of the research papers only analysed TFP of the industry as a whole and detailed firm-wise analysis is needed to capture the true impact at a unit level. This study has analysed the impact of different categories such as ownership, R&D, size and product-wise, and determinants of productivity. The study has used a broader time period and larger panel data to predict the better picture.

Which Came First, it or Productivity? Virtuous Cycle of Investment and Use in Enterprise Systems

While it is now well established that IT intensive firms are more productive, a critical question remains: Does IT cause productivity or are productive firms simply willing to spend more on IT? We address this question by examining the productivity and performance effects of enterprise systems investments in a uniquely detailed and comprehensive data set of 623 large, public U.S firms. The data represent all U.S. customers of a large vendor during 1998-2005 and include the vendor's three main enterprise system suites: Enterprise Resource Planning (ERP), Supply Chain Management (SCM), and Customer Relationship Management (CRM). A particular benefit of our data is that they distinguish the purchase of enterprise systems from their installation and use. Since enterprise systems often take years to implement, firm performance at the time of purchase often differs markedly from performance after the systems go live. Specifically, in our ERP data, we find that purchase events are uncorrelated with performance while go-live events are positively correlated. This indicates that the use of ERP systems actually causes performance gains rather than strong performance driving the purchase of ERP. In contrast, for SCM and CRM, we find that performance is correlated with both purchase and go-live events. Because SCM and CRM are installed after ERP, these results imply that firms that experience performance gains from ERP go on to purchase SCM and CRM. Our results are robust against several alternative explanations and specifications and suggest that a causal relationship between ERP and performance triggers additional IT adoption in firms that derive value from their initial investment. These results provide an explanation of simultaneity in IT value research that fits with rational economic decision-making: Firms that successfully implement IT, react by investing in more IT. Our work suggests replacing either-or views of causality with a positive feedback loop conceptualization in which successful IT investments initiate a virtuous cycle of investment and gain. Our work also reveals other important estimation issues that can help researchers identify relationships between IT and business value.

Do research subsidies crowd out private R&D of large firms? Evidence from European Framework Programmes

We evaluate whether public research subsidies are complements or substitutes to the private R&D spending of large firms. Combining data on the EC’s three most recent Framework Programmes (FP6, FP7 and H2020) with data on the world’s largest research companies, we use matching and difference-in-difference estimation to compute the causal impact of subsidies on private R&D spending. While, on average, subsidies have not led to increased private research budgets, we identify policy-relevant heterogeneities, finding that subsidies increased own R&D for smaller firms and projects as well as more R&D-intensive firms. We also find that Horizon 2020 successfully stimulated firms’ private R&D spending, while its predecessors did not.

R&D Investments and Forward-Looking Disclosures

The immediate expensing of R&D expenditures conceals managers' knowledge about the R&D projects. I examine whether higher R&D-intensive firms voluntarily guide more to decrease this information asymmetry. R&D state tax credits serve as instrumental variable for R&D investments. While total earnings guidance remains unchanged, managers issue more quarterly earnings guidance and non-earnings guidance in lieu of annual earnings guidance. Consistent with uncertainty affecting the precision of longer-term earnings expectations, the substitution of quarterly guidance for annual guidance intensifies with innovation uncertainty. Difference-in-differences analyses around unexpected R&D jumps confirm that the increase in quarterly guidance derives from increases in information asymmetry. These findings demonstrate that firms trade off incentives to decrease information asymmetry with costs of uncertainty from R&D investments by issuing more quarterly and non-earnings guidance but reducing their annual earnings guidance. In conclusion, these results imply benefits of short-term earnings guidance when R&D investments discourage annual earnings guidance.

International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade-Tax Statistics in the United Kingdom

This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinations. It shows that the 2009 tax reform in the United Kingdom, which changed the taxation of corporate profits from a worldwide to a territorial system, led to a substantial increase in transfer mispricing. It also provides evidence for a trade creation effect of transfer mispricing and estimates substantial transfer mispricing in non-tax-haven countries with low- to medium-level corporate tax rates, and in R&D intensive firms.

University graduates, knowledge spill-overs and localization of knowledge intensive ventures - case of post-socialistic country

This paper investigates how universities affect formation of new knowledge intensive ventures in conditions of post-socialistic country of Eastern Europe, depending on character of university spill-overs. Using tools of spatial econometry, we investigate how graduates rollout by universities and knowledge spill-overs on basis of interpersonal relationships between entrepreneurs and senior academic researchers determines emergence of knowledge intensive ventures in Slovakia, while we distinguish between total number of knowledge intensive firms (KIF), knowledge intensive manufacturing ventures (KIM), knowledge intensive business services (KIBS) and knowledge intensive services (KIS). Our estimates of spatial Durbin models indicate that even in conditions of country that lacks universities carrying out top-excellent research, university spill-overs affects formation of knowledge intensive ventures, but only in case of services, while spill-overs in form of graduate rollout are significantly localized.

Innovation Activities and Integration through Vertical Acquisitions

Abstract We examine the determinants of vertical acquisitions using product text linked to product vocabulary from input-output tables. We find that the innovation stage is important in understanding vertical integration. R&D-intensive firms are less likely to become targets of vertical acquisitions. In contrast, firms with patented innovation are more likely to sell to vertically related buyers. Firms’ R&D intensity is a more important deterrent to their vertical acquisitions when the provision of innovation incentives by potential acquirers is more difficult. The role of patents in fostering vertical acquisitions is more prevalent when potential buyers face a higher risk of holdup. (JEL G32, G34, L22, L25, O34)

R&D financing and growth

ABSTRACT R&D investment are an important engine of growth and development. Yet economists have often claimed underinvestment, based on the consideration that these projects are more costly to finance, especially, due to the asymmetric information between inside and outside investors. Coherently, a recent empirical evidence has shown that firms intensively active in R&D are less leveraged and rely more heavily on internal finance. Motivated by this evidence, we study the effects of asymmetric information and financial frictions within a GE economy of Schumpeterian tradition. The model and equilibrium concept are rich enough to represent investment and innovation decisions, technology adoption/diffusion through patent licensing and, most importantly, firms' financial decisions. In this representation, R&D-intensive firms might effectively rely more on internal sources and equity than on debt financing, relative to what would happen in frictionless markets. Further, financial decisions affect aggregate investment and income dynamics.

Does geographic distance to partners affect firm R&D spending? The moderating roles of individuals, firms, and countries

This paper examines the extent to which modern technology has impacted firms' R&D spending levels by empirically examining the relationship between inventor distance and R&D intensity at firm level. We find that inventor distance has a positive link with R&D intensity. Furthermore, we argue that the success of a collaboration network lies in the distinctive roles of the individuals, organizations, or countries involved. To test this theory, we extend the study to explore the moderating effects of the number of individuals, organizations, and countries participated in a collaborated invention. Using a combined data set of R&D financial and patent data from 531 highly innovative and R&D intensive firms, and several estimation techniques such as Probit predictive margins and the generalized method of moments (GMM), our findings show that distance-R&D intensity relationship can be influenced by the number of individual inventors, number of organizations, or countries involved in the collaborations.

Exchange rate risk and the skill composition of labor

This paper uses matched employer–employee data covering the universe of Swedish private sector firms 1998–2014 to examine the links between exchange rate risk and the skill composition of labor in firms. We use firm times export destination and firm times import origin data to calculate firm-level measures of real exchange rate risk and real effective exchange rates. Our main result is that firms facing higher exchange rate risk employ a higher share of skilled labor and that the effect is especially marked among trade intensive firms in manufacturing and in firms with fewer than 50 employees. This finding is consistent with theoretical models of flexible work systems that require higher skill levels as a way of responding to higher risk.

Technology partnership portfolios and firm innovation performance: Further evidence

Abstract Firms may cooperate in R&D with various types of partners to boost their innovative performance. We model the optimal partnership portfolio breadth and empirically test the model on a panel of Dutch manufacturing firms. We confirm earlier evidence of a curvilinear relationship between breadth of R&D cooperation and a firm’s innovation performance. Two firm-specific factors, firm size and R&D-intensity, moderate this relationship. Small and low R&D-intensive firms tend to benefit more from embarking on R&D cooperation compared to large and/or R&D-intensive counterparts, but such benefits also tend to reduce more quickly when the number of types of cooperation partners increases.

Foreign competition and acquisitions

I provide evidence on the impact of foreign competition on firms' propensities to engage in mergers and acquisitions. Using import tariff reductions as exogenous shocks that increase foreign competition, I find that affected firms are more likely to make acquisitions following tariff reductions. Cross-sectional tests show that this association is more pronounced for single segment firms, capital intensive firms, firms with higher profit margins, and firms with better growth opportunities, which suggests that this association is stronger for firms that are affected by increased competition to a greater extent and firms that stand to gain more from acquisitions when faced with increased competition. Moreover, the positive relation between acquisition propensities and tariff cuts is more pronounced for financially unconstrained firms and during times of high capital liquidity, which implies that it is easier for firms with greater access to capital to respond to increases in foreign competition by making acquisitions. Finally, I find some evidence that the acquisitions made in response to tariff decreases are associated with better firm profitability ratios in the following year, indicating that firms respond to increased competition by making acquisitions to improve their operational efficiency.

The Role of Information Sources in Firm R&D Activities – The Case of German Knowledge Intensive Industries

R&D activities affect the ability to create innovation for every firm. Many studies have shown that R&D activities are influenced by a number of determinants and the environment (R&D milieu) in which individual economic entities exist. Due to the nature of firms´ production, it is important to note that not every firm needs the same amount of information and knowledge. This thesis will also affect the efficiency of the use of information sources in R&D activities. In practice, it is necessary to know the dependence of companies and their R&D activities on the available information sources so that public policy makers can better target public policy and possible financial support schemes (grant schemes), because, the one size-fits all principle cannot be assumed. Therefore, the aim of this paper is to analyze the role of information resources in the knowledge intensive industries in the strongest EU economy, i.e. Germany. For the analysis, Eurostat CIS data and own regression model were used. The results show that the knowledge environment has a major impact on the development of R&D in the German knowledge intensive firms. German companies sourced information from the market (especially clients and customers), and all firms acquired information and knowledge from collaborating with universities. The biggest impetus for the realization of R&D activities is for firms to focus on markets outside the EU.

Knowledge Sharing, Organizational Rewards and Life Satisfaction of Employees: A Study of Knowledge Intensive Firms

The success of knowledge intensive firms is dependent on knowledge management practices in the firm. A better knowledge management system comprises feasible strategies to identify, react and overcome problems inherited in knowledge resources. Employees of knowledge intensive firms are considered the prime resource in terms of knowledge creation, accumulation, sharing and protection. This research examines the impact of knowledge sharing intentions on the life satisfaction of employees working in knowledge intensive firms in Sri Lanka. A questionnaire was used to collect data from employees who are working in IT oriented firms in Sri Lanka. Respondents from different job categories and companies for the sample were selected using a stratified sampling method. Descriptive and correlation analysis of the respondents and responses were done to identify basic features of the sample. Study findings indicated that knowledge sharing in the profession by employees of knowledge intensive firms has strong positive influenced on their life satisfaction. Further, the analysis confirmed that organizational rewards mediate the relationship of knowledge sharing and life satisfaction. Findings of the study have contributed immensely to both theory and practice.

Sustainable Change Management through Employee Readiness: Decision Support System Adoption in Technology-Intensive British E-Businesses

Technology brings green sustainable management practices to the workplace. It is important to ascertain the factors that enable or inhibit employees’ perceptions towards technology adoption. Corporate sustainability and sustainable management practices partially depend on employees for the successful implementation of technological changes in the workplace. This study aims at applying the technology acceptance model (TAM) from an employees’ user-perspective. It addresses those factors that form employee readiness for e-business and enable their intention to use e-business technologies such as decision support systems (DSS). It focuses on technology intensive firms while combining Davis’ technology acceptance model and Lai and Ong’s employee readiness for e-business (EREB) model. A survey questionnaire was used to collect the data for this cross-sectional study from 331 employees of 28 well-established small and medium-sized e-businesses located in the United Kingdom. The outcomes show that the four dimensions of EREB explain the 58.2% of variance in perceived ease of use and the 50.2% of variance in perceived usefulness. Together, perceived usefulness and perceived ease of use explain the 51.8% of variance in intention to use while fully mediating the relationship between higher order EREB construct and intention to use DSS.