Firm Prefers Research Articles

A substitute for poor institutions? Interorganizational affiliations in the alliance formation process

PurposeThis study aims to investigate how the home country institutional development influences the alliance formation process.Design/methodology/approachA network of strategic alliances between 95 airlines over a 5-year period is analyzed with stochastic actor-oriented models [i.e. Simulation investigation for empirical network analysis (SIENA)]. Robustness analyses use a subsample of these airlines over a period of 10 years.FindingsThe results demonstrate that the membership in a firm group and a high share of state ownership are more beneficial for the number of alliances if the firm originates from a country with low institutional development.Practical implicationsFirms from less developed countries can use affiliations (e.g. to firm groups or the government) as signals to attract international alliance partners.Social implicationsPolicymakers from less developed countries should support the development of (local) firm groups to stimulate interorganizational cooperation.Originality/valueFirms form alliances based on two aspects: preferences for alliance partners and attractiveness to potential partners. Prior studies outlined that institutional development affects the preferences of firms for alliance partners. This study demonstrates how the institutional development influences the attractiveness to potential partners.

Dynamic Pricing and Price Commitment of New Experience Goods

This study develops a dynamic model to examine how a firm selling new non‐durable experience goods can signal its high quality with dynamic spot‐pricing or price commitment. Since consumers who buy and use the product will learn its quality, the firm's early period price will endogenously determine the number of informed consumers in the later period. Without price commitment, the high‐quality firm prefers the pooling outcome in the first period, generating enough informed consumers to induce a separating equilibrium outcome in the second period where both types of firms serve only their respective first‐period buyers. By contrast, if firms can commit to future prices, the high‐quality firm can signal its quality by committing to an increasing price‐path, either a lower‐than‐first‐best price for the early period with a first‐best price for the later period or the first‐best early period price with a higher‐than‐first‐best future price. Price commitment will benefit the high‐quality firm by lowering its signaling cost and hurt the low‐quality firm by increasing its cost of mimicking the high‐quality firm. Interestingly, the firm's price commitment can either increase or decrease consumer surplus and social welfare. We show that a longer time horizon can allow the high‐quality firm to costlessly signal its quality by maintaining its high first‐best price for all periods. Our results are robust even when social learning (e.g., through consumer reviews) is considered.

Dual class firms and trade credit

Firms with dual class structure can suffer from poor corporate governance and may utilize strategies that can help them avert monitoring by outsiders. We find that dual class firms use less trade credit as compared to non-dual class firms. We believe that this behavior is motivated by their antipathy towards supplier oversight. Our results are especially relevant for non-manufacturing and high bargaining power dual class firms. We extend the literature by shedding light on trade credit policies of dual class firms and by presenting an additional metric to assess operational transparency and monitoring preferences of dual class firms.

Optimal timing of big data application in a two-period decision model with new product sales

We study a firm's strategy in adopting big data technology to motivate consumer demand over two periods. In the first period, the firm designs a product to sell to the market and determines whether to apply big data to attract more consumers. In the second period, the firm designs a new product and determines whether to sell the old product and the new product simultaneously, where big data can also be applied in this period to stimulate more demands. We formulate this problem into four models considering whether the firm adopts big data in the first period and/or the second period, and whether the firm only sells the new product or sells both the old and new products in the second period. We find that the firm prefers to apply big data over both periods when the cost is low, only over the second period when the cost is median and will not apply big data when the cost is high. Interestingly, only applying big data over the first period also may bring the most profits with heterogeneous big data coefficients. Furthermore, applying big data in the second period is the better choice for the social welfare.

Antecedents of Stage-wise Investment Preferences of Venture Capital and Private Equity Firms in India: An Empirical Exploration

This article is a maiden attempt at exploring determinants of stage-specific investment choices of Indian venture capital and private equity (VCPE) firms. Analysis of 5,782 VCPE investment deals during 1998–2016 shows that firms’ preferences to invest in various stages (early vs. late) are significantly affected by the characteristics of the VCPE firms, features of the deal, and characteristics of the investee firms. More specifically, experience and ownership (foreign vs. domestic) of VCPE firm, type of deal (syndicated or otherwise), investment size of the deal, and location and industry of the investee firm influence the stage of investment. Detailed empirical analysis shows that younger VCPE firms and those with domestic investors prefer to invest in early stages, presumably because they wish to build a reputation and also leverage their proximity with investee firms to manage high market and technological risks associated with early-stage investments. Syndication is another mechanism used to manage the risks associated with early-stage deals. Investee firms in industries that have lower investment requirements or shorter gestation periods and those located in regions with a mature entrepreneurial ecosystems are more likely to attract early-stage investments. JEL Classification: G24, L26, D81

Family firms and their participation in cross-border acquisition waves: evidence from India

PurposeFrom the socioemotional wealth (SEW) perspective, family firms prioritize non-financial goals and show risk averse behaviour towards conducting acquisitions. In this paper, we study family firms' acquisitive behaviour while participating in CBA waves. Scholars have largely treated the cross border acquisition (CBA) wave and non-wave environments as homogeneous. We theorize that these two environments differ in their uncertainty and risk profiles on account of temporal clustering of acquisition deals. Accordingly, based on the SEW perspective, we examine the preference of family firms to participate in CBA waves.Design/methodology/approach The paper is based on CBAs conducted by Indian family firms between 2000 and 2018. These waves are identified by conducting a simulation based methodology.FindingsOur findings suggest that foreign institutional ownership, firm age and acquisition relatedness moderate the relationship between family control and participation in CBA waves.Originality/valueOur paper contributes towards the acquisitive behavior of family firms and their participation in CBA waves.

Soft Law Engagements and Hard Law Preferences: Comparing EU Lobbying Positions between UN Global Compact Signatory Firms and Other Interest Group Types

AbstractAlthough corporate social responsibility (CSR) has gone “mainstream,” the relationship between CSR and corporate political activities (CPA) has received little scholarly attention. This is problematic because firms potentially have a more sizable impact through their lobbying activities for socially and environmentally beneficial (or unbeneficial) public policies than through their own operations. This paper investigates if, and how, UN Global Compact signatory firms differ in their policy preferences on key EU proposals compared to other interest groups. To capture state-of-the-art data on firms’ policy preferences, I draw from the INTEREURO database, which includes firms’ lobbying positions on forty-three directives and twenty-seven regulations covering 112 public policy issues in the European Union. Statistical results show that Global Compact signatory firms significantly lobby for stricter regulation than non-signatory firms and industry associations, however, their positions are still lower than nonbusiness groups. These results are similar across various public policy issues and suggest that the regulatory preferences of firms’ participating in soft law CSR initiatives are more aligned with stakeholders' interests. This paper contributes to public policy literature exploring the relationship between hard and soft law as well as literature studying the political representation of divergent interest.

PMD16 What Factors Do Clinicians Value Most in Selecting Physician Preference Items? a Survey in Orthopedics Using Discrete Choice Experiment and Best-Worst Scaling

Physician preference items (PPIs) are high-cost medical devices on which clinicians express firm preferences with respect to a particular manufacturer and a specific product. We aimed at understanding what are the most important factors and their relative importance in the choice of new PPIs (i.e. hip or knee prosthesis) adoption by orthopedic clinicians in Italy.

Testing Legislator Responsiveness to Citizens and Firms in Single-Party Regimes: A Field Experiment in the Vietnamese National Assembly

We investigate whether communicating constituents’ preferences to legislators increases the responsiveness of delegates to the Vietnamese National Assembly (VNA). Using a randomized control trial, we assign legislators to three groups: (1) those briefed on the opinions of their provincial citizenry, (2) those presented with the preferences of local firms, and (3) those receiving only information on the Communist Party’s objectives. Because voting data are not public, we collect data on a range of other potentially responsive behaviors during the 2018 session. These include answers to a VNA Library survey about debate readiness; whether delegates spoke in group caucuses, query sessions, and floor debates; and the content of those speeches. We find consistent evidence that citizen-treated delegates were more responsive, via debate preparation and the decision to speak, than control delegates; evidence from speech content is mixed.

Privatization Policies by National and Regional Governments

In order to analyze the privatization policies undertaken by the national and regional governments, I consider a horizontal differentiation model with price competition in which a country consists of two regions of different sizes. I show that public-sector intervention by either the national or regional government is essential for achieving the social optimum. The preferences of consumers and firms about privatization policy are completely opposite: consumers prefer a regional public-sector intervention, while firms prefer a national public-sector intervention. Finally, I find that the preferences of the two regions about market structures are also opposite: the least populated region prefers the private duopoly, while the most populated region prefers a government intervention in the market.

Do Firms Prefer Leverage Over Cash?

Amid record levels of corporate cash and debt, this study finds that firms acquire cash, then subsequently increase debt instead of reducing debt after the Homeland Investment Act of 2003. Two possible motives for this change are 1) increasing tax benefits of debt and 2) the role of cash as debt collateral. Using all firm panel observations from 2003-2019 (ex. financials and utilities), I find one dollar of cash has 3x more predictive ability for future debt than one dollar of financing deficit. Larger multinationals have increasing debt preferences over cash, a convex relation predicted by the repatriation tax motive. Surprisingly, domestic-only firms also prefer debt irrespective of hedging needs, and financially constrained firms (identified by sentiment analysis and Altman's Z) increasingly benefit from using cash as debt collateral. Persistently low corporate borrowing rates likely alleviated debt and hedging costs, inducing a new trade-off paradigm where firms may increasingly prefer to finance with debt instead of cash.

Promoting end-of-season product through online channel in an uncertain market

Firms typically introduce online promotional channels based on the cooperative format of agency selling or reselling to promote end-of-season products. The selection of the agency selling or reselling format is greatly affected by a firm’s pricing timing between traditional and online promotional channels, particularly in an uncertain market. Within this context, we examine how the pricing timings in an online promotional channel relative to a traditional channel impact a firm’s selection between agency selling and reselling formats in an uncertain market. We find that the promotional pricing timings have no effect on the firm’s price decisions under the agency selling format, whereas they might lead to downward prices under the reselling format—even lower than those under the agency selling format. We show that considering promotional pricing timing in an uncertain market fundamentally changes the general intuition that the firm prefers the agency selling to reselling format due to the double-marginalization effect. Specifically, the reselling format might be more profitable for the firm when it sets traditional-channel promotional price prior to introducing the online promotional channel in an optimistic market (i.e., a market more likely to have high demand) or adopts the opposite promotional pricing timing of channels in a pessimistic market (i.e., a market more likely to have low demand). Our findings complement the emerging online retail literature by underscoring the interacting forces of promotional pricing timing and uncertain demand on a firm’s reselling versus agency selling format choice in promoting end-of-season product online.

An intelligent framework for analyzing supply chain resilience of firms in China: a hybrid multicriteria approach

PurposeThe paper aims to identify the most supply chain resilient company suitable for the customized preferences of partner firms in the context of the Chinese supply chain framework during the COVID-19 pandemic.Design/methodology/approachA hybrid multicriteria model, i.e. Fuzzy Analytical Hierarchy Process (AHP), was used to assign weights to each criterion, which was subsequently analyzed by three approaches, namely Fuzzy Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS), Fuzzy DEMATEL (Decision-Making Trial and Evaluation Laboratory), and Evaluation Based on Distance from Average Solution (EDA), to rank the top ten companies in descending order of supply chain resilience. Further, sensitivity analysis is performed to identify the consistency in ranking with variation in weights. The rankings are validated by a novel Ensemble Ranking algorithm and by supply chain domain experts.FindingsThe rankings suggest the company “China Energy Construction Group Tianjin Electric Power Construction Co., Ltd” is the most feasible and resilient company, presenting interesting findings to partner firms, and Bosch is the least reliable supply chain company of the ten firms considered, thus presenting interesting findings to partner companies.Practical implications“Crisis Management Beforehand” is most critical in the current pandemic scenario. This implies that companies need to first prioritize taking proactive steps in crisis management followed by the need to minimize the “Expected impact of pandemic.” Performance factors also need to be regulated (sales, supply chain rank and financial performance) to maintain the company's overall reputation. Considering the consistent performance of the China Energy Construction Group Tianjin Electric Power Construction Co., Ltd., it is recommended as the most reliable supply chain firm to forge strategic partnerships with other supply chain stakeholders like suppliers and customers. On the other hand, Bosch is not recommended as a supply chain reliable company and needs to improve its crisis management capabilities to minimize the pandemic impact.Originality/valueThe paper aims to identify the most supply chain resilient company suitable for the customized preferences of partner firms in the context of the Chinese supply chain framework during the COVID-19 pandemic. The rankings suggest the company “China Energy Construction Group Tianjin Electric Power Construction Co., Ltd” is the most feasible and resilient company, presenting interesting findings to partner firms, and Bosch is the least reliable supply chain company of the ten firms considered, thus presenting interesting findings to partner companies.

Testing the pecking order theory of capital structure in an Islamic legal system: the case of Saudi Arabia

PurposeThe purpose of this paper is to examine whether the basic premises according to the pecking order theory (POT) provide an explanation for the capital structure mix of firms operating under Islamic principles.Design/methodology/approachPooled ordinary least squares, fixed and random effects regressions were performed to test the POT applying data from a sample of 66 Islamic-compliant firms listed on Saudi Stock Market over the period 2006–2016.FindingsThe results show that sale-based instruments (Murabahah, Ijara) track the financial deficit quite closely followed by equity financing and as a last alternative to finance deficit, Islamic-compliant firms issue Sukuk. In the crisis period, these firms seem more reliant on equity, then on sale-based instruments and on Sukuk as last option. The study findings also indicate that the cumulative financing deficit does not wipe out the effects of conventional variables, although it is empirically significant. This provides no support for the POT attempts by Saudi Islamic-compliant firmsResearch limitations/implicationsThis research contributes to the theory of capital structure in re-validating the findings of a previous theoretical and empirical study. It helps understand the capital structure of Islamic-compliant firms in comparison with conventional firms. It highlights some areas where further research on topics related to capital structure of Islamic-compliant firms is needed. The failure of the POT to explain Saudi firms’ financing choices strongly pushed researchers to test the market timing theory for the Saudi Stock Market. Further research studies could re-examine the trade-off theory in the absence of interest tax shield as in an Islamic economy.Practical implicationsFrom a managerial perspective, this research can serve firm executive managers in their financing decisions to add value to the companies. Furthermore, policymakers, bankers and standard-setting organizations should undertake more collective work to simplify the process of issuing Islamic financial instruments including Sukuk. Moreover, the Saudi Government has to encourage the private sector to be more innovative in developing products and services that are in line with Sharia principles. Finally, to attract investors, the Capital Market Authority has to encourage transaction, efficiency and liquidity of Islamic financial instruments.Originality/valueThe proposed study presents several originalities. First, it explores the implications of relevant Islamic principles on financing preferences of Saudi firms. Second, the present study enables us to investigate what the sudden abundance of liquidity, generated by the record levels of oil prices, implied for the firms’ financing behavior. Finally, it provides further evidence on the impact of financial crisis on the firms’ capital structure choice in a period of considerable slowdown in the world.

Competition and Co-Operation When Consumers' Sustainability Preferences Depend on Social Norms

We posit that consumers' preferences for more sustainable products depend on the perceived social norm, which in turn is shaped by average consumption in society. We explore the implications of such preferences for firms' incentives to introduce more sustainable products and to co-operate in order to either foster or forestall their introduction. Our main motivation lies in the increasing pressure put on antitrust authorities to exert more leniency towards horizontal agreements that are motivated by sustainability considerations.

Two-Sided Matching between Fashion Firms and Publishers: When Firms Strategically Target Consumers for Brand Image

Many fashion companies strategically choose publishers for advertising to target preferred consumers, because such consumers not only generate revenue, they also influence the companies’ brand image. Meanwhile, publishers also select companies because the ads posted by companies affect publishers’ image as well. It is important to jointly model the preferences of firms and publishers in this scenario, because observed advertising is an outcome of mutual selection from both sides. We develop a two-sided matching framework to model advertising as realized from such a two-sided selection process. The preference of a third party (consumers) is embedded in this framework through a consumer product choice model. Applying the proposed model to two unique datasets of fashion brand purchases, magazine readership, and advertising record, we are able to detect magazines and watch brands’ preferences separately. More expensive magazines also prefer more luxurious fashion watch brands. Watch brands prefer magazines with a potential consumer network with more male, well-educated and wealthy readers. Advertising effect is more prominent in terms of consumers’ awareness set formation compared to the brand purchase persuasion in general, but Asian brands can benefit more from advertising at the brand choice stage instead of the awareness formation stage.

Complementary relationship between types of innovation in SMEs: the context of Kosovo

Complementary innovations within small and medium-sized enterprises (SMEs) have been a subject of great interest among authors. This study aims to examine the complementary of different types of innovations with specific focus on SMEs in the Kosovo market. The empirical bases for this analysis are derived from 24 qualitative case studies from innovative SMEs in Kosovo, coming from service, manufacturing and trade sectors by using NVivo software. The majority of interviewed enterprises developed two innovations simultaneously, meaning that the introduction of one innovation led to the introduction of another one. Product and process innovations are complementary in most of the cases, and the firm prefers a simultaneous adoption. Nevertheless, the findings show that in few cases, there is a combination of other types of innovations.

Complementary relationship between types of innovation in SMEs: the context of Kosovo

Complementary innovations within small and medium-sized enterprises (SMEs) have been a subject of great interest among authors. This study aims to examine the complementary of different types of innovations with specific focus on SMEs in the Kosovo market. The empirical bases for this analysis are derived from 24 qualitative case studies from innovative SMEs in Kosovo, coming from service, manufacturing and trade sectors by using NVivo software. The majority of interviewed enterprises developed two innovations simultaneously, meaning that the introduction of one innovation led to the introduction of another one. Product and process innovations are complementary in most of the cases, and the firm prefers a simultaneous adoption. Nevertheless, the findings show that in few cases, there is a combination of other types of innovations.

Pre‐emptive production and market competitiveness in oligopoly with private information

AbstractWe investigate a firm's pre‐emptive behavior by comparing Cournot competition and Stackelberg games with one leader and multiple followers, where each firm has access to private information on stochastic demand. We show that the firm prefers pre‐emptive quantity choice (Stackelberg leader) to simultaneous quantity choice (Cournot firm) if and only if the firm is ignorant of the market size compared to the other firm. The firm's decision in terms of production timing is always detrimental to producer surplus in the industry. It is beneficial to consumer surplus in duopoly competition, but detrimental when there are many competitors in the market.

On the choice of contract types in vertical relations

We endogenize the contract‐type choice in a vertically related market. We relate that choice to the distribution of bargaining power between the upstream and downstream partner in contract‐terms negotiation. For two wide classes of demand functions, the upstream (downstream) firm prefers a two‐part tariff (linear) contract, and thus, we model the contract‐type choice as a noncooperative game. When a firm has strong bargaining power over the contract terms, risk dominance selects its least‐preferred contract type: the strong firm has more to lose in case of disagreement over the contract type. Under relative symmetry in bargaining power, risk dominance selects the efficient two‐part tariff.