Small Number Of Firms Research Articles

Activities of Japanese Multinationals with Productivity Heterogeneity

Many studies have shown that a small number of firms with high productivity carry out FDI, but few studies have considered how country-specific attributes affect firm's choice of internationalization. This paper aims to investigate what factors vary the productivity-cutoff for overseas production and how these factors affect the activities of firms: the size of overseas production, the number of firms operating overseas production, the average domestic and overseas sales, and the relative share of overseas production to domestic production. The results of theoretical and empirical examination in this paper show that larger market size and shorter distance between two markets lower the productivity-cutoff for overseas production of Japanese firms, and that both larger market and shorter distance increase the number of firms operating overseas and the size of their overseas production.

Case selection biases in management research: the implications for international business studies

This paper reports on a bibliometric analysis of peer-reviewed articles in business and management studies, initially conducted in 2004 and repeated in 2009. It reveals that a small number of firms (11 in 2004) account for over 50% of the total 'hit count' for all firms in our list of the largest 200 multinationals. The major implication of this finding is that we gain most of our academic insights and our 'best-practice' lessons on management from a small, unrepresentative group of 'exemplar' companies. Seven case selection biases are identified, showing a disproportionate focus on a sub-set of firms that are: global and bi-regional; US-based; large; manufacturers; in dominant positions in important industries; long-term survivors; owners of strong brands. In this paper, we examine the first of these biases most closely. We conclude that business and management studies tend to overestimate the benefits and underestimate the difficulties of internationalisation.

The rise of internal capitalist diversity? Changing patterns of finance and corporate governance in Europe

The article examines internal diversity within national models of capitalism in Europe, with a particular concern with firm financing and corporate governance patterns. It is suggested that a relatively small number of firms have shifted to a new institutional context consisting of common international institutions and practices, while the large majority of firms continue to operate in a more slowly evolving set of domestic institutions or rules. Examining changes since the early 1990s in firm financing and corporate governance, the article finds preliminary evidence to support the thesis of increasing diversity, but also that national patterns of firm finance are still distinct. Rising diversity challenges the long-term viability of coordinated market economies in Europe.

Trends in Regional Industrial Concentration in the United States

In a seminal article, Benjamin Chinitz (1961) raises the question of the effects that industry size, structure, and economic diversification may have on firm performance and regional economies. His line of inquiry suggests a related but conceptually distinct issue: how does the extent to which a industry is regionally dominated - concentrated locally in a single or small number of firms - impact the local performance of that industry? This question has received little attention, principally because accurately measuring industrial concentration at the regional scale requires firm-level information. This paper makes use of confidential plant- and firm-level manufacturing data to explore patterns of industrial concentration in the United States at the regional scale. Regional analogues of concentration ratios and other measures commonly used in the aspatial industrial organization literature indicate the extent to which manufacturing activity is concentrated in a small number of firms. Both the manufacturing sector as a whole and major manufacturing industry sectors are examined in order to determine the extent of industrial concentration in the continental United States, to explore changes over time in geographic patterns of concentration, and to investigate associations between industrial concentration and employment growth at the regional scale. Implications for understanding regional growth and for devising regional economic development policy are discussed.

Unexploited Gains from International Diversification

Using unique micro data on U.S. institutional investor portfolios, this paper studies how capital, meant to be invested globally, is actually diversified internationally. We show that although the mutual fund industry has moved toward funds that have more flexibility to invest across countries and regions (global funds), mutual funds invest in a finite, rather small number of firms, almost independently of the set of available instruments. The number of mutual fund holdings in stocks and countries from a given region declines as funds become more global. This restricted investment practice has a cost: there are unexploited gains from international diversification. Mutual funds could achieve better returns by broadening their investment scope to include stocks held by specialized funds within the same mutual fund family. This investment pattern is neither explained by the lack of available instruments or information, nor by a better ability of global funds to minimize losses.

Exploration versus Exploitation: Leadership and the Paradox of Administration

Focused on small firms, this paper explores the effectiveness of transformational versus transactional leadership in responding to disruptive environmental change and the need for the firm to balance the exploitation of its existing domain against the need to explore new ventures and modes of operation. The study finds that firms under transformational leadership were more effective in the development of new products, markets, manufacturing and management systems, and new skills and capabilities and earned greater revenues in the process. The study finds the best overall financial performance among the small number of firms whose owners combine both types of leadership.

DICE THROWN FROM THE BEGINNING?: AN EMPIRICAL INVESTIGATION OF DETERMINANTS OF FIRM LEVEL GROWTH EXPECTATIONS

This study investigates three competing but complementary perspectives on factors related to entrepreneurial firm growth. We examine individual (entrepreneur) firm and national environment factors associated with the growth expectations of nascent, baby and established firms. Using 25,384 data points from Global Entrepreneurship Monitor (GEM)`s survey of entrepreneurial activity in 35 countries, we find male gender, personal acquaintance with an entrepreneur, innovative product/service, low levels of competition and based in less-developed countries are associated with high growth expectations for all three business stages. Nascent and baby firms business growth expectations are also linked to having higher levels of start-up capital and outside investment. In contrast to some previous research, we find that a firm`s initial size is the best predictor of growth expectations. Altogether, size-related factors determine not only initial growth expectations, but also growth expectations at later firm stages. The law of disproportionate growth (i.e. a small number of firms are responsible for most expected job creation) holds for both start-ups and established businesses, although the latter are more rare. While both start-up and established firm growth expectations are higher in the developing countries, the fastest growing young firms are mainly found in developed countries.

Corporate Governance and Executive Perquisites: Evidence from the New SEC Disclosure Rules

The Securities and Exchange Commission (SEC) amended its rules on executive compensation disclosure in 2006 to provide more transparent disclosures to investors regarding stealth compensation items (e.g., executive perks and pensions). In order to shed additional light on the mixed results from prior research, we re-examine 608 S&P 1500 firms' 2007 proxy statements to determine if executive perquisites reflect agency problems (Yermack 2006) or whether they serve a legitimate purpose (Rajan and Wulf 2006). Consistent with the agency cost argument, we find that firms with weak corporate governance are more likely to award perquisites to executives. In additional tests, we document that weakly governed firms that hid large amounts of CEO perquisites prior to the new rules experienced a negative market reaction after their proxy statements were released, and that a small number of firms with abnormally high CEO compensation prior to the new rules reduced or eliminated perquisite programs following the new rules. These results suggest that the SEC's expanded disclosure requirements are informative and useful to capital market investors in their attempts to detect the misappropriation of firm resources by weakly governed firms, but that the expanded SEC requirements have been politically costly for some firms.

What Happened to the National Road Carrier in a Post‐Communist Country? The Case of Poland's State Road Transport

The purpose of this article is to seek to reconstruct the ownership transformation involving Poland's State Road Transport (PKS) companies passed through after 1990. Data collected from various sources (above all the Internet) were used to establish the degree of advancement of the transformation processes. Despite the passage of 18 years since the new economic reforms were launched, privatization processes are not well advanced. State ownership remains dominant, in the form of Treasury companies as well as state‐owned enterprises. Privatization processes have encompassed fewer than half of all firms, the most popular form taken (in about a quarter of all analysed cases) involving leasing by workers. This would seem of major interest, attesting as it does to the greater activity of some worker's teams, as well as the passive role of the state in privatization processes. A much smaller number of firms (26) have been purchased by external investors, the only important international concern among these being Veolia, which had taken control of 11 PKS companies as of mid‐2006. By and large, it is the firms carrying passengers or passenger and goods that are in a much better situation, as opposed to the companies that are commodity‐carriers only. The majority of the latter have collapsed, or have undergone the kind of privatization that involves simultaneous shutdown. Mixed passenger and goods carriers have had to reduce their level of activity in commodity transport.

Innovation Management of Japanese and Korean Firms: A Comparative Analysis

The innovation management of Japanese and Korean firms is analysed from a comparative perspective. A review of aggregated statistical data reveals that corporate research and development (R&D) in Korea is concentrated to a higher extent on a smaller number of firms and industries than in Japan. A broad analysis by managerial field shows that high investment into the development of new technologies and the adoption of advanced R&D management practices are common among Japanese and Korean firms. At the same time, however, various differences set them apart. Japanese firms tend to be conservative and Korean firms tend to be risk taking in their technology strategies. Korean firms rely to a higher extent on external technology from overseas than Japanese firms. Japanese firms focus on the early involvement of suppliers in R&D activities, whereas early design activities have a high priority in Korean firms. Finally, the transition from stable, seniority oriented towards flexible and performance oriented human resource management in innovation-related areas is more rapid in Korea than in Japan.

Rise and Fall of Capital Markets in Brazil, the Experience of the 90's (Ascensao e Declinio do Mercado de Capitais no Brasil - a Experiencia dos Anos 90)

The Brazilian capital markets, in special the stock market, apparently had great development in the 90's - mainly when one considers market capitalization, traded volume and new issues. However, several signs of decline appeared at the end of the decade - decline in volume traded and new issues. High interest rates, ADRs and CPMF (tax on financial transactions) are commonly blamed for this reversion. This article presents another diagnosis. It shows that the referred development was illusionary since 1) the number of public firms was declining since the beginning of the decade, and 2) market concentration was increasing (i.e., only a small number of firms took advantage of the expansion). Some elements indicate that the low protection for minority investors is one of the reasons for the atrophy of the Brazilian capital markets.

An empirical analysis of the financial impact of quick response

PurposeThis research aims to measure the financial and operating impact for US retailers that adopted quick response (QR). It specifically looks at the impact of QR on profitability, cost efficiency, and inventory management.Design/methodology/approachThe research analyzed data from the CRSP/Compustat data base of US publicly held corporations to compare adopters of QR with non‐adopters before and after adoption.FindingsThe results indicated that adopters of QR did not benefit as expected. Adopters, on average, did not improve their performance to a statistically significant degree with respect to profitability, cost efficiency, or inventory levels.Research limitations/implicationsThe main limitations of the research include the fairly small number of firms studied (11 adopters and 16 non‐adopters) and the lack of evidence identifying the reasons for the adopters poor performance. Another limitation is the fact that only the manufacturers perceptions have been considered. It would be beneficial in future research to consider the opinion of retailers about their own management of these brands.Originality/valueThe research uses objective actual financial results before and after adoption of QR and avoids the practice of using subjective management opinions of success. The research design includes before and after analysis with a control group – the strongest design possible given the inability to randomly assign firms to the adopter and non‐adopter categories.

Creating a Bigger Bath Using the Deferred Tax Valuation Allowance

Abstract: The provisions of SFAS No. 109 allow US companies to make an earnings big bath even bigger through the establishment of a deferred tax valuation allowance. At the time a firm recognizes a non‐cash charge, it also recognizes a deferred tax asset to represent the future tax benefits of the charge. Recognition of the deferred tax asset partially mitigates the negative earnings impact of the special charge. However, if the firm does not expect to have sufficient future taxable income to utilize the future tax benefits of the charge, SFAS No. 109 requires the firm to establish a deferred tax valuation allowance, effectively eliminating the recognized deferred tax asset. Thus, the establishment of the valuation allowance amplifies the negative earnings impact of the non‐cash charge. We use a valuation allowance prediction model to identify firms that create a larger‐than‐expected valuation allowance; these firms may be creating a large valuation allowance as a reserve to be used to manage earnings in a subsequent period. We find that the vast majority of these larger‐than‐expected valuation allowances apparently reflect informed management pessimism about the future in that these firms actually do have poorer operating performance in subsequent periods. We do not find any evidence that subsequent reversals of valuation allowances are used to turn a loss into a profit. However, we do find a very small number of firms that appear to have used a valuation allowance reversal to meet or beat the mean analyst forecast.

CORPORATE PRODUCTIVITY GROWTH: CHAMPIONS, LEADERS, AND LAGGARDS

I. INTRODUCTION Economists and policymakers consider growth to be principal source of improvements in living standards. (1) Not surprisingly then, tracking and explaining growth at the national or industry level have a long tradition in economic research. Most studies have focused on explaining differences countries and over time, with the aim of identifying countries that grow consistently faster than others, or economy-wide factors or circumstances that will help countries enjoy superior growth. Overall, it seems clear that at least some of the variability in aggregate growth is systematic: it is noticeably procyclical and displays some unexpected structural breaks (as, e.g., in the UK growth slowdown in the 1970s). Notwithstanding this variability, however, some countries stand out as being persistently high--productivity growth performers and others as being persistently low, at least over a span of one or more decades (e.g., Crafts and Mills 2005; Hulten 1990), while in some economies phases of and low growth can be identified quite clearly (e.g., Nelson and Wright 1992; O'Mahony 1999). Studying aggregate growth may not tell the whole story, however. For example, a country or an industry displaying superior growth could be strong across the board, with all (or most) firms outperforming their peer group of firms in other countries or industries. In this case, the high average level of growth is driven by the high median level of growth. Alternatively, superior performance could be driven by a small group of above-average performers who outweigh the average performance of the rest. Here, the high average level of growth is well above the median level of growth and is driven by outliers. What is more, these outliers could be the same firms every year (productivity champions) of the identity of such superior performers could switch periodically. Such considerations have a significant bearing on growth-enhancing policies and may help guide the search for sources of high growth. If, for example, a small number of firms were consistent strong performers, studying the characteristics of these firms would help uncover some important sources of economy-wide growth. Conversely, if these bursts of leadership by a small but unpredictable group of firms were short lived and driven by more of less unpredictable shocks, finding a way to make more firms benefit from these shocks and identifying which types of shocks create a climate conducive to growth could help raise aggregate growth. Taking growth (rather than levels) as the performance variable of interest, it is interesting to ask why certain firms outperform others: that is, what makes a productivity leader? However, it is arguably even more interesting to understand what determines how long any particular firm will outperform its peers: that is, what makes a productivity champion? Outstanding performance in any one year may well be due to a (combination of a) whole host of exogenous and transitory factors; persistent superior performance is much more likely to reflect permanent, deep-seated sources of competitive ability or advantage. Our paper hopes to make four contributions to the literature. (i) By studying individual firms' growth rather than aggregate growth, we give some insight into the degree of heterogeneity in the performance of firms in an economy--is likely to be driven by a small number of champions or a general climate conducive to high growth? (ii) By measuring superior performance using growth, we avoid the well-known problems of measuring performance through accounting profitability. Accounting profitability is often manipulated by firms to display stable earnings over time, which will exaggerate the stability of corporate performance. …

An approach for extending dynamic models to settings with multi-product firms

We propose an approach to extend the standard framework of dynamic games to settings with multi-product firms. Our approach applies to industries with a large number of products offered by a small number of firms.

Internal Capitalist Diversity in Europe: The Bifurcation of Firm Finance and Corporate Governance

The paper tests a hypothesis that in much of Europe a relatively small number of firms have moved into a new institutional context, or rules of the game, that are largely common, international institutions and practices, while the large majority of firms continue to operate in a more slowly evolving set of domestic institutions or rules. Since firms operating in the newer, international model are typically large firms, firm size is used as a proxy. Empirically this paper focuses on the changing patterns of firm finance and corporate governance based on firm size. It finds preliminary evidence to support the bifurcation hypothesis, but also that national patterns of firm finance are still distinct. Bifurcation is theorized to have significant implications for the maintenance of coordination in coordinated market economies.

Reciprocity, Inequity Aversion, and Oligopolistic Competition

This paper studies how reciprocity and inequity aversion influence the behavior of firms in imperfectly competitive markets. The paper shows that if reciprocal firms compete a la Cournot, then they are able to sustain collusive outcomes under a positive reciprocity equilibrium. By contrast, Stackelberg warfare outcomes may emerge under a negative reciprocity equilibrium. The results for inequity aversion are similar. Cournot competition between inequity averse firms can be harmful to consumers if it leads to equilibria where firms feel compassion toward each other. However, in equilibria where inequity averse firms are envious of each other consumers are better off than if firms were selfish. The paper also shows that only under very restrictive conditions does reciprocity or inequity aversion have an impact on Bertrand competition. Finally, the paper shows that non-selfish preferences have a greater impact on equilibrium outcomes in markets with a small number of firms.

Does Sutton apply to supermarkets?

I present empirical evidence that endogenous fixed costs play a central role in determining the equilibrium structure of the supermarket industry. Using the framework developed in Sutton (1991), I construct a model of supermarket competition where escalating investment infirm‐level distribution systems is driven by the incentive to produce a greater variety of products in every store. Employing a store‐level census and 51 distinct geographic markets, I demonstrate that the supermarket industry is a natural oligopoly in which a small number of firms (between four and six)capture the majority of sales, regardless of market size.

A New Methodological Approach for Detecting Income Smoothing in Small Samples: An Application to the Case of Spanish Savings Banks

This paper proposes a new methodological approach arising from an idea first presented in Burgsthaler and Dichev (1997) for detecting income smoothing. The proposed test does not rely on specific distributional assumptions, as is the case in previous studies, and may be applied to small databases. The procedure could be particularly useful in analyzing economic activities where significant economic power is concentrated in a small number of firms. The proposed methodology is applied to the case of Spanish Savings Banks during the period 1993-2001. It is revealed that these institutions would appear to be interested in reporting a consistently stable and detectable growth rate. Income smoothing is essentially applied to avoid both small earnings decreases and very small earnings increases. Income smoothing is revealed in changes in scaled pretax earnings and in scaled surplus (net earnings) for the year.

Value chain programmes to integrate competitiveness, economic growth and poverty reduction

Identifying particular value chains that have the potential to compete globally should boost output and incomes. The challenge is to achieve this in value chains incorporating large numbers of small firms and microenterprises, and who are also in a position to benefit. This paper offers a step-by-step practical guide to intervention design for achieving competitiveness that benefits the poor. First industries are selected with potential for competitiveness, then a value chain analysis is carried out. A strategy is developed to improve competitiveness and achieve an equitable distribution of benefits, and an action plan is devised to achieve this strategy. Finally a system of performance monitoring and impact assessment is needed to evaluate the effectiveness of interventions.