Subgroups Of Firms Research Articles

Strategic collaboration in agro-industrial clusters: territorial dynamics within the dairy industry in Uruguay

PurposeInquiring about the patterns of interaction within clusters can provide a valuable insight into the cooperation and competition strategies followed by firms. However, such internal patterns are difficult to identify using conventional methods. This study aims to apply a social network analysis approach to identify and analyze different sub-groups of firms within a dairy cluster. These sub-groups seem to respond to different forms of productive organization, with different levels of territorial anchorage.Design/methodology/approachThe authors study the dairy cluster in the south-west of Uruguay, where one of the country’s main industries is located. The authors use data from semi-structured interviews applied to managing directors of 40 dairy industrial firms. The authors analyze the collaboration network among firms and industry support organizations. Using a community detection algorithm, the authors identify strategic groups of firms and organizations within the network. The authors analyze information from the interviews to delve deeper into the strategies pursued by actors in each of these sub-groups.FindingsThe four groups identified by the algorithm respond to particular logics associated not only with collaborative behavior, but also with territorial distribution and competitive strategies pursued by firms. In particular, these communities show a positive association between the centrality of their nodes in the network, the size of their firms, their export orientation and their innovative capacity. These associations indicate the co-existence, within the cluster, of different local productive systems and other forms of productive organization.Originality/valueThe paper illustrates how different strategies of firms within a cluster can be understood using social network analysis. This approach is particularly interesting in agri-food clusters, where their wider dispersion in the territory often implies their firms following different collaborative and competitive strategies, and different levels of territorial anchorage.

Effects of Policy Reforms on Firm Innovation

The regulatory environment in a country is an important factor that affects firm performance. This study investigates the impact of a particular regulation—license requirements for certain firm activities—on the innovation performance of Indian firms in the 1990s. Using a unique firm-level panel data set, it shows that the removal of license requirements led to an eight percentage points higher innovation rate within two years following the reform. We measure innovation as the introduction of new product varieties that had not been produced by the firm before. It takes a longer time for firms to innovate in industries in which they were not producing before. The findings of this study are also robust to the inclusion of controls for other policy reforms that occurred during the period of licensing reform. They also persist in tests with different subgroups of firms and with the use of alternative estimation methods.

The Determinants of Firm’s Innovation in Africa

Based on the data obtained from the World Bank’s enterprise survey for 9988 firms from 28 African countries, this study investigates the effect of firm characteristic, openness, and resource-based determinants of innovation. The investigation conducted on the overall sample firms and subgroups formed based on sector, size, and age. The result obtained from the baseline estimation and subgroup analysis commonly shows that firm size, openness (export intensity, competition, and foreign ownership), and resource-based determinants (access to credit, R&D, employees’ training, and gender of a top manager) mainly affects the firm’s probability to innovate. Our separate analysis of the subgroups of sampled firms provides the following additional interesting results. First, the effect of competition from the informal market decrease with the increase in firm size and become insignificant for large firms. Second, the proportion of firms have access to finance increase with firm size, but its effect on innovation decrease in the increase in firm size. Third, large firms invest more in R&D, but efficiency in the use of R&D expenditure tends for smaller firms than larger ones. Four, human capital is mostly relevant for young firms’ likelihood to innovate. The results obtained from the subgroup analysis provide evidence that the effect of firm characteristics, openness, and resource-based determinants varied across the subgroups of firms. This study emphasizes the relevance of considering endogeneity and firm’s heterogeneities in investigating the determinants of innovation.

Forecasting bankruptcy using biclustering and neural network-based ensembles

Most bankruptcy prediction models that have been analyzed in the literature, and that are estismated using ensemble-based techniques, are still not able to fully embody the true diversity of firm bankruptcy situations. Indeed, these models try to assess all bankruptcy situations either mostly using the same set of variables (bagging, boosting), or using the same set of observations (random subspace). In the first case, an ensemble assumes that any symptom of failure has the same origin. In the second case, it assumes that any financial situation that can lead to failure is the same for all firms. However, there are many situations where these two assumptions do not hold and where a state of bankruptcy may be specific to a given subgroup of firms or may be explained by a particular subset of variables. Certain methods, such as random forest or rotation forest, which combine the characteristics of both random subspace and bagging appear as solutions to this issue. However, they do not always perform significantly better than other ensemble models do. This is why we propose a modeling method that attempts to overcome the limitations of the previous models. It is based on a biclustering technique that seeks out groups of firms that are each characterized by a well-defined subset of variables and on an ensemble technique that is used to embody the full diversity of all bankruptcy situations that belong to each bicluster as precisely as possible. We show how the complementarity between these two techniques can improve forecasts.

On the mechanism of phase transitions in a minimal agent-based macroeconomic model

We conduct a theoretical analysis for Mark0, which is a minimal macroeconomic agent-based model, to understand the emergence of phase transitions in the modeled economy. We identify directly the essential components and processes relating to specific mechanisms of all phase transitions in the system. The primary finding is that though the entire economy seems to reach equilibrium as the firms seem to be randomly distributed, some subgroups of firms are undergoing irreversible non-equilibrium processes. In particular, the irreversibility is rooted either in the undiminished demand–supply gap among a group of oversupplying firms, or in the diminishing debt ratio gap among a group of indebted firms. Whereas the undiminished oversupplying firms drive the economy to extreme states overtly, the indebted firms evolve into a cluster inside the economy covertly due to the diminishing debt ratio gap in this subgroup. In the latter case, it is further shown that the self-organized subgroup is steadily driven to the phase boundary, at which the random factors embedded in the model trigger a cascade of default events and cause the crash of system.

Board independence and managerial authority

PurposeThe imposition of the Sarbanes Oxley (SOX) Act and the NYSE/NASDAQ regulations boosted the proportion of independent directors serving on corporate boards. For certain firms, increasing the number of independent directors may impose costs that exceed the benefits. The purpose of this paper is to examine the implications of increased independence following SOX, relative to the pre-SOX board independence benchmark, on managerial authority and entrenchment within the firm.Design/methodology/approachData are collected from COMPUSTAT, ExecuComp, and RiskMetrics. Data are divided into two periods, pre-SOX (1996-2001) and post-SOX (2002-2006). The focus is on the sub-group of firms who were not complying with the board independence requirement prior to SOX and became compliant afterwards. Various regressions are employed to assess the implications of increased independence following SOX on managerial authority and entrenchment.FindingsThe appreciation in board independence post-SOX significantly inflates both managerial compensation and the likelihood of CEO duality. Also, there is a positive association between board independence and managerial entrenchment during both the pre- and post-SOX periods. Imposed board composition requirements diminished board monitoring efficiency and boosted the CEO dominance and control over the firm.Originality/valueThis research adds to the extant literature investigating the implications of SOX on internal monitoring and governance. The results are based on an off-equilibrium phenomenon in which companies were obliged to alter their endogenously determined board structure. Thus, regulations to improve governance could backfire as the CEO might abuse them to extract private benefits.

Corporate governance effects on innovation when both agency costs and asset specificity matter

This article explores the question whether the relationship between corporate governance and innovation is affected by the extent to which the firm is exposed to agency problems and asset specificity issues. In particular, we argue that different combinations of asset specificity and agency costs are associated to firm age and sector of activity and predict heterogenous effects of ownership concentration on innovation across different types of firms. We use a unique data set of about 35,000 Italian manufacturing corporations over the 2002–2007 period and run a hurdle model, distinguishing four subgroups of firms on the basis of their age (greater or lower than 15 years) and of whether they belong to a high-technology or low-technology sector. We find that the effects of ownership concentration on innovation are coherent with the predictions of so-called “shareholder theory” when agency cost effects dominate over asset specificity effects and that they are coherent with the predictions of so-called “stakeholder theory” when asset specificity effects dominate over agency cost effects. These findings are robust to a number of identification issues, including the possible endogeneity of corporate ownership structures. Our results may allow to make sense of the contradictory findings of the literature on corporate governance and innovation, especially as regards the role played by ownership concentration, and may help policymakers to define more effective type-specific initiatives to stimulate firm innovation.

Destroying collateral: asset security and the financing of firms

Posting collateral encourages credit provision under the assumption that lenders can appropriate the pledged assets in case of default. When institutions work imperfectly, though, banks discount the value of effective collateral, thereby reducing lending volume. This process has been described in US states with difficult foreclosure procedures, but here we show that it also matters for poor countries after a violent conflict, when collateralizable assets have a heightened probability of being destroyed. We use firm-level data on loans in Sub-Saharan Africa to show that to get a loan, firms in countries with recent conflict need to pledge additional collateral. While some OLS offer supporting evidence, the effect is larger and more precisely estimated when we use quantile regressions to focus on the subgroup of firms that face tougher collateral requirements, which suggests that this effect is heterogeneous within countries. This mechanism is a novel channel that relates peace to economic growth and convergence through financial markets.

Understanding SME responses to environmental regulation

Interviews with UK manufacturing SMEs (small and medium enterprises) confirm, in aggregate, that traditional regulation drives environmental behaviour. Yet, beneath this aggregate picture, there are groups of firms that respond to regulation differently. Furthermore, within the aggregate and group levels there exist further differences across firms. SME responses can thus be understood as groups and subgroups of firms that at the same time are distinct. These identifiable differences result from firms’ capacities and orientations, which are factors that determine receptiveness to regulation. The findings provide a more sophisticated account of SME behaviour than existed previously, and help us understand why and how regulatory measures may underperform.

R&D policy evaluation: the effects of R&D subsidies in Italy

In a context of scarce resources, exacerbated by the economic crisis, financing investment and structural changes in slowly growing economies, such as Italy, is very challenging. It becomes fundamental to engage in evaluation exercises in order to understand what policies are working and for whom. The paper offers an evaluation exercise on the major instruments used to promote R&D and innovation activities of Italian firms. We concentrate in particular on the incentives provided by Law 46/82 (and revisions) and we look at the effects they have on firms expenditures on R&D and on new employment generation. Unlike previous studies, we consider the effects of such incentives also when other similar policies are at work. We also look at the effects for different subgroups of firms. Results suggest that a rethinking of the system of incentives would be appropriate to limit an inefficient overlapping of instruments. They also highlight that the additionality of R&D investment is verified for some categories of firms. Starting from these results, further and continuous research is needed on this subject, in order to build a robust set of evidence to inform the policy making process.

Explaining firms efficiency in the Ivorian manufacturing sector: a robust nonparametric approach

In this paper, we provide an analysis of Cote d’Ivoire firms performances and study the impact of qualitative external environmental factors on firm efficiencies. We adapt the one-step nonparametric robust methodology of Daraio and Simar 2005 to take in account qualitative environmental factors and we also compare the differences of behavior among two sub groups of firms characterized by different levels of technology. The sensitivity of our conclusions to environmental factors is analyzed using a bootstrapped test. We also check the robustness of our results upon time on two different years of observations.

Convergence in the Ownership and Governance of East Asian Firms?

Corporate governance policies over the past decade have required all firms to follow the same guidelines. As a result, we examine whether the ownership and governance choices of East Asian family firms have converged to those of non-family firms. We find that family firms continue to maintain higher board representation and lower board independence than most other firms. We also examine differences among family firms (founded versus acquired and first versus second generation). We find that acquired family firms are owned differently but governed the same as founded family firms and that second generation family firms have a higher control wedge, higher board representation and lower board independence than first generation family firms. The results show that ownership and governance choices continue to differ between firms depending on the identity and generation of the controlling owner. From an agency cost perspective, the firms requiring more emphasis on corporate governance are second-generation family firms and government-controlled firms.For policymakers, our analysis indicates that voluntary corporate governance codes have not been successful in encouraging the convergence of ownership and governance practices across firms. Some policy suggestions for the future include setting mandatory lower bounds on board independence and mandatory upper limits on board representation (equal to ownership rights). This will help to minimize the variation across firms around the specified target. Our analysis also shows that it would be possible to customize recommendations across a small number of identifiable sub-groups of firms, e.g. family firms, individual-controlled firms, government-controlled firms and widely-held firms, rather than using one set of recommendations for all firms.

Voluntary Agreements with Industries: Participation Incentives with Industry-Wide Targets

We consider a policy environment in which an entire industry is faced with possible imposition of an emissions tax if environmental goals are not met voluntarily. We develop a multiple-firm model of pollution abatement in this context. Using the concept of a self-enforcing equilibrium, we examine the free-riding incentive of individual firms and its impact on the viability of the voluntary approach. We find that, despite the free-riding problem, a sub-group of firms have an incentive to participate in the VA. The VA is strictly preferred by the industry as a whole, although it is not cost-minimizing. <i>(JEL Q53, Q58)</i>

Strategic regulatory entry deterrence An empirical test in the ophthalmic market

This paper provides an empirical test of the theory of strategic regulatory entry deterrence – the theory that subgroups of firms within an industry will use the regulatory process to increase rival's costs and thereby deter rivals' entry. The results suggest that the commercial practice restrictions present in the ophthalmic industry deterred chain optical firms' entry into the market. This result in combination with earlier findings that the restrictions increase optometrists' prices suggests that cost-raising strategies can be used to disadvantage rivals or drive them out of the market without the need to lower price.

A Discriminant Analysis of the 1980 São Paulo Industrial Location Survey

Industrial location surveys typically generate large data sets with information on the characteristics of the companies and plants involved as well as on the relative importance of different locational push and pull factors. Since for the majority of companies locational choice results from the consideration of a range of factors, discriminant analysis can be used to reveal the important groupings of factors which distinguish the choices made by alternative subgroups of firms in a sample or population. This paper uses the results of the 581-firm 1980 São Paulo industrial location survey to examine some of the issues and specification choices which arise in using the discriminant model for this purpose. The results presented highlight the plant characteristics and the locational pull factors which distinguish industrial moves from the Säo Paulo metropolitan area out to surrounding cities from moves within the area.