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In this chapter the author studies the capital market efficiency hypothesis and checks whether the stock price adjustment dynamics is instantaneous, continuous, and linear or not. In particular, the author proposes to analyze the stock price evolution while taking into account the presence of transaction costs, the coexistence of heterogeneous investors, and the interdependence between stock markets. On the one hand, he provides strong evidence to suggest that the efficiency hypothesis is rejected. On the other hand, he proves that the stock index adjustment is rather discontinuous, asymmetrical, and nonlinear. Using threshold cointegration techniques, he proposes a new nonlinear modeling to reproduce the CAC40 adjustment dynamics that not only replicates the French market adjustment dynamics in the presence of market frictions but also captures the interdependence between the French and American stock markets, highlighting the reaction of French shareholders in relation to the changes in the behaviour of American speculators.

This paper proposes an efficient test designed to have power against alternatives where the error correction term follows a Markov switching dynamics. The adjustment to long run equilibrium is different in different regimes characterised by the hidden state Markov chain process. Using a general nonlinear MS-ECM framework, we propose an optimal test for the null of no cointegration against an alternative of a globally stationary MS cointegration. The Monte Carlo studies demonstrate that our proposed tests display superior powers compared to the linear tests. In an application to price-dividend relationships, our test is able to find cointegration while linear based tests fail to do so.

The study of franchising as a small business growth strategy is only weakly researched and understood. This preliminary, qualitative investigation examines the experiences of 17 operational and five “failed” franchises in the UK, in translating their business concepts into a franchise format. It reveals that small firms select franchising as a growth strategy for both economic and idiosyncratic reasons, but that economic reasons tend to prevail. The findings suggest that franchising is a viable growth strategy for small firms and that per se it creates few major problems for growth‐oriented small businesses. It is argued that further research is needed, particularly into the experiences of “failed” franchises and into the problems encountered by growing small firms who do not adopt franchising as a growth strategy.

In response to recent evidence which indicates that UK companies are losing trading opportunities due to relatively poor linguistic skills, an increasing interest has been expressed by government agencies, training bodies and the business and academic community in the foreign language requirements of UK firms. Currently, however, little research has examined the importance of language barriers relative to other factors which are perceived to inhibit export performance. In addition, previous research has not focused on how these factors differ in respect of SMEs and their larger counterparts. Based on a survey of 939 Welsh manufacturing firms, from which a 22% response rate was obtained, the purpose of this paper is to present some new empirical evidence relating to language barriers, and other perceived inhibitors, to improving the export performance of domestic manufacturing firms located in Wales. A comparative analysis of small, medium and large companies was undertaken and indicates that there are significant differences in perceived export and language barriers which are related to firm size. A further key finding of the study is that a number of export impediments are considered to be significantly more problematic than language barriers. However, 21% of respondents considered that communication barriers currently presented a problematic/very problematic factor inhibiting export performance; with a larger proportion (29%) of respondents indicating that they considered that their future trading performance would improve significantly if language skills were improved within their firms.

Neural Networks (NN's), one of the latest developments in computer software artificial intelligence, are an innovative method of simulating and analysing complex and changing systems of relationships. Originally developed to mimic the neural architecture and functioning of the human brain, NN techniques have recently been applied successfully in a wide variety of complex business and financial applications (Trippi and Turban, 1994).

In recent years there has been a growing debate, in the academic, professional and popular literature, on the audit ‘expectation gap’ and the role and independence of the auditor. As noted by Waller (1991): ‘Much of the criticism of auditors concerns an apparent lack of impartiality. Outsiders feel that independence is compromised… who knows what short cuts are taken by auditors keen to keep “well in” with management for the sake of winning profitable consultancy work to supplement the audit fee?’

Neural Network (NN) simulation models are being increasingly utilised in the business and management fields as forecasting, pattern recognition and classification tools. Their growing popularity appears to emanate from the ability of NNs to approximate complex non‐linear relationships, via their capacity to represent latent combinations of unobservable variables in hidden layers. Although there is a growing business literature on the ability of NNs to predict various corporate outcomes (e.g., corporate failure), and to forecast time series data (e.g., share prices), they have yet to be fully evaluated by business academics on cross‐sectional data. This paper provides an overview of the NN modelling approach and compares the performance of NNs, relative to conventional OLS regression analysis, in predicting the cross‐sectional variation in corporate audit fees. The empirical results suggest that the NN models exhibit superior forecasting accuracy to their OLS counterparts, but that this differential reduces when the models are tested out‐of‐sample.

In response to a number of regional UK language surveys (e.g., Hagen, 1988, 1993), which indicate that a significant proportion of UK firms have lost trading (export) opportunities due to a lack of foreign language skills, the Department of Trade and Industry recently launched a campaign (including an advice and language audit service) with the aim improving the foreign language skills of British exporters (Authers, 1993).

Using a random sample of 49 UK engineering companies, the influence of profit sharing, share‐option schemes and the perceived degree of employee participation in decision making on inter‐firm labour absenteeism rates are investigated. After controlling for a number of firm‐specific factors, suggested as theoretically appropriate in the extant literature, the key empirical results indicated that firms which had adopted sharing schemes appeared to experience significantly lower absenteeism rates than their non‐sharing counterparts.

The development of the Japanese transplant manufacturing sector in the UK economy has been relatively rapid. In 1981, 17 Japanese manufacturing enterprises in the UK employed just 3,000 people. By 1994, this total was estimated to have grown to over 60,000. Japanese manufacturing transplants in 1992 accounted for over 7% of foreign manufacturing sales and employment in the UK. The Japanese TMS has grown in terms of employment and diversity. Initial investments were concentrated in the consumer electronics industry. However, by 1993 the net value of Japanese manufacturing assets in the UK was more evenly divided between electrical engineering (35%), transport equipment (33%), and mechanical engineering/other manufacturing (32%). The late eighties witnessed other changes in the composition of the Japanese TMS with greater diversification in entry mode (i.e. joint ventures and acquisitions as opposed to greenfield investments), and increasing numbers of ‘second wave’ component manufacturers entering the UK to support existing Japanese OEM operations.