The author examines key factors which affect intangible asset holdings of foreign subsidiaries of multinational enterprises (MNEs). The author developes the hypotheses by drawing…
Abstract
The author examines key factors which affect intangible asset holdings of foreign subsidiaries of multinational enterprises (MNEs). The author developes the hypotheses by drawing upon the pecking order theory in the finance literature and the institution theory. The author theorizes that MNE foreign subsidiaries combine and utilize their cash holdings (finance-based firm-specific advantages [FSAs]) with host country economic freedom (host country-specific advantages [CSAs]) in their holdings of intangible assets which are internally created and/or purchased. The author empirically tests the hypotheses using a new original dataset of European subsidiaries of US MNEs. The author finds that cash holdings and host country economic freedom share a significant and positive relationship with intangible asset holdings. The author discusses the implications of the findings for theory and practice.
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Sandra S. Graça and James M. Barry
This study investigates the antecedents and outcomes of cognitive trust during the expansion phase in buyer–supplier relationships. It takes a global approach and examines…
Abstract
This study investigates the antecedents and outcomes of cognitive trust during the expansion phase in buyer–supplier relationships. It takes a global approach and examines cultural nuances between developed nation and emerging market firms by including participants from the United States, China, and Brazil. The results demonstrate the importance of trust in building social capital and the central role which trust plays in shaping business relationships in all studied cultural contexts. There are similarities and differences across countries. Results support relationship marketing theory by demonstrating the importance of conflict resolution, communication frequency, and social bond in building buyer–supplier relationships in the United States, which in turn increase cooperation between partners. Results also indicate that in China, social bond plays a much greater role in building trust, which in turn increases cooperation only to the extent that it serves as a mechanism to secure committed relationships. In Brazil, results show that conflict resolution is the most important factor in building trust. It also mediates the relationship between communication frequency and trust, as well as drives cooperation positively. Overall, trust is found to influence exchange of confidential communication and increases commitment between partners in all three countries.
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The purpose of this paper is to investigate how managerial risk-taking incentives affect the sensitivity of R&D investments to the availability of a firm’s internal finance.
Abstract
Purpose
The purpose of this paper is to investigate how managerial risk-taking incentives affect the sensitivity of R&D investments to the availability of a firm’s internal finance.
Design/methodology/approach
The author studies a large panel sample of US firms from 1992 to 2013 using a dynamic structural model and estimates a system GMM estimator that accounts for unobserved firm-specific effects, and that allows the author to address the potential endogeneity of all of the financial and executive compensation variables.
Findings
Managerial risk-taking incentives, in particular CEO portfolio vega, have a significantly positive impact on the financial constraints that bind R&D investments. Moreover, the author finds that CEO portfolio vega has stronger impacts on the investment-cash flow sensitivity of R&D in firms that are more likely to face binding financial constraints.
Originality/value
Prior studies on the financial constraints of R&D investments do not consider the potential impact of executive compensation on R&D investments. The author complements this stream of literature by providing novel results showing that managerial risk-taking incentives have a significant impact on the severity of the financial constraints on R&D investments.
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Yufeng Xia and Peisen Liu
Bank financing is an important external financing source for firm research and development (R&D) investment. This study aims to use an exponential quadratic specification to…
Abstract
Purpose
Bank financing is an important external financing source for firm research and development (R&D) investment. This study aims to use an exponential quadratic specification to investigate the effect of bank competition on firm R&D investment and its underlying mechanisms. Moreover, this study checks bank competition’s heterogeneous effects on firm R&D investment.
Design/methodology/approach
Based on data of Chinese manufacturing firms and bank branches, this study uses the Tobit estimator, instrumental variable method and Heckman two-step approach to test the relationship between bank competition and firm R&D investment.
Findings
The results show robustness evidence of an inverted-U relationship between bank competition and firm R&D investment. Specifically, increases in bank competition promote firm R&D investment until bank competition reaches the turning point and reduce firm R&D investment after crossing the turning point. Financing costs and financial constraints can explain the inverted-U relationship between bank competition and firm R&D investment. Heterogeneity examinations reveal that R&D investment is more sensitive to bank competition in non-state-owned enterprises, small firms and high-tech firms.
Originality/value
This study contributes to the literature on the relationship between bank competition and firm innovation. The authors investigate the heterogeneity of R&D investment influenced by bank competition and depict the economic effects brought by bank competition. This study sheds light on the real effects of bank competition and the determinants of firm R&D investment in transition economies. The conclusions provide empirical evidence for reducing credit discrimination and improving capital allocation efficiency in developing countries.
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Michael Machokoto, Ngozi Ibeji and Chimwemwe Chipeta
This paper examines the contentious relationship between investment and cash flow using the 2008–2009 credit supply shock as a form of the quasi-natural experiment.
Abstract
Purpose
This paper examines the contentious relationship between investment and cash flow using the 2008–2009 credit supply shock as a form of the quasi-natural experiment.
Design/methodology/approach
Panel threshold models with unknown sample separation are estimated for a sample of publicly listed firms from nine African countries over the period 2003–2012. Using this approach reduces subjective or ex ante sample-splitting bias that is not accounted for in the extant literature.
Findings
The findings of the study indicate that investment–cash flow sensitivity is decreasing even during the global financial crisis (GFC) and for firms more likely to be financially constrained. The authors conclude that the usefulness of investment–cash flow sensitivity as a proxy for financial constraints is diminishing over time, even after directly addressing biases from ex ante subjective sample splitting and various forms of endogeneity.
Originality/value
The authors provide new empirical evidence from sharper tests of financial constraints for understudied African firms and highlight the need to relook at the usefulness of investment–cash flow sensitivity as a proxy of financial constraints.
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Explains the links between R&D investment, product differentiation and monopoly power, referring to previous research; and argues that internal financing of R&D creates even more…
Abstract
Explains the links between R&D investment, product differentiation and monopoly power, referring to previous research; and argues that internal financing of R&D creates even more competitive advantage. Develops mathematical models and applies them to 1990‐1996 data for a panel of 40 Greek firms and presents the results. Suggests that firms do use R&D to create entry barriers regardless of industry, that internally financed firms are more profitable but that these impacts may vary between individual firms.
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The purpose of this study is to examine whether and how internal capital markets mitigate financial constraints and enhance firms' willingness to engage in R&D projects.
Abstract
Purpose
The purpose of this study is to examine whether and how internal capital markets mitigate financial constraints and enhance firms' willingness to engage in R&D projects.
Design/methodology/approach
The study uses panel data relating to 2,095 publicly traded firms in the Chinese A-share market for the period 2007–2019. The tobit regression method is applied to explore R&D investment–cash flow sensitivity of group affiliates, while the systematic generalised method of moments and dynamic ordinary least squares models are adopted to address the endogeneity problem in the robustness test.
Findings
This study finds that firms affiliated with business groups demonstrate lower R&D investment–cash flow sensitivity than non-affiliated firms do and that R&D investments are significantly influenced by the cash reserves of other group members. In terms of financing channels, this study demonstrates that group firms use internal cash and equity financing to support other members' R&D investments, while debt financing does not influence member firms' R&D investments. In addition, this study discovers that R&D spending harms the stock and operating performance of some group members.
Practical implications
The findings of this study enable business groups to focus on resource allocation and investment efficiency.
Originality/value
Although prior studies indicate that internal capital markets can enhance R&D spending, few studies reveal the mechanisms through which internal capital markets benefit R&D. This study uses a unique methodology to test the ability of the internal capital market to enhance R&D spending. In addition, group firms use internal cash flow and equity financing to support partners' R&D projects.
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Sanja Korac, Iris Saliterer and Eric Scorsone
The United States (U.S.) has been described as the root of the global financial crisis. The events of the financial, sovereign debt, and Euro crisis and the accompanying economic…
Abstract
The United States (U.S.) has been described as the root of the global financial crisis. The events of the financial, sovereign debt, and Euro crisis and the accompanying economic turmoil that have spread throughout most of the Western world have been traced back to the excessive consumer borrowing, sub-prime mortgage lending and ultimately the housing bubble in the United States. Its burst in 2008 created a shock that overshadowed prior recession and fiscal stress of governmental entities in the United States. Deriving over 90% of their own tax revenues from property taxes, local governments in Michigan have been hit even more excessively. However, the cases analysed in this chapter not only tell a unique story of deep shock and legacy costs, but also of creative ways of surviving the crisis, exerting different patterns of financial resilience. In general, state regulations restricted buffering the impact, and some cities additionally suffered from their geographical vicinity to and economic dependency on Detroit, a city that stands for the turbulence of the U.S. automobile industry. After first deploying buffering capacities that still existed, two cases saw the crisis as an opportunity to address their vulnerabilities (reactive adapters), an opportunity that was not recognised in the case of a constrained adapter. In contrast, one case showed strong anticipatory and coping capacities that have been built up in the past, equipping the local government to operate in a lean and efficient way, and to proactively adapt to arising shocks.
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In the agri-food industries, particular importance is given to distribution. Indeed, maintaining good relationships with distributors is a necessity for industries seeking sound…
Abstract
In the agri-food industries, particular importance is given to distribution. Indeed, maintaining good relationships with distributors is a necessity for industries seeking sound marketing performance. In this context, Moroccan agri-food companies recognize the importance of developing customer loyalty. They focus on maintaining good relationships based on trust with their distributors. Considerable research has investigated trust in business-to-business (B-to-B) relationships; however, research in the agri-food industry needs further investigation. Indeed, some past research studied the effect of benevolence on loyalty (Chen, 2008; Rampl, Eberhardt, Schütte & Kenning, 2012) but they ignored studying the effect on two types of loyalty – attitudinal and behavioral – in agri-food industries.
The paper here contributes to the literature in a number of meaningful ways. First, we explore loyalty strategies used by agri-food industries to maintain distributors. This enables us to better understand how trust can boost agri-food B-to-B relationships and distributor’s loyalty. We also investigate exactly the trust dimension (benevolence; credibility) that affects more loyalty in the agri-food industry. A better understanding of the trust dimension should provide practical guidelines as to how to facilitate loyalty in B-to-B relationships. In addition, we test the two dimensions of loyalty and the importance of the attitudinal one. Using structural equation modeling to analyze data, our findings confirm the importance of benevolence in relationships between Moroccan agri-food industries and their distributors. Indeed, the results explain that the development of customer loyalty is influenced by the development of benevolence in relationships with distributors, especially on attitudinal loyalty.