Property Rights and the Control of Strategy: Foreign Ownership Rules and Domestic Firm Globalization in Indian Industry

This study examines the influence of foreign ownership levels on domestic firms' exporting behavior in India. Foreign ownership is categorized according to the control exercisable at different levels of ownership by foreign shareholders. The degree of strategic control a foreign shareholder can possess is determined by the institutional structure of the Indian environment that firms operate in. The results show that, after controlling for a variety of firm and environment-specific factors, only when property rights devolve unequivocally to foreign owners do domestic firms display the higher export orientation that is consonant with the process of globalization of their operations.     

Foreign exchange legislation transformation and enterprise demography in India

This article evaluates the extent to which the legislative changes relating to foreign exchange that have taken place in India within the last few decades, and in particular after 1991, have made an impact on the presence of foreign firms in the economy. The data cover the period 1957–1958 to 2001–2002, and include the entire population of India’s corporate sector. In the period after reforms commenced in 1991, the number of foreign firms in India has increased very substantially. The transformation of the foreign exchange regulation act (FERA) to the foreign exchange management act (FEMA) in 1999 has had a positive effect in inducing foreign firms to India. The FEMA legislation simplifies the maze of controls, procedures and bureaucratic minutiae that have to be observed by all those undertaking to set up and operate a business in India. The changes in the legislative regimes make India attractive as an investment destination for foreign firms.

Corporate criminal liability and optimal firm behavior: internal monitoring versus managerial incentives

Legislation addressing corporate criminal liability has been the subject of worldwide debate ever since the financial scandals of the early 2000s. Under current regimes, firms must observe such compliance requirements as internal monitoring mechanisms, the purpose of which is inducing firms to detect the wrongful conduct of their agents. We develop an analytical framework for identifying when, and to what extent, firms may find it beneficial to adopt these regulatory devices. We conclude that more productive firms, those operating in sectors with more market power, and firms whose managers have more opportunities for criminal activity are more likely to prevent wrongful conduct—either through monitoring or the payment of efficiency wages. When the potential returns to illegal activities are high or the firm is large, internal monitoring is probably the optimal strategy of crime prevention; in contrast, smaller firms typically proceed by paying efficiency wages (or ignoring crime). This paper also analyzes the role of the State’s legal capacity as well as the effects of interactions between the structure of reputational losses and the firm’s market power.     

The changing landscape of legal practice – some of the challenges ahead

In recent years, there has been a rapid growth in the number of multinational law firms. These firms have offices in various jurisdictions worldwide. At the same time, we have seen a growth in the outsourcing of certain legal work to countries, such as India and SE Asia. This is indicative of the globalisation of law. However, it raises problems, especially in terms of the potential for conflicts of interest. This article looks at these developments in light of existing professional practice rules as they apply in Australia as well as other selected jurisdictions. The author concludes that there is a need for a more international regulatory framework in order to respond to these changes.     

State ownership and control in the Czech Republic

We analyze the extent of the integrated control of the state over privatized firms during the post-privatization decade (1995?C2005) in the Czech Republic. During this period the integrated control potential of the state resembled a corporate pyramid. While pyramidal control was not fully utilized, the golden share in the hands of the state substantially enhanced its ability to control firms. In terms of corporate performance we show that state control resulted in declining and even negative corporate performance. Integrated state control was shown to be mostly inferior when compared with private types of ownership. State ownership positions are in striking contrast with the lack of capacity to push corporate performance in order to collect larger tax volumes. Lack of focus and inter-agency cooperation as well as the simple inefficiency of the state bureaucracy are the most likely reasons behind our findings.     

Firm heterogeneity,absorptive capacity and technical linkages with external parties in Italy

While it is widely acknowledged that internal R&D is a fundamental source of the ability to absorb, select and use external knowledge, severe data limitations prevent from capturing differences across firms in this respect. Using a novel dataset supplied by the Italian Bureau of Statistics, we highlight that, when controlling for internal R&D efforts, not all firms are equally prone to gain access to external technology, and to the knowledge provided by universities in particular. We find that firms which do not only perform R&D activities but also belong to a group exhibit a higher propensity to access external knowledge by either contracting out R&D or cooperating with external parties, as compared to independent firms that are not organized into groups. This premium persists when controlling for different measures of internal R&D efforts. Furthermore, the differential in the propensity to access external knowledge is particularly high in the case of R&D performers belonging to foreign groups, i.e. Italian affiliates of foreign owned companies; and it is even higher in the case of the few Italian firms that have R&D activities abroad. The relative dis-advantage of independent firms, which represent the bulk of the Italian industry and include most small and medium sized enterprises, appears to be less of an obstacle in the case of linkages with universities, especially when R&D contracting out is considered.     

Do Publicly Traded Firms Price Differently from Private Firms?

This article analyzes whether publicly traded firms price differentlyfrom privately held firms in the product markets. Our empiricalevidence shows that, in the U.S. newspaper industry, firms increasetheir prices when their ownership structure changes from privateto public. The effects are robust and significant. A plausibleexplanation is that private owners enjoy more freedom than publicmanagers to expand circulation and distort content, pursuingthe consumption of nonpecuniary benefits of control. Additionalevidence is consistent with this interpretation. Public newspapersshow lower prices when insiders' ownership participation ishigher. Moreover, private newspapers appear more likely thanpublic newspapers to endorse a candidate during presidentialcampaigns. To my knowledge there are no previous studies comparingpricing by private and public companies.     

Learning through foreign market participation: the relative benefits of exporting,importing, and foreign direct investment

A growing literature explores the degree to which firms learn from exporting. Although this literature finds that firms that export subsequently enjoy enhanced innovative performance, there has been little research that compares the effect of exporting to that of alternative internationalization activities. In this paper, we extend the literature to explore theoretically the differential effects of a firm’s exporting, foreign direct investment, and importing activity on its innovative outcomes. We test the resulting hypotheses using a sample of Spanish manufacturing firms from 2000 to 2008. We find that (1) learning associated with exporting is more pronounced than that associated with a firm’s FDI activities, (2) exporting and FDI operate as substitutes in their effect on a firm’s learning, and (3) although importing is positively associated with learning as manifested in new product introductions, it is not associated with learning as manifested in patenting activity.     

Innovation capacity and economic development: China and India

Decomposing the GDP growth from 1981 to 2004, this paper finds that innovation capacity has contributed significantly to the economic growth of China and India, especially in the 1990 s. Outputs of the national innovation system, measured by patents and high-tech/service exports, demonstrate the considerable progress China and India have made in innovation capacity. The enhanced innovation capacity of China and India is primarily due to their heavy investment in the inputs of innovation system, i.e., R&D expenditure and R&D personnel, in recent decades. This paper emphasizes the role that the governments have played in promoting innovation capacity and their contribution to economic development. Both governments have transformed their national innovation systems through linking the science sector with the business sector, providing incentives for innovation activities, and balancing import of technology and indigenous R&D effort. Using case studies of domestic biotech firms in China and India, this paper also offers micro-level insights on innovation capacity and economic development: (1) innovation capacity has become essential for domestic firms?? market success and (2) global institutional factors and national government policies on innovation have considerable influence on the choice of innovation at the firm level, i.e., to conduct indigenous R&D or to import foreign technology.     

Technology proximity between firms and universities and technology transfer

This paper investigates the technological orientation of firms and universities and their propensity to have knowledge and technology transfer (KTT) activities. This study looks at the technological potential for KTT and how it is used, emphasizing differences between smaller and larger firms. To this end we collected information about the technology activities of firms (patent statistics) and the technology activities of universities. Furthermore, we used survey data on technology transfer activities. We combined the three datasets and found??especially for smaller firms??that great technology proximity fosters transfer activities with different universities (case 1). The same is true if proximity is low and expertise is considerable at universities in the respective technology field (case 2). In both cases additional transfer potential exists. In the second case firms engage in transfer activities in order to update and modify their knowledge base and as a consequence improve ??competitiveness?? in certain technology fields. Furthermore, firms show a tendency to diversify their contacts with universities in order to avoid knowledge lock-in.     

Start-ups among university employees: the influence of legitimacy,human capital and social capital

Using a sample of 7,260 university employees, we investigate how legitimacy, social and human capital influence the employees’ start-up propensity. We find that scientific legitimacy, as measured by the number of recently published peer reviewed scientific articles, and conference papers accepted had no significant effect. Scientific legitimacy measured as publications in non-peer review journals even had a negative effect. Popular legitimacy showed mixed results. Measured as number of articles in popular science publications showed positive correlations and other public media appearances had a non significant effect on start-up propensity. Individuals who are older and have higher level of human capital, measured as level of education are less likely to start firms. We also found that, people with more social capital, such as contact with external product development teams are more likely to start new firms. Taken together, the findings suggest that activities spanning the university-business divide increase the start-up propensity, while within university activities had no, or negative effects on the propensity. Consequently, universities interested in encouraging their employees to start firms should focus their attention on creating spanning activities rather than improving conditions for within university tenure.     

The effects of cognitive distance in university-industry collaborations: some evidence from Italian universities

Universities have long been involved in knowledge transfer activities and are increasing their efforts to collaborate with industry. However, universities vary enormously in the extent to which they promote, and succeed in commercializing, academic research. In this paper, we focus on the concept of cognitive distance, intended as differences in the sets of basic values, norms and mental models in universities and firms. We assess the impact of cognitive distance on university-industry collaborations. Based on original data from interviews with 197 university departments in Italy, our analysis determines whether cognitive distance is perceived as a barrier to university-industry interactions, and estimates its effects on the frequency of their collaborations. Our results confirm that cognitive, albeit not affecting the probability of departments to collaborate with firms, significantly hinders the frequency of interactions.     

Business incubators and the networks of technology-based firms

This paper looks to broaden understanding about the networks of firms located in Business Incubators (BIs). To achieve this objective, a framework for understanding the networks of incubator firms was constructed. We argue that networks at incubators can be seen in two dimensions. In the first dimension, we define incubator firm networking activities in terms of resource type, i.e. tangible and intangible resources. In the second dimension, we define networks of incubator firms as external and internal. Internal networks refer to the relationship among tenants while external networks refer to the firm’s relationship with other institutions such as a university and/or research centre. Networks of firms located at the Daresbury Science and Innovation Campus in the United Kingdom were investigated using a tenant survey. Findings show that incubator firms develop more networks to access intangible resources than tangible resources. The analysis explored and compared types of networks for highly innovative firms and medium to low innovative firms and found differences in their networking activity. With regards to policy recommendations, this study shows network support for incubator firms can be improved. It also shows that those concerned with developing BI policy need to recognize and appreciate that not all incubator firms have the same needs. This should be taken into account when developing network support.     

Is Canadian intellectual property leaving Canada? A study of nanotechnology patenting

In this study we explore the patent ownership for the innovations created by Canadian nanotechnology inventors. We find that although there is a great innovative potential and inventive productivity among Canadian researchers, a lot of the intellectual property actually leaves the country: Around 50% of the nanotechnology patents invented by Canadian inventors are owned by foreign assignees. We also note the predominance of private companies among the patent owners. Almost one-third of all the Canadian-invented nanotechnology patents is assigned to a single American firm, Xerox Corporation. Furthermore, we explore the role of Canadian nanotechnology star inventors. The results show that the fruits of their great inventive productivity are collected outside Canada.     

Family-owned,limited close corporations and protection of ownership

Protected ownership and freedom of contracts are two basic parts of the institutional framework of successful countries according to Douglass North, winner of the Nobel Prize in 1993. The incentives to make long-term investments are strengthened if ownership rights are protected and freedom of contracts is a basic element in the process of efficient allocation of scarce resources. An important engine in prosperous societies is the family firm. Most companies in these societies can be classified as family firms and a major part of GDP is produced by family businesses. Consequently, how ownership is protected in family firms is an important issue.Three important factors of private ownership of property are the rights to determine use of owned assets, the return generated from them and to transfer the assets at mutually agreeable terms to a new owner(s).The incentives of a founder entrepreneur to put efforts into the establishment of a firm are determined by all the three factors. We will here pay special attention to the third factor, transfer of the ownership of the firm. The founder often places contractual restrictions on such transfers to ensure that the structure of ownership is stable and that the firm stays in the family. The possibility to do so is part of the freedom of contracts and is associated with the extent of ownership held as well as the incentives to invest in new businesses.This paper is primarily about how protection of family ownership can be achieved from a legal point of view and discusses the reasons to enforce these legal relationships in the future for second, third, fourth etc. generations of family owners.     

FDI spillovers on firm survival in Italy: absorptive capacity matters!

The aim of this paper is to explore the effects of spillovers driven by competition and forward and backward linkages between foreign firms and Italian firms. We adopt the firm dynamics framework, which allows us to test the impact of foreign firms’ activity on the probability that local firms will exit. The empirical analysis relies on continuous survival models (Cox proportional hazard models) and uses a representative firm level database from the period of 2002–2010 with data concerning more than 4,000 Italian manufacturing firms. Our estimates regarding the whole sample show that horizontal and vertical linkages have no impact on firm survival. To further test this finding, we perform a more disaggregated analysis that allows for heterogeneity across firms and sectors. We obtain evidence that the effects of FDI spillovers on firm survival follow specific patterns at both the intra- and inter-industry levels based on differences in productivity between Italian firms and foreign firms and on the technological intensity of the industry. Foreign firms’ activity reduces the exit probability of competitors and of downstream local customers (through forward linkages) with low productivity gap but has no impact on high productivity gap firms. Firms in high technology intensive sectors do not benefit from horizontal FDI while in low and medium technology sectors they do. Differences in absorptive capacity may explain these results. However, we also find that vertical linkages with foreign firms in the upstream supplying industries spur firm duration in medium and high tech sectors.     

Technology transfer by foreign firms and the utilization of competencies within Indian industry

This article evaluates whether the changing presence of foreign firms in India has had an impact on the performance of India’s industrial sector by impacting on the utilization of intangible capabilities within firms. Foreign firms bring in technological skills and capabilities and these are transferred by a spillover process to all of Indian industry. The results show a strong relationship between the growing presence of foreign firms in India and measures capturing the utilization of varieties of competencies in Indian industry. Thus, the notion that foreign firms’ capabilities can spillover to other sectors of industry finds support in the data.

Signaling Environmental Stewardship in the Shadow of Weak Governance: The Global Diffusion of ISO 14001

This article examines how the quality of domestic regulatory institutions shapes the role of global economic networks in the cross‐national diffusion of private or voluntary programs embodying environmental norms and practices. We focus on ISO (International Organization for Standardization) 14001, the most widely adopted voluntary environmental program in the world, which encourages participating firms to adopt environmental stewardship policies beyond the requirement of extant laws. We hypothesize that firms are motivated to signal environmental stewardship via ISO 14001 certification to foreign customers and investors that have embraced this voluntary program, but only when these firms operate in countries with poor regulatory governance. Using a panel of 129 countries from 1997 to 2009, we find that bilateral export and bilateral investment pressures motivate firms to join ISO 14001 only when firms are located in countries with poor regulatory governance, as reflected in corruption levels. Thus, our article highlights how voluntary programs or private law operates in the shadow of public regulation, because the quality of public regulation shapes firms' incentives to join such programs.