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WP255: Lessons from the Rise of the US Limited Liability Partnership

Kern Alexander

This working paper forms part of the CBR Research Programme on InThe limited liability partnership has been heralded as a cost-effective way of doing business for professional firms that seek to reduce the personal liability risk of partners who are not directly involved in negligent acts or wrongdoing. The LLP business form has been adopted by all US states and has proved widely popular for lawyers and accountants/auditors in reducing vicarious and joint and several liability exposure for the rendering of professional advice. The LLP structure allows professional firms to retain the benefits of the partnership structure, such as tax breaks and ease of operation, while reducing the personal liability of individual partners for torts and negligent acts committed by other partners. This paper examines the rise of LLPs statutes in the US by analysing the LLP statutes of three states that have proved prominent in recent litigation involving professional firms performing services in a negligent or reckless manner. The paper suggests that the liability protections of the US LLPs have not reduced risk, but simply shifted it onto customers, pensioners and the investing public. The liability limitation provisions of the US LLPs create a disincentive for professional firms to adopt effective risk management systems to control negligence and malfeasance within the professional firm. The paper suggests that the UK LLP statute addresses some of these issues because it requires LLPs to operate in a transparent manner, but the courts have yet to determine the extent of protection against personal liability that will be available to members not directly involved in negligence or wrongdoing. Future research should examine the implementation of the UK LLP statute and whether it can address the needs of business without increasing risks for consumers, employees and the investing public.

WP254: Implicit Contracts, Takeovers, & Corporate Governance: In the Shadow of the City Code

Simon Deakin, Richard Hobbs, David Nash, Giles Slinger

This paper offers a qualitative, case-study based analysis of hostile takeover bids mounted in the UK in the mid-1990s, under the regime of the City Code on Takeovers and Mergers. It is shown that during bids, directors of bid targets focus on the concerns of target shareholders to the exclusion of other shareholders. A review of the case studies five years on finds that, almost without exception, mergers led to large-scale job losses and asset disposals. However, almost none of the bids were considered by financial commentators, at this point, to have generated shareholder value for investors in the merged company. While there is therefore clear evidence that the TC is effective in protecting the interests of target shareholders, the implications of the Code for efficiency in corporate performance are much less certain.

WP253: Capabilities, Social Rights & European Market Integration

Jude Browne, Simon Deakin and Frank Wilkinson

This paper explores links between the economic notion of 'capabilities' and the juridicial concept of social rights. We begin by revisiting TH Marshall's classic analysis of social rights and their ambiguous relationship in the market. We then examine how far Amartya Sen's Capabilities Approach provides a framework for locating social rights within a market setting. We argue that Sen's non-dogmatic, contact-oriented approach to defining the meaning of capabilities offers a viable way forward for thinking about the current tension between market rights and social rights in the EU. This argument is illustrated by reference to the role played by mechanisms of corporate social responsibility in promoting gender equality.

WP252: Do Takeovers Create Value? A Residual Income Approach on UK Data

Magnus Bild, Andy Cosh, Paul Guest, Mikael Runsten

The paper develops and empirically tests a new methodology for evaluating the financial performance of takeovers. The existing accounting and event study methodologies do not adequately address the key issue of whether takeovers are a positive net present value investment for the acquiring company. Our methodology attempts this by employing the residual income approach to valuation, and comparing the present value of the acquirer's future earnings before acquisition, the acquirers cost of capital, and the earnings which are created beyong the sample period. The methodology is used for evaluating a comprehensive sample of UK acquisitions, with those that actually result in a significant improvement in profitability. However, the residual income approach reveals that on average, acquisitions destroy roughly 30 percent of the acquirer's pre-acquisition value.

WP251: Gender Pay Inequity: A Question for Corporate Social Responsibility

Jude Browne

This paper examines the extent to which contemporary business-led approaches designed to maximize female human capital are effective in reducing the genered pay gap in the British labour market. In particular it asks whether the approach outlined by the latest Cabinet Office review on women's employment and pay in Britain, headed by Denise Kingsmill, can help overcome the issue of gender pay inequality. The paper outlines Kingsmill's recommendations and then analyses their efficacy by means of a case study of a single organisation which has adopted many similar employment practices, the British Broadvasting Corporation (BBC). The paper uses descriptive statistics and qualitative analysis to test both the successes and limitations of these recommendations in overcoming the gender pay gap within the BBC. It concludes by arguing that a partnership between innovative methods of human resource management and corporate governance on the one hand and government-centred mechanisms of social policy on the other, offers the most likely solution to gendered pay inequality.

WP250: Corporate Governance, Competition, the New International Financial Architecture & Large Corporations in Emerging Markets

Ajit Singh, Alaka Singh, Bruce Weisse

This paper examines from the developing countries perspective important analytical and policy issues arising from a) the current international discussions about corporate governance in relation to the New International Financial Architecture; b) changes in the international competitive environment being caused by the enormous international merger movement in advanced countries. The paper's main conclusions include: the thesis that the deeper causes of the Asian crisis were the flawed systems of corporate governance and a poor competitive environment in the affected countries is not supported by evidence; emerging markets, as well as European countries have successful records of fast long-term growth with different governance systems, indeed superior to those of Anglo-Saxon countries; corporate financing patterns in emerging markets in the 1990s continue to be anomalous, as they were in the 1980s; and the claim that developing country conglomerates are inefficient and financially precarious is not supported by evidence or analysis.

WP249: How do Multinationals Build Social Capital? Evidence from Mexico

Ian Jones, Chris Nyland, Michael Pollitt

This paper looks at the self-reporting of social engagement by multinational firms in Mexico, mapping the configurations of declared engagement. Such social engagements are an important component of how these companies contribute to social capital in the communities within which they operate. We find high performance by some firms, with negligible performance by others. Strong performing sectors include pharmaceuticals and healthcare, other chemical products and manufacturing. Two case studies - on Alcoa and Schlumberger - detailing different but successful approaches to social capital building are given.

WP248: Corporate Profitability & the Dynamics of Competition in Emerging Markets: A Time Series Analysis

Jack Glen, Kevin Lee and Ajit Singh

The paper presents time-series analyses of corporate profitability in seven leading developing countries (DCs) using the common methodology of the persistence of profitability (PP) studies and systematically compares the results with those for advanced countries (Acs). Surprisingly, both short- and long-term persistence of profitability for DCs are found to be lower than those for Acs. The paper concentrates on economic explanations for these findings. It also reports the results on the persistence of the two components of profitability - capital - output ratios and proft margins. These too raise important general issues of economic interpretation for PP studies which are outlined.

WP247: Competition, Corporate Governance & Selection in Emerging Markets

Ajit Singh

The paper introduces the three articles in this Policy Feature, concerned respectively with the competition, corporate governance and selection in emerging markets. Apart from being important in their own right, it is shown how these topics have recently acquired urgent domestic and international policy significance. This overview also provides the intellectual background to the issues raised in the papers and examines their interrelationships in analytical, empirical and methodological terms. It outlines a research programme which would not only have direct policy relevance for both emerging and mature countries, but would also have broader analytical significance for many areas of economic theory.

WP246: Competition & Competition Policy in Emerging Markets: International & Developmental Dimensions

Ajit Singh

This paper examines the role of competition policy in emerging markets from a development and international perspective. Its main conclusions include: contrary to conventional wisdom, evidence suggests that the intensity of competition in leading emerging markets is certainly no less than that observed in advanced countries; analysis and evidence indicates that maximum competition is not necessarily optimal, in terms of dynamic efficiency; developing countries need a competition policy today, because of (a) privatisation and deregulation, and (b) the huge international merger wave will enhance global economic efficiency; and the current competition policies in the US and EU are unsuitable for developing countries. Countries at different levels of development and governance capacities require different types of competition policies. This paper presents a proposal for a development-oriented international competition authority to control anti-competitive conduct and growth by mergers of large multi-nationals.

WP245: Capital Account Liberalization, Free Long-term Capital Flows, Financial Crises & Economic Development

Ajit Singh

The first part of this paper examines the theoretical and empirical case for full capital account liberalisation in developing countries and finds it unconvincing. Indeed, analysis and evidence presented here point to a compelling case against it. The second part considers the liberalisation of only the long-term capital account, particularly FDI - a form of in-flow favoured by most economists. This paper, however, argues that even FDI, if unregulated, may do more harm than good. It is suggested that DCs should, therefore, resist the new advanced country proposals for a multilateral agreement on FDI.

WP244: Deconstructing Clusters: Chaotic Concept or Policy Panacea?

Ron Martin and Peter Sunley

Recently there has been growing interest in local industrial agglomeration and specialisation, by economic geographers, economists and policy-makers. Michael Porter's work on 'clusters' has proved by far the most influential to have emerged. His 'cluster theory' has become the standard concept in the field, and policy-makers worldwide have seized upon it as a tool for promoting national, regional and local competitiveness, innovation and growth. However, seductive though the cluster concept is, there is much about it that is problematic, and the rush to employ 'cluster ideas' has run ahead of many fundamental conceptual, theoretical and empirical questions. Our aim is to deconstruct the cluster concept in order to reveal and highlight our concerns relating to the definition of the cluster concept, its theorisation, its empirics, the claims made for its benefits and advantages, and its use in policy-making.

WP243: Law, Innovation & Finance: A Review

John Armour

A number of recent national and EU initiatives have sought explicitly to encourage innovative firms and venture capital finance. In keeping with the policy debate, this paper focuses explicitly on the role of law and lawyers in facilitating venture capital: that is, both supply by investors, and demand by entrepreneurs. It reviews existing literature in a way that seeks to clarify the links between law and legal institutions and the facilitation of venture capital finance, identifies open research questions and suggests a number of hypotheses. As such, it forms the first part of a wider study which will seek to test these hypotheses.

WP242: Evolution for Our Time: A Theory of Legal Memetics

Simon Deakin

The purpose of this paper is to explore the significance for legal thought of recent developments in evolutionary theory which are associated with the notion of 'memetics'. 'Memetics' aims to account for processes of cultural transmission and change using a version of the 'genetic metaphor'. This is the idea that patterns of cultural evolution are closely analogous to those which occur in the natural world as a result of the interaction between genes, organisms and environments. At a further, more ambitious level, the initial metaphor gives way to a search for mechanisms which unite biological and cultural evolution. Identifying these general evolutionary mechanisms is part of a wide-ranging, interdisciplinary research agenda.

WP241: The Trading of Unlimited Liability Bank Shares: The Bagehot Hypothesis

Charles Hickson and John Turner

From the mid-1820s, banks became the first business sector in Great Britain and Ireland to be granted the right to form freely on an unlimited liability joint stock basis. Walter Bagehot, the renowned contemporary banking expert, warned that shares in such banks would ultimately be owned by widows, orphans and other impecunious individuals. An alternative hypothesis is that the governing bodies of these banks constrained by special legal restrictions on share trading acted effectively to prevent such shares being transferred to the less wealthy members of society. We test both conjectures using the archives of an Irish joint stock bank. The results do not support Bagehot's hypothesis, but instead indicate that shares continued to be owned by wealthy individuals.

WP240: Market Network & the Value in Knowledge Exchanges: Evidence from Biotechnology Strategic Alliances

Anastasios Karamanos

Researchers have argued that market networks are an integral part of the firm's value output, but the extent to which the structural characteristics of firms and their partners in market networks mediate the link between network embeddedness and value generation remains a largely unexplored area of research. This paper argues that diffusion mechanisms within market networks enable them to selectively impute and know the value of inter-organisational knowledge exchanges. The purpose of this paper is to empirically determine the extent of this phenomenon in the context of the strategic alliance market network in the biotechnology industry. We find evidence that the position of firms' partners in the network of strategic alliances is a significant predictor of wealth gains from the announcement of knowledge exchange deals. Also, for explicit knowledge exchanges, the market reacts more to announcements by firms that are in the periphery of the strategic alliance network.

WP239: Partnership in Practice

Maria Hudson, Suzanne Konzelmann, Frank Wilkinson

This paper examines human resource management practices adopted in a group of eight case study firms and their tendencies towards versus away from partnership.

WP238: Meanings of Ownership of the Firm

Simon Learmount and John Roberts

The notion of 'ownership of the firm' is central to conventional treatments of corporate governance, yet there is very little discussion about what this means in practice. In this paper we briefly draw attention to some of the debates around the notion of ownership in various disciplinary fields, and then recount and discuss some of the meanings associated with ownership of the firm that we have found in two empirical studies carried out in the UK and Japan. Our aim is to illuminate and disturb some of the commonly taken for granted notions of what it means to 'own' a firm.

WP237: Theorizing Corporate Governance: New Organizational Alternatives

Simon Learmount

This paper contrasts 'economic' and 'organisational' approaches to corporate governance, in order to draw out some of their distinctive features and discuss their relative strengths and weaknesses.

WP236: MNEs in the Digital Economy?

Lilach Nachum and Srilata Zaheer

Technological advances are changing many aspects of business activity and in particular the meaning of distance and geography. Such changes are likely to have profound impact on firms whose activities take place over distance, namely MNEs. Using the motivations for FDI identified in the literature as a theoretical framework, this study examines the motivations of firms producing and selling products that can be transferred electronically in real time and at little or no cost, to establish operations outside their home countries. The paper advances a set of hypotheses regarding the likely motivations for foreign activity under such circumstances and provides some statistical testing for their prevalence in US inward and outward FDI. The findings suggest that the investment motivations of firms operating in the digital economy differ from those of firms in the traditional world. The most important motivations for FDI in the digital economy appear to be efficiency and the quest for intangible assets, especially those embedded in human capital, while market seeking and the search for low cost export platforms appear to be the dominant motivations for FDI in the traditional economy.

WP235: Close Encounters: Evidence of the Potential Benefits of Proximity to Local Industrial Clusters

Thelma Quince and Hugh Whittaker

Local clusters of high technology small businesses are of increasing interest to politician and academics. This papers draws on a study of 237 high tech small businesses located throughout the UK. Combining information on activity and location, firms were grouped according to their potential degree of embeddedness in local industrial clusters. Businesses with differing levels of cluster involvement were then examined in terms of market structure, supportiveness of local cluster and their performance. The findings lend support to the role of untraded rather than traded interdependencies in the dynamics of localised high tech clusters. Research indicating compensating behaviour by high tech businesses disadvantaged by location is also supported, emphasising the need to consider not only the location and activity but also entrepreneurial objectives.

WP234: High Tech Businesses in the UK: Performance & Niche Markets

Thelma Quince and Hugh Whittaker

This paper presents the findings of a survey of 237 high tech small and medium sized businesses based in the UK. The survey is part of an ongoing comparative study of high tech small businesses in the UK and Japan. The paper describes the growth, innovative activity and market structure of businesses studied. Based on characteristics of the businesses and their CEOs five 'types' of high tech small business are identified. Differences between the types of business in respect of market structure, competitive advantages and limitations suggest fundamental differences in 'niche' markets. At one extreme are niche markets in which the technology is embodied in the person: the scientific or technical expert, at the other niche markets in which the technology is embodied in the product or service product. Implications for innovation, growth and policy associated with these differences are discussed.

WP233: 'Meet the Parents': The Importance of 'Pre-conception' Conditions in Facilitating High-Technology Spin-out Companies

Thelma Quince

Encouraging the spinning out of high tech companies from higher education institutes (HEIS) is now a major tenet of industrial policy in the UK and other European countries. New enterprise formation is seen as a vehicle for technology transfer and the commercialisation of research by universities, and independent and government funded research institutes. Despite the proliferation of schemes and mechanisms supporting would-be entrepreneurs and their nascent enterprises, we are still some way from identifying the factors making for success. Understanding any scheme aimed at generating new technology based firms (ntbfs) requires a holistic approach which considers the nature of the parent research organisation, the local economic context, the specific objectives of the scheme and the changing needs of new enterprises. The nature of the parent is particularly important in setting what may be seen as 'pre-conception' conditions: namely inspiration, motivation, willingness to take risk and identification of potential idea. This paper describes differences found in these pre-conception conditions in a number of research organisations in the UK.

WP232: Lean Production & Manufacturing Performance Improvement in Japan, the UK & US 1994-2001

Nick Oliver, Rick Delbridge, Harry Barton

This study compared productivity and quality in the Japanese, US and UK automotive industries. A total of 26 first tier auto component makers were studied in 1994 and again in 1999-2001. The results show that the Japanese plants improved their labour productivity by around 20 per cent between 1994 and 2001, whilst productivity in the US plants remained static and in the UK plants actually fell (by 13 per cent) over the same period. All plants improved product quality, but the Japanese plants retained their lead with an average defect rate of 81 parts per million (ppm), compared to 111 ppm for the US plants and 416 ppm for the UK plants. There were few signs that the strong buyer-supplier relationships so characteristic of the Japanese auto industry were breaking down, However, independent firms such as Toyota and Honda appear to retain a stronger 'Japanese' character than their counterparts who have been acquired by non-Japanese companies.

WP231: Institutional Transplant & American Corporate Governance: The case of Ferodyn

Suzanne Konzelmann

This paper examines the relationship between employment relations and American corporate governance using the case of Ferodyn, American-owned Landis Steel Corporation and Japanese-owned Daiichi Steel Corporation (fictitious names). The case study reveals the American system of corporate governance and the nature of power relations in the corporation created antigens that weakened both Landis's ability to support the joint venture and Ferodyn's ability to survive in an alien and hostile corporate, industry and macro-economic environment.

WP230: Managing Competences in Entrepreneurial Technology Firms: A Comparative Institutional Analysis of Germany, Sweden & the UK

Steven Casper and Richard Whitley

Researches the subsectors of the computer software and biotechnology industries in three distinct European countries: UK, Germany and Sweden, that vary in their level of technical change and appropriability.

WP229: Liability of Foreignness in Global Competition? Financial Service MNEs in the City of London

Lilach Nachum

This study was inspired by the observation that foreign financial service firms operating in the City of London do not suffer the liability of foreignness to the extent suggested by theory. This study advances a theoretical framework that distinguishes three types of advantages that together account for the competitive performance of MNEs relative to that of indigenous firms.

WP228: A Panel Analysis of UK Industrial Company Failure

Natalia Isachenkova and John Hunter

We examine the failure determinants for large quoted UK industrials using a panel data set comprising 539 firms observed over the period 1988-93. The empirical design employs data from company accounts and is based on Chamberlain's conditional binomial logit model, which allows for unobservable, firm-specific, time-invariant factors associated with failure risk. We find a noticeable degree of heterogeneity across the sample companies. Our panel results show that, after controlling for unobservables, lower liquidity measured by the quick assets ratio, slower turnover proxied by the ratio of debtors turnover, and profitability were linked to the higher risk of insolvency in the analysis period. The findings appear to support the proposition that the current cash-flow considerations, rather than the future prospects of the firm, determined company failures over the 1990s recession.

WP227: (no longer available) Network Embeddedness & the Value of Complex Resources

Anastasios Karamanos

This paper assesses the role of the structure of market networks in the imputation of value of knowledge-intensive resource exchanges. Our framework identifies two processes of knowing exchange value, namely knowing as learning and knowing as fad. We argue that knowing value as learning is enabled by the normative and cognitive proximity of exchange partners, and that this is facilitated by the centrality of the focal firm in market networks. We also argue that knowing value as a fad is based on a positional construction of the focal firm's status, which is determined by the centrality of the focal firm's network partners in their corresponding networks. This is a ranking system based on positional rather than reputational network data, whose efficacy stems from the inability of firms to manipulate their network positions because the latter are derived solely from the activities, events and relations in which the firms are actually involved.

WP226: Corporate Ownership Structure & the Evolution of Bankruptcy Law in the US & UK

John Armour, Brian R. Cheffins, David A Skeel,Jr.

The past decade has seen intense academic debates over possible explanations for the different systems of corporate ownership and control that exist in developed economies. Yet the role of bankruptcy as a mechanism of corporate governance has received relatively little attention. Furthermore, many theories have failed to account successfully for events occurring in the UK, notwithstanding its similarity to the US. In response, this paper offers an account of the complementarities between bankruptcy law and ownership structure, which it is argued can explain developments in both the UK and the US. By identifying the effects of concentration or dispersion in firms' capital structure (across both equity and debt), and by analysing implications of these capital structure choices for bankruptcy, the paper develops a richer account of the corporate governance patterns we see in different nations.

WP225: Productive Systems & the Structuring Role of Economic & Social Theories

Frank Wilkinson

The institutions of productive systems are structured by mutual interests and relative power. Securing mutually beneficial cooperation in production requires resolving distributional differences. These objectives are secured in liberal economic theory by the working of markets which mediate the power of individuals and reward individual success. The centrality of individuals and hierarchies in market theory contrasts with developments in labour management theory which identifies group activity and decentralised responsibility as productive factors and organisations as unitary. This neglects the separate interest that productive partners have and the role of institutions in resolving conflicts in productive systems to secure productive co-operation.

WP224: International Business in a World of Increasing Returns

Lilach Nachum

This study examines the factors affecting the propensity of firms to engage in cross border activities in a world of increasing returns. A model connecting outward FDI from the US with a set of firm-specific advantages is estimated on samples of industries dominated by increasing and diminishing return processes.

WP223: Firm-Specific Attributes & MNE Location Choices: Financial & Professional Service FDI To New York & London

Lilach Nachum and Cliff Wymbs

In this paper, we sought to extend the theory of the location determinants of MNEs by challenging one of the fundamental assumptions underlying it, namely that location advantages are absolutes whose values are identical for different MNEs. We explicitly acknowledge the relative value of location advantages for individual MNEs and search for the firm-specific attributes affecting this variation.