Abstract:This paper reviews recent studies that analyse and criticise existing academic and commercial corporate governance (CG) indices. Most of these 'rating the ratings' papers reach the conclusion that encompassing composite measures of CG are ineffective and suggest therefore to return to simpler measures. This paper draws on the 'configurational-' or 'bundles approach' to CG and argues that, while the criticisms made by the 'rating the ratings' papers are justified, their recommendations are misguided. Based on four central insights derived from the 'bundles approach', the paper shows that reverting to simpler measures of firm-level CG practices is a step in the wrong direction, in that it eliminates information about interactions between different corporate governance mechanisms. This is particularly consequential for comparative CG research that aims to identify differences in country-specific CG systems. Alternative solutions are developed to improve corporate governance measures, which take into account insights from the 'bundles approach'.
Andrew Sheng and Ajit Singh
This contribution is concerned with the desirability and feasibility of establishing Islamic stock markets within the current global context. There is at present deep disaffection with stock markets in advanced countries. A central contention of this paper is that the proponents of Islamic stock market will find it easier than their UK counterparts to implement an ethically based programme which is regarded as essential for successful reform. Stronger ethical underpinnings of the Islamic stock market will give it a decisive edge in world markets. The time for Islamic stock markets has therefore come.
Externalities occur where an economic actor takes a decision which results in actions that affect other parties without their consent. In most cases, the creator of the externality will be a corporation because they are the most important actors in modern economies. There is a market failure as the corporation obtains all the benefits of the activity but does not bear all the costs.
Since Ronald Coase's seminal work, economists have generally argued that externalities should be dealt with either by instrumental regulation or by bargaining between the creator and victim. The regulator should choose between these two options on the basis of cost-benefit analysis. In particular, the costs associated with government intervention should be compared with the transaction costs confronting parties where they attempt to deal with the externality by means of a contract. Most economists assume regulatory costs (including the costs of producing and enforcing regulation and the distortions of economic activity to which it gives rise) will be very high, so the 'cure' of regulation will normally be worse than the 'disease' of externalities, making government intervention undesirable from an efficiency standpoint. This makes them sanguine about leaving many, or even most, externalities to the market, even though its failure led to the externality in the first place. They then assume that if the parties fail to reach agreement on a solution to a particular externality, this will be for transaction costs reasons, so leaving the externality where it falls is the most efficient outcome in the circumstances. This paper argues that neither of these methods offers a wholly adequate way of dealing with externalities in a globalised economy characterised by factually and technologically complex chains of causation. As is widely recognised by sociologists as well as economists, instrumental regulation faces massive difficulties in dealing with externalities. It can also be argued that transaction costs are not the only barrier to bargaining. The result is that many externalities go uncorrected, and it cannot simply be assumed that this is an efficient outcome. The paper then argues that this governance 'gap' could be filled by the doctrine of Corporate Social Responsibility (CSR), but only if two conditions are met. First, CSR must be understood as corporations voluntarily taking responsibility for, or internalising, the externalities their operations create. This requires corporate decision-makers to change the frames they use so as to take account of the costs their activities create. Second, corporations must be steered towards a socially adequate identification and internalisation of those costs by the careful use of procedural, or reflexive, regulation. A reflexive regulatory approach to CSR would require corporations to meet with those who consider themselves affected in order to construct the 'facts' about the externality, and then require corporate decision-makers to internalise that externality in a manner which is acceptable to all concerned. This would arguably result in many externalities being identified and corrected in a cost-effective way, and should be considered as an alternative or complement to other methods of governing externalities.
Alan Hughes and Michael Kitson
There has been an increasing focus on the strategic role of universities in stimulating innovation and economic growth, primarily though the transfer of technology. This paper interrogates some of the key aspects of much of the conventional wisdom concerning the transfer of technology and the knowledge exchange process in general. It analyses the results from two unique surveys: a survey of the UK academic community which generated more than 22,000 responses; and stratified survey of businesses which generated more than 2500 responses. The paper shows that there are many knowledge exchange mechanisms used by academics - these include commercialisation processes but also many other 'hidden' connections. It also shows that knowledge exchange involves academics from all disciplines - not just those from science and engineering - and involves partners from the public and third (not for profit) sectors as well as private sector businesses. Furthermore, it shows that the main constraints that hinder or limit the knowledge exchange process include a lack of time, insufficient internal capability to manage relationships; and insufficient information to identify partners. Problems concerning cultural differences between academics and business and disputes concerning intellectual property are not prominent. Overall, the paper suggests that the notion of an academic 'ivory tower' seems to be a myth as far as the UK is concerned. It also suggests that a strategic focus on strengthening connections between academia and the rest of society may generate long-term benefits but it will also face challenges and should not distort or divert from the foundations of scholarship on which the success of universities are built.
The 2007/8 financial crisis has reignited the debate about austerity economics and revealed that it is a highly contested yet poorly understood idea. This article locates the debate in its historical context, tracing it from the early 18th and 19th century Classical debates, which focused mainly on the means by which fiscal deficits should be financed. As capitalism evolved, so did ideas and theories about the economics of austerity. Following World War One, concerns about high levels of government debt produced the 1920s 'Treasury view' - that government deficits are economically damaging and austerity is required to rein them in. During the 1930s Great Depression, when unemployment was the main concern, this perspective was challenged by the 'Keynesian view' - that government deficits could be economically beneficial during the slump, when the private sector was unable to generate sufficient effective demand to pull the economy out of depression. From this perspective, austerity was the policy prescription for the top of the business cycle, to prevent the economy from over-heating and igniting inflation. The 'stagflationary' crises of the 1970s challenged this view; and during the decades preceding the 2007/8 crisis, austerity was considered to be a policy for the bottom of the business cycle, when the excesses of a bubble-inflated boom had been revealed by its collapse. In the aftermath of the 2007/8 financial crisis, however, austerity no longer has the economic objective of macroeconomic stabilisation. Instead, it has become the objective itself - demanded by actors in the international financial markets as evidence that governments are serious about managing their deficits and paying back their debts, thereby protecting the financial interests of investors in sovereign debt. However, if austerity undermines economic growth - as it is doing at present - markets are unlikely to remain loyal to those countries suffering the effect. It is therefore important that policy-makers and political leaders learn the lessons of the 2007/8 financial crisis with regard to the economics of austerity - before it is too late.
Bruce Tether and Elif Bascavusoglu-Moreau
Introducing and innovating services is advocated as a means by which manufacturing firms in advanced economies can retain or enhance their competitiveness. But little is known about how manufacturers innovate services, nor about the impact of service innovation on manufacturers' performance. Using two consecutive waves of the UK Innovation Survey, this paper first examines how manufacturers innovate services, comparing this with how they innovate goods (i.e., material products) and production processes. We find that manufacturers tend to innovate services differently: R&D is found to be unimportant, whilst investments in marketing and training are found to be related to service innovation. The paper then examines the impact of service innovation on performance, in terms of innovative sales per employee and total sales per employee. We find that service innovation does not increase innovative sales but is associated with higher total sales per employee.
Ben R. Martin
This paper examines the origins and evolution of the field of science policy and innovation studies (SPIS). In particular, it seeks to identify the key intellectual developments in the field over the last 50 years by analysing the publications that have been highly cited by other researchers. Along with other studies reported in this Special issue, it represents one of the first and most systematic attempts to identify and analyse the most influential contributions to an emerging field on the basis of highly cited books and articles. The analysis reveals how the emerging field of SPIS drew upon a growing range of disciplines in the late 1950s and 1960s, and how the relationship with these disciplines evolved over time. Around the mid-1980s, SPIS started to become a more coherent field centred on the adoption of an evolutionary (or neo-Schumpeterian) economics framework, and an interactive model of the innovation process, and (a little later) the concept of 'systems of innovation' and the resource-based view of the firm. The article concludes with a discussion of whether SPIS is perhaps in the early stages of becoming a discipline.
Andy Cosh and Joanne Zhang
Whilst the variety of search activities promotes innovation, there is a central tension between a firm's potential benefits from wide and diverse search activities and its ability to reap these potential benefits. In this paper, we argue that the potential and realised benefits from a firm' search activities are influenced not only by its resources and capabilities, but also by the nature of innovation activities at sector level. Drawing upon a statistical analysis of a large scale survey conducted in the US, we examine the impact of a firm's external search strategy along two dimensions (search intensity and direction) on its innovative performance. Our findings suggest that manufacturing firms tend to benefit from wide and diversified search activities whereas knowledge intensive business services (KIBS) firms tend to benefit from narrow and specialised search activities. Furthermore, when taking account of firm size and absorptive capacity, a more nuanced picture emerges. Implications and contributions to the innovation search literature are discussed.
Andrew Sheng and Ajit Singh
After a brief recent empirical sketch of Islamic finance, the paper turns to its main theoretical and conceptual purpose. It seeks to relate the concepts of Islamic and conventional finance, and to examine certain important questions which arise from the interaction between these systems. The paper is written from the perspective of conventional modern economics, as the authors are students of the latter.The paper discusses the main tenets of Islamic finance, as well as those of modern economics, including the implications of zero interest rates and those of Modigliani and Miller theorems. The most notable finding of this paper is that John Maynard Keynes' analysis of employment, interest and money provides, inadvertently, the best rationale for some of the basic precepts of Islamic finance. The paper concludes that there is no inevitable conflict between the two systems and cooperation between them is eminently desirable and feasible.