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Working papers: 1999

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WP152: Systemic Risk in International Settlements

Rahul Dhumale

Examines the extent to which different settlement systems affect the nature and potential vulnerability of the financial system to systemic risks, and considers whether externalities can be reduced if individual institutions fully internalise the costs of their actions.

WP151: The Development of Ethical Issues Facing Boards of Directors: A Model with Implications

Ian Jones and Michael Pollitt

Outlines a model of how ethical issues develop over time using an ethical issue life cycle with three phases. Illustrates the model with reference to ethical issues currently facing UK boards of directors, and uses the Bible to further develop the model to suggest how company boards might respond to ethical issues as they progress.

WP150: Financing Firm Start-up & Restructuring in Transition Countries: Evidence from Belarus, the Ukraine & Russia

Valentijn Bilsen and Elena Mitina

Investigates how entrepreneurs in Belarus, Russia and Ukraine finance start-up and restructuring. Data from 600 de novo, privatised or state-owned firms shows the critical importance of the personal funds of the main owner(s), with a limited level of support being giving by the state.

WP149: The Impact of Home Countries on the Competitiveness of Advertising TNCs

Lilach Nachum

The findings of this study suggest that the competitive advantages of US, UK and French advertising TNCs are only partly shaped by the conditions in their country of origin, and that the impact of home countries weakens as agencies expand their international activity.

WP148: Share Capital & Creditor Protection: Efficient Rules for a Modern Company Law?

John Armour

Examines the economic case for rules of company law which regulate the raising and maintenance of share capital by companies. Argues that the current rules are unlikely to enhance the efficiency of the markets which they regulate, and makes a tentative conclusion.

WP147: Innovation, Investment & International Trade Performance of Russian Enterprises: A Study of St. Petersburg-Based Companies

Vadim Kapustkin

Investigates and compares the innovation, investment and international trade performance of Russian firms using questionnaire survey data of 150 enterprises in the St.-Petersburg area, half newly set-up private firms and half state-owned and privatised enterprises. Shows that the former performed better in terms of introducing new products, investment growth, international trade, etc.

WP146: The Transformation of the Soviet Enterprise & Its Management: A Literature Review

Kari Liuhto

This article reviews literature on the transformation of the Soviet enterprise and its management. It shows that Soviet management was much more multidimensional than previously assumed on the basis of official management descriptions, and that some previous empirical studies suffer from an inadequate methodology, studying enterprises and their management only at one point in time. Such studies tend to be based on a certain 'commonly accepted' view of Soviet management, instead of truly analysing the transformation taking place in post-Soviet companies. As previous studies have not reached an unambiguous conclusion on how successful transformation might be achieved, the article proposes some essential themes which could increase understanding of the organisational and managerial transformation, and hence support the overall economic transformation process in the former USSR.

WP145: Company Law as an Instrument of Inclusion: Re-regulating Stakeholder Relations in the Context of Takeovers

Giles Slinger and Simon Deakin

This paper considers a number of potential justifications for regulatory intervention aimed at overcoming "contractual failure" in stakeholder relations. Two distinct functions of stakeholding are identified, in terms of "contract" and "innovation" respectively. These conceptions are linked to two distinct approaches to the regulation of stakeholder relations, one based on "rights" and the other on "cooperation". The implications of an innovation-based approach for reform of the law relating to hostile takeovers in the UK are considered. The paper concludes by suggesting that the effectiveness of regulation will depend on the capacity of legal rules and procedures to promote cooperation within stakeholder relations, in particular by generating markets for information.

WP144: Foreign Direct Investment & Enterprise Performance in Transition Countries: Evidence from Russia & Ukraine

Valentijn Bilsen and Peter Van Maldegem

This study compares the performance of foreign and domestic firms in Russia and Ukraine, using recent survey data of 450 enterprises. We find that foreign owned firms are less prone to inter-enterprise and wage arrears, have a better export performance, and use more sophisticated competition strategies. Foreign investment appears to enhance entrepreneurial know-how. In the case of de novo firms foreign investment has often led to a "jump start" of the enterprise, rather than a gradual adjustment over time. Foreign firms have a positive spill-over effect. They introduce healthy financial management methods, and proliferate badly needed market oriented entrepreneurial know-how through the managerial market.

WP143: The Use & Impact of Business Advice by SMEs in Britain: An Empirical Assessment Using Logit & Ordered Logit Models

Paul Robson and Robert Bennett

This paper assesses the effect of differences in types of client on the use and impact of business advice by SMEs in Britain using data from the 1997 CBR national SME survey. It uses multivariate logit models to show that size of firm, rate of growth and innovation appear to be the main variables influencing the likelihood of firms seeking external advice, both from different sources and from different fields. Ordered logit models of the impact of the advice demonstrate that there are significant differences between clients' perceived impact of advice and the sources of advice they use, chiefly as a result of firm size, and to a lesser extent for growth, innovation and export levels.

WP142: Intensity of Interaction in Supply of Business Advice & Client Impact: A Comparison of Consultancy, Business Associations & Government Support Initiatives for SMEs

Robert Bennett and Paul Robson

This paper assesses the supply of business advice to British SMEs using new empirical evidence from the 1997 CBR national SME survey. It compares interaction intensity with suppliers operating in different environments of regulation, contract and reputation, using site visits and/or a written brief/contract as interaction intensity indicators. Although these measures have limitations, the paper demonstrates clear and significant differences between suppliers in interaction intensity, use of contracts and impact in three broad categories: private sector consultancy (low trust, high intensity, high impact), business associations (high trust, low intensity, moderate impact) and government support agencies (moderate trust, moderate to high intensity, moderate or low impact).

WP141: Learning New Productivity Criteria in Transition Economies: Evidence from 450 CIS Companies

Kari Liuhto

This analysis suggests that the ownership structure of the CIS firms studied did not determine productivity improvements during the years 1995-97. Rather, these reflected the transition path, with privatised companies undergoing organisational revolution, whereas new private start-ups have experienced organisational evolution in a revolutionary business environment.The empirical data also reveals a significant relationship between top manager age (youthfulness) and productivity improvement. This suggests that adapting Soviet management culture to the post-Soviet environment is a more complex task than merely learning new organisational practices.

WP140: Rethinking Innovation Comparisons between Manufacturing & Services: The Experience of the CBR SME Surveys in the UK

Alan Hughes and Eric Wood

Previous research comparing innovation in manufacturing and services has taken insufficient account of variations in the intensity and nature of innovation activity within these sectors. Analysis of the CBR's SME surveys reveal that in some respects there is greater variation in innovation within manufacturing and business services than between them. There is also strong similarity between corresponding groupings in each sector, with a considerable depth of technological innovation capability within each. These results imply that differences in innovation between manufacturing and services may have been exaggerated in earlier research.

WP139: Automatic Certification or Mandatory Representation Votes? How the Choice of Union Recognition Procedure Affects Union Certification Success

Susan Johnson

Union recognition procedures are about to be reformed in the UK. Current legislative reform proposes automatic certification. Business prefers mandatory representation votes. Will the choice of union recognition procedure affect certification success? This paper provides empirical evidence on this issue, using cross-section time-series analysis of nine Canadian jurisdictions over nineteen years. The results indicate that mandatory votes reduce certification success rates by 6 to 9 percentage points below what they would have been under automatic certification. This result is robust and significant at the 99 per cent level.

WP138: Neo-Marshallian Nodes, Global Networks & Firm Competitiveness: The Media Cluster of Central London (Out of Print)

Lilach Nachum and David Keeble

Based on an original interview survey of indigenous and foreign-owned companies, this paper investigates the interplay between global and local influences on the competitiveness of the cluster of film production and media firms in the Soho area of Central London. While local processes are vitally important in influencing the capabilities of these firms, the cluster is also bound tightly into world-wide webs of interdependence, with TNCs playing a major role in mediating between local and global linkages. The latter are essential for the ability of the firms studied to compete successfully in international markets.

WP137: The Fragility of Functional Work Systems in American Steel

Suzanne Konzelmann and William Barnes

This detailed case study of the development and crises experienced by an American steel company (I/N) in implementing functional work systems demonstrates that a high road approach provides positive benefits for stakeholders' workers, production efficiency, and local and macro-level economies and societies. However, broader external forces can conspire to make it very difficult for firms to sustain such systems despite initial successes: high road systems are fragile in national frameworks that subject them to low road pressures without a forum for resolving the difficulties that arise from opposing market pressures and responses.

WP136: Changing Midwifery: Working Conditions & the Quality of Care

David Ladipo, Hannah Reed and Frank Wilkinson

This paper examines the links between the employment conditions of midwives and the ability of maternity units to improve quality and continuity of care for women, in line with government policy. The study found that advances in quality of care have been made within existing resource constraints. This progress has mainly been achieved by drawing on the professionalism and vocational commitment of midwives, and at the expense of their working conditions and sense of well being. Increasing problems of recruitment, retention and falling morale among midwives suggest that improvements in quality are not sustainable without additional resources, improved working conditions and more effective systems of communication in NHS trusts.

WP135: Can We Measure & Communicate the Benefits of Work-Life Policies More Effectively?

Fiona Scheibl

The paper reviews the methodologies adopted by a range of recent academic and business studies of work-life policies in investigating whether the use of control groups or other rigorous measurement techniques have become more widespread. It finds that studies have used five different research designs - multivariate modelling; control groups; action research; business case calculations; and social surveys - to measure and evaluate the impact of work-life practices. Control group methods have not been more widely used, but the "action research" approach is encouraging better inter-disciplinary understanding of work-life conflict.

WP134: Reinventing the Market? Competition & Regulatory Change in Broadcasting

Simon Deakin and Stephen Pratten

The Broadcasting Act 1990 led to a period of turbulence and upheaval within British broadcasting with results that were at best unintended and, at worst, seriously undermined the ideal of public service broadcasting. A Hayekian economic perspective would suggest that the reforms failed because they did not go far enough in the direction of full "marketisation". This paper develops an alternative perspective, based on an adaptation of systems theory within the context of law and economics, which offers a broader methodological foundation for the understanding of "economic law" and a different normative perspective on the broadcasting reforms. It argues that the difficulty with these reforms was not their failure to go further in marketisation, but rather their lack of clarity in articulating a clear alternative to the market as the basis for the organisation of television production.

WP133: Economic Efficiency & the Proceduralisation of Company Law

Simon Deakin and Alan Hughes

This paper extends the analysis carried out by the authors for the UK Law Commissions (published as Part 3 of the Consultation Paper on Directors, Duties, September 1998). After considering some of the potential uses of economics in company law, it develops a theoretical framework which relates company law to wider corporate governance mechanisms which operate to mitigate risk and uncertainty in contractual relations. This framework is then applied to provisions relating to self-dealing and conflicts of interests under Part X of the Companies Act 1985. It is argued that in this context, the economic role of company law should be promote cooperation and the sharing of information and risk between corporate actors, a function described in terms of the "proceduralisation" of company law.

WP132: Transcending the Flexibility Debate? Deregulation & Employment in Britain 1979-1997

Simon Deakin and Hannah Reed

The debate on labour market flexibility has become polarised between two distinctive and potentially irreconcilable viewpoints. One sees the "European social model" based on social protection and collective employee representation as obstructing the operation of efficient labour markets, while the other criticises deregulation because of its social risks and questions whether it does bring increased flexibility. This paper assesses the case for and against labour market deregulation by evaluating recent British experience with specific reference to the economic impact of changes in employment law and social security. This suggests that the link between flexibility and efficiency is itself open to doubt, and that under-regulation may involve under-investment in vital "capabilities" associated with training, labour mobility and job security.

WP131: The Determinants of Firm Innovative Behaviour: The Roles of Rivalry & Persistence

Suma Athreye

This study investigates the determinants of firm innovative activity using an analytical framework that synthesises different theoretical approaches, and empirical tests based upon a detailed firm-level dataset of UK computer businesses. It suggests that competition or rivalry can be defined both in terms of market power and of the distribution of competencies, and relates this to innovation incidence and persistence. The empirical analysis finds that determinants and dynamics of innovation and market structure differ between software and hardware firms, as does the role of persistence. However, persistence is important when it is the resources and costs of innovation that explain innovative behaviour. Rivalry as a determinant of innovation does not favour persistence.

WP130: Why Are UK Banks' Overseas Assets & Liabilities So Large?

David Chaundy

Overseas assets and liabilities of UK banks account for high proportions of overseas assets and liabilities of all UK residents and of UK banks total assets and liabilities. This paper adopts an institutional, theoretical and empirical approach to explain this phenomenon. We find that over 80% of these assets and liabilities are accounted for by foreign-owned UK banks and their large size may be traced to the development of the Euro-currency markets in London in the late 1950s and 1960s. In an attempt to explain gross overseas bank assets simple empirical hypotheses are tested but rejected. We conclude that while an institutional and theoretical approach reveals the nature of UK banks overseas assets and liabilities and suggests some of their determinants, developing a satisfactory empirical model is difficult.

WP129: Trust, Power & Control in Trans-Organizational Relations

Reinhard Bachmann

Using ideas from Structuration Theory and System Theory, the paper analyses trust and power as means of co-ordinating trans-organisational (inter-firm) relationships. It argues that, depending on the institutional environment, there are two distinct patterns of controlling relationships, where trust and power are interrelated in quite different ways. First, both mechanisms are generated at the inter-personal level and either trust or power dominates the relationship. Second, power occurs at the level of the structural framework of relationships and is highly conducive to developing trust between individual organisations. Specific forms of trust and power are identified and the institutional environment is viewed as playing a crucial role in shaping the quality of trans-organisational relations.

WP128: FDI, the Location Advantages of Countries & the Competitiveness of TNCs: US FDI in Professional Service Industries

Lilach Nachum

This paper examines the impact of the foreign activities of firms on their international competitiveness, with particular reference to selected US professional service industries. It investigates to what extent and under what conditions firms may compensate for deteriorating home country location advantages through investment in foreign countries, and under what conditions firms may reap the benefits of a locationally advantageous foreign country. The findings suggest that FDI weakens the link between the location advantages of home countries and firm ownership advantages, but that this impact is very moderate and indirect. The ownership advantages which firms develop in their home countries are the most critical determinants of their competitiveness.

WP127: Competitiveness Policy & Economic Organisation: The Case of the British Film Industry

Stephen Pratten and Simon Deakin

Traditional government policy support for the British film industry was reversed in the 1980s through deregulation and the exposure of the industry to market forces. More recently, a new policy preoccupation with the film industry has emerged, with the industry characterised as possessing inherent but unrealised potential which it is the role of government, operating in tandem with the market, to unlock. This paper examines the nature of this emerging "competitiveness policy" towards the British film industry, and argues that policy should operate through identifying the distinctive capabilities of British film producers and by promoting "structural" change involving forms of contractual cooperation which can allow for the effective management of risk and uncertainty.

WP126: Earnings Distribution, Corporate Governance & CEO Pay

Frederick Guy

Using econometric modelling techniques, this paper investigates the relationship between earnings differentials and the pay of Chief Executive Officers (CEOs) of 186 British companies between 1970 and 1990. It finds that prior to 1984, top executive pay was a stable function of both firm size and earnings differentials lower on the administrative ladder, consistent with a hypothesis advanced by Herbert Simon in 1957; but that the use of share options from 1984 onward represents not simply a change in the mode of top executive compensation, but a structural break in the relationship between the pay of top executives and that of their subordinates.

WP125: Entrepreneurs as Co-Operative Capitalists: High Tech CEOs in the UK

Hugh Whittaker

This paper presents the findings of a survey of CEOs in the UK high tech SME sector. Based on 510 responses, it builds up a picture of personal backgrounds, careers, reasons for starting or acquiring the business(es) and business objectives. A typology is developed, based on business objectives, of 'co-operative capitalists', 'capitalists', 'co-operatists' and 'coasters'. Participants' own comments show the importance of lessons learned in past employment, a cautious approach to business development, and an orientation to satisfying customer needs through employee involvement, often as part of a 'stakeholder' and/or ethical orientation.

WP124: Evaluating the Impact of Business Service Expertise & Business Links on the Performance of SMEs in England

John Bryson, David Ingram and Peter Daniels

This paper explores the impact on the performance, profitability and competitiveness of SMEs of business service expertise provided via government-sponsored local Business Link organisations. It uses data from a unique survey of SMEs in England as well as case studies of individual firms. It is possible to identify a positive impact of business service expertise on client performance, but isolating such impacts from other variables is very difficult, while use of both employment and profitability indicators is problematic. There is a danger that DTI evaluation of Business Link companies may determine the way in which Business Links identify and deal with clients.

WP123: The Market for External Business Advice Services in Britain

Robert Bennett and Paul Robson

Analyses the extent of use of external business advice by SMEs in Britain using new survey evidence from the Cambridge ESRC Centre for Business Research SME Survey of 1997. The most important fields of advice sought are taxation and financial management, computer services, advertising, staff training and development, new technology, staff recruitment and marketing. The main differences between firms in choice of advice source relate to their size and growth history. Impacts of advice received are generally only "moderate", but highest in computer services, product and service design, taxation and financial management and staff training and development. Impacts are most strongly related to SME growth and size.

WP122: What is the Accommodating Item in the Balance of Payments?

David Chaundy

Balance of payments accounts are constructed using a double-entry accounting principle such that total credits equal total debits. Modelling each entry independently will not guarantee this equality. It is therefore important to identify the counterpart entries or "accommodating" items that ensure that total credits equal total debits. This paper identifies the accommodating item for the UK by presenting institutional evidence on the means of payment for international transactions. Its conclusions are likely to apply to any developed country with a well-developed banking system.

WP121: Putting Values into Action in Business: A Study of the Development of an 'Integrity' Value at SmithKline Beecham

Ian Jones and Michael Pollitt

This paper is a case study of the implementation of an 'integrity' value at the Anglo-American healthcare firm, SmithKline Beecham (SB). SB was established as a result of a merger in 1989 following which the new company deliberately sought to design a new corporate culture based on a set of values which included 'integrity'. The case study charts the development of the integrity value as part of the new culture and how this particular value has been put into action. We show that the new value was accompanied by detailed codification and inclusion in employee evaluation and training programmes. The case highlights the difficulties in implementing high level values at the grass roots of a large corporation. An appendix demonstrates how the lessons from the case have parallels in biblical teaching.

WP120: Measuring the Productivity of Professional Services: A Case Study of Swedish Management Consulting Firms

Lilach Nachum

Existing productivity measures are inadequate for measuring the productivity of professional services, which employ intangible and specialised factors of production. This paper develops a more adequate measure of productivity in these industries, which is tested against different performance indicators of a sample of Swedish management consulting firms. The findings illustrate the inadequacy of manufacturing-based measurement procedures and suggest that a measure which acknowledges the unique characteristics of professional services correlates better with firm performance. The study concludes that much more research is needed on this important issue.

WP119: A Marshallian Approach to the Eclectic Paradigm of Foreign Investment: The Clustering of Film TNCs in Central London

Lilach Nachum and David Keeble

Using the eclectic paradigm as a theoretical framework, this study explores how geographically-localised agglomeration economies may affect the ownership advantages of transnational corporations, influence their choice of modality to serve foreign markets and form part of the location advantages of a given locality. It shows how the clustering of film, TV and video production and post-production firms in the Soho area of central London has afforded considerable benefits to foreign TNCs locating here. However, these benefits vary considerably by the type of investment involved (distribution, financing or production), and influence the ownership advantages of the TNCs to varying degrees.

WP118: The Origin of Organizational Species

Ugo Pagano

The paper argues that some of the issues examined by Darwin and modern biologists concerning natural selection in the case of speciation may be of relevance to the competitive selection of organisational species in capitalist economic development. In biology the laws of structure and change that characterise the selection among species are very different from those that characterise the selection of the member of the same species. These ideas are applied to understanding the "Second Industrial Revolution" and the development of the new species of "managerial capitalism" in the United States and Germany, in contrast to Britain, whose firms and entrepreneurs failed to keep pace with organisational change.

WP117: Post-War Institutional Shocks: The Divergence of Italian & Japanese Corporate Governance Models

Fabrizio Barca, Katsuhito Iwai, Ugo Pagano and Sandro Trento

Family capitalism in Italy and Japan has faced major problems since 1945. This paper examines some of these problems, contrasts corporate governance patterns in these countries and stresses the different role of the American occupation in influencing them. In Italy it involved the reinforcement of both the State-owned corporations and family controlled pyramidal groups that had emerged during the fascist period, whereas in Japan it caused the end of the power of the great zaibatsu families. We also consider how inter-firm share holding can promote (Japan) or inhibit (Italy) the expansion of large corporations and the mechanisms that have made each model self-sustaining after initial institutional shocks.

WP116: Can Domestic Liabilities Explain the Home Bias in UK Investment Portfolios?

David Chaundy

It has been suggested that domestic liabilities may be an important factor in explaining the existence of a home bias in international investment portfolios. This paper provides a theoretical justification for this claim in a mean-variance framework. However, an empirical analysis for the UK does not find this effect to be large. Mean-variance efficient portfolios already exhibit significant home bias relative to the world market portfolio. Further, the predicted portfolios differ considerably from the actual portfolios of UK life assurance companies and pension funds. Possible reasons for this include weaknesses in the mean-variance approach and the role of peer pressure.

WP115: Institutional Restructuring in the Japanese Economy 1985-1996

Kazuyoshi Matsuura, Michael Pollitt, Ryoji Takada and Satoru Tanaka

Examines the effect of economic turbulence since 1985 on three of the institutional foundations of post-war Japanese industrial success. These are the Japanese 'main bank' system, whereby a main bank is involved in a special type of long-term relationship with client firms, the tradition of close inter-corporate relationships between main manufacturing firms and their suppliers, and the nature of Japanese industrial policy and the roles of the Ministry of International Trade and Industry (MITI) and the Japan Fair Trade Commission (JFTC). In each case, evidence suggests that these institutional foundations of the post-war Japanese economy have been fundamentally weakened over the period.