Location decisions of heterogeneous European firms

We analyze empirically how firms’ characteristics affect the foreign affiliates location decisions of heterogeneous firms in different markets. Using a European firm-level data and estimating the marginal effects for the multinomial logit model, the results corroborate the relevance of firms’ characteristics in their investment decisions, particularly the productivity level.

Cosmopolitan Capitalists and Colonial Rule. The business structure and corporate culture of the Swiss merchant house Volkart Bros., 1850s–1960s

This article examines the history of the Swiss merchant house Volkart Bros., which was one of the most important exporters of Indian raw cotton and one of the biggest trading firms in South Asia during the colonial period. The study allows for a fresh look at Indian economic history by putting forth two main arguments. First, it charts the history of a continental European firm that was active in South Asia to offer a better understanding of the economic entanglements of the subcontinent with the wider world, which often had a reach beyond the empire. This ties in with recent research initiatives that aim to examine the history of imperialism from a transnational perspective. Second, the history of a private company helps in developing a micro-perspective on the often ambiguous relation between the business goals of individual enterprises and colonial rule. The article argues that this may be evidence of the fact that capitalism and imperialism were two different, although sometimes converging, spatial structures, each with a distinct logic of its own. What is more, the positive interactions between European and Indian businessmen, fostered by a cosmopolitan attitude among business elites, point to the fact that even in the age of empire, the class background of actors could be more important for the establishing of cooperative ventures than the colour of their skin or their geographical origin. It is argued that this offers the possibility of examining the history of world trade in terms of global social history.

Moderating Effect of the Continental Factor on the Business Strategy and M&A Performance in the Pharmaceutical Industry for Sustainable International Business

This research analyzed the moderating effects of the continental factor on the relation between the business strategies (cost advantage strategy and differentiation strategy) of the pharmaceutical industry and mergers and acquisitions (M&A) performance. A total of 1303 M&A cases were collected from the Bloomberg database between 1995 and 2016 for the sake of empirical analyses. The independent variables were represented by the cost advantage strategy and the differentiation strategy. The dependent variable was for the M&A performance, which was measured for the changes in ROA (return on assets). The results showed that the cost advantage strategy was advantageous when an Asian firm acquired one in either Asia or Europe. In contrast, when a European company received one in either Europe or Asia, M&A performance also was higher, although the cost was higher. On the other hand, the differentiation strategy was valid only when a European firm acquired one in Asia. The moderating effect of the continental factor was beneficial only in the relation between the cost advantage strategy and M&A performance. These results could help companies make decisions that maximize M&A performance based on continental factors from the perspective of the sustainable international business strategy establishment.

Misallocation of Investment in Europe

Using a pan-European, firm-bank matched data set, we find weak evidence of investment misallocation in Europe. Firms with higher debt overhangs invest significantly less, in particular in sectors that are facing good global growth opportunities. We also find that firms with higher debt overhangs are more likely to invest if they borrow from undercapitalized banks, and this effect is particularly strong in industries facing good global growth opportunities, suggesting a misallocation of investment associated with ‘zombie lending’. Our results are consistent with theories of investment misallocation due to agency problems at firms and at banks.

Board composition and subsidiary risk: an exploratory study

Purpose This paper aims to explore the association between firm subsidiary risk and the board composition attributes of international experience, government experience and independence (outsiders). Design/methodology/approach We sample the directors of the 104 largest European and US service and industrial firms by market capitalization as listed in the Financial Times (FT) Global index of 2008 using a cross-sectional design with data from 2009-2011. Findings International experience increases and government experience decreases firm subsidiary risk. Research limitations/implications Our subsidiary data are limited to the number of subsidiaries per country and not to other potentially valuable information like size, number of employees or even board composition at the subsidiary levels. Additionally, the use of a diversified US and European firm could add unnecessary variance due to different contexts involved in 104 firms. Practical implications The desired level of firm subsidiary risk could be influenced by modifying the profile of board members. Originality/value This is one of the first studies to analyze the influence of board composition and risk at the firm level. Risk is a variable closely associated to internationalization.

Book-Tax Conformity and Earnings Management: Insights from European One- and Two-Book Systems

ABSTRACT: There is an ongoing debate in the U.S. about the effect of book-tax conformity on earnings management in consolidated statements. Although both one- and two-book systems are present in Europe, European data have not been used to contribute to this debate. In this study, we examine the influence of one- and two-book systems on earnings management using consolidated statements and single financial statements of European firm-years from 2004 to 2011. A one-book system is defined as a situation in which financial accounting income and taxable income are highly conformed, whereas a two-book system is characterized by differences between consolidated financial income and taxable income. We find that firms in one-book systems show significantly more (downward) earnings management in their consolidated statements than do firms in two-book systems. With these findings, we contribute to the U.S. policy debate on book-tax conformity and earnings management.