Dissecting a Company’s Innovative Capabilities and Strategic Position in a Knowledge Economy Robert Pech, Barry Lin, Bingsheng Yi, Chia-Wei Chen Abstract Innovation is critical to the long-term survival for any company in the knowledge economy. However, while many studies highlight the importance of companies’ innovative capabilities, a practical conceptual mapping with valuation measures has not been clearly demonstrated in the literature. Therefore, this paper proposes a formal conceptual model for evaluating a company’s innovative capability based on two dimensions that have been proposed in the literature so far. In addition, our multiplicative innovative value model incorporates a third factor that captures the critical internal “knowledge transfer” capability acting as the catalyst between a firm’s R&D innovation capacity and a firm’s capacity to generate value in the market place. This factor highlights the interaction and inter-connectedness between the two critical dimensions in terms of the success of a company’s innovation: invention and commercialization. We provide a practical and useful mapping for locating a firm in terms of its position in strategic innovation. Boards, managers and consultants pursuing a successful innovation strategy can use this map to identify their future strategic innovation trajectory based a firm’s current and desired position on this map. Thus we contribute to the literature and practice of both innovation and strategy. Full Text: PDF DOI: 10.15640/smq.v3n3a5
In this study, we examine how multiple directorships held by outside directors (busy outside directors) influence shareholder wealth in diversifying acquisitions. With a sample of 893 diversifying acquisitions from 1998 to 2004, we find a negative (positive) busy-director effect for diversifying acquisitions of public-targets (private-targets). Busy directors are negatively (positively) associated with the five-day cumulative abnormal returns in acquisitions involving public (private) targets, where merger-related agency problems are more likely. Our evidence support the notion that, in the case of diversifying acquisitions, increased managerial monitoring plays a more important role versus enhanced advising and business connection from busy directors.
Using a sample of 5,752 Taiwanese firm-year observations over the 2008 to 2012 period, we examine whether and how the existence of D&O insurance may affect firm performance. Our results suggest that whether to purchase D&O insurance is an endogenous corporate behavior, D&O insurance is not significantly related to firm performance. In addition, we find that firms with higher cash ratio, larger and more independent board are more likely to purchase the D&O insurance, while older firms are less likely to buy the D&O insurance. Our study implies that the government should not require firms to buy the D&O insurance. Instead, government should allow firms themselves to decide whether they optimally should purchase D&O insurance or not based on each firm’s particular circumstances. Firms should also not just simply follow their peers to buy the D&O insurance. They should carefully compare the benefits and costs of the D&O insurance based on their own situations, and only buy the insurance when the benefits exceed the costs.
Research on the effectiveness of compensation committee is limited and inconclusive. In Taiwan on Nov 5th, 2010, news on the passage of a new legislation was announced that all firms with stocks traded in Taiwan Stock Exchange or OTC should set up a compensation committee within one year period. We examine how the Taiwan stock market reacted to this announcement and factors that may affect the market reaction. We find Taiwan stock market reacted negatively on the announcement of the mandatory setup of compensation committee in the board of directors. All the mean (median) abnormal and cumulative abnormal returns around the announcement date are significantly negative at 1% significance level. Such results suggest that, in general, investors in Taiwan do not believe that the adoption of compensation committee in Taiwan helps to protect shareholders benefits. The multiple regression results show that director compensation has significantly positive impact on the abnormal returns, while board independence is negatively related to market reaction.
Abstract Using a sample of 5,752 Taiwanese firm-year observations over the 2008 to 2012 period, we examine whether and how the existence of D&O insurance may affect firm performance. Our results suggest that whether to purchase D&O insurance is an endogenous corporate behavior, D&O insurance is not significantly related to firm performance. In addition, we find that firms with higher cash ratio, larger and more independent board are more likely to purchase the D&O insurance, while older firms are less likely to buy the D&O insurance. Our study implies that the government should not require firms to buy the D&O insurance. Instead, government should allow firms themselves to decide whether they optimally should purchase D&O insurance or not based on each firm’s particular circumstances. Firms should also not just simply follow their peers to buy the D&O insurance. They should carefully compare the benefits and costs of the D&O insurance based on their own situations, and only buy the insurance when the benefits exceed the costs.
The threat of regulation is clear when proposed legislation is introduced in Congress or when other regulatory bodies formally begin consideration of new, tighter requirements. When faced with proposed undesirable regulation, firms may attempt to deflect it in a variety of ways. Accounting and economics research suggests that firms use accounting policy choice as a means of reducing political costs. Prior to 2002, only two firms voluntarily expensed stock options under the provisions of FASB 123. By the end of 2003, a number of firms volunteered to expense stock options in the face of possible mandates from the FASB. A close examination of the record of regulators’ activities indicates that, during 2002 and 2003, Congress proposed five pieces of legislation that would increase the tax costs of firms and six pieces of legislation that would increase the taxes of firm managers. We suggest that the decision to begin expensing options reflects firms’ and managers’ beliefs that the voluntary expensing of stock options for financial reporting purposes would ward off regulatory efforts to convert proposed tax legislation affecting the firms’ and managers’ taxes into enacted tax law. Our preliminary analysis provides evidence consistent with this general hypothesis. While prior research on the impact of taxes on accounting policy choice has examined accounting policy choice in response to enacted tax legislation, this paper provides early evidence on accounting policy choice in the face of proposed tax legislation.
This paper investigates the leverage decision of Japanese firms in their corporate leverage choice by analyzing the multi-directional causal relationship among firm characteristics such as firm size, profitability, tangibility (ratio of fixed to total assets), and growth opportunity (as measured by market-to-book ratio) on firms' choice of leverage.Using corporate finance data for a large sample of Japanese firms (25,698 firm-years) between 1980 and 2000, this paper finds a highly significant and positive size effect.Tangibility positively affects total debt, but Profitability negatively affects total debt.Market valuation also positively affects total debt.Finally, profitability is positively affected by operating cash flow, growth in sales, and change in earnings.The model is applied to sub-samples before and after the Asian financial crisis and results remain broadly similar before and after the financial crisis.Our findings support the hypothesis that the firm leverage choice is driven by firm characteristics.
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