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Tests of Efficiency Performance of Conglomerate Firms
... Firm diversification as a response to adverse conditions has long been postulated in the literature (Melicher & Rush, 1973;Weston & Mansinghka, 1971). This literature suggests that firms engage in unrelated diversification, i.e. engage in industries distant from their core industry 1 , to avoid being locked into industries in which they do not perform well. ...
... Empirical evidence has shown that unrelated diversification confers survival benefits after controlling for the process of diversification (Sorenson, McEvily, Ren, & Roy, 2006). This allows a diversified firm to perform at the same level as its less diversified counterparts (Melicher & Rush, 1973;Weston & Mansinghka, 1971). Penrose (1959) emphasized the importance of considering both resources and competition when analyzing diversification. ...
... Some researchers, adopting a financial perspective have argued that firms diversify to reduce risk, increase debt capacity, access beneficial taxation terms, and hedge against adverse competitive conditions (see Berger & Ofek, 1995;Melicher & Rush, 1973;Weston & Mansinghka, 1971). Related diversification has been found to reduce systemic risks, while unrelated diversification results in higher risk profiles (Lubatkin & Chatterjee, 1994;Montgomery & Singh, 1984). ...
In this paper, we argue that the competitive intensity that a firm faces is related to the diversification strategy it adopts. Specifically, higher competitive intensity is associated with less related diversification and more unrelated diversification, and performance from adopting these diversification strategies improve as competitive intensity rises. We find support for our hypotheses using a sample of manufacturing firms operating in the United Kingdom. The findings provide a deeper explanation of the relationships between the competition that a firm faces and its diversification strategies.
... 22). For instance, Weston and Mansinghka ( 1971) found the performance measured by the ratio of net income to net worth to be somewhat higher for conglomerate firms but not statistically significant. They noted, however, that defensive diversification (diversification out of industries with low profitability) often enabled firms to increase their profitability from inferior to average levels. ...
... Diversification and growth. Weston and Mansinghka (1971) found that conglomerate firms outperformed samples of other firms or broader groups on all of the growth measures considered (mean growth rate of total assets; sales; net income; earnings per share; market price-yearly high, yearly low, and average). However, the authors did not attach great significance to these measures and noted that the observed results reflect primarily the extent of past merger activity by conglomerate firms. ...
This study employs categorical measures of broad spectrum diversity (BSD) and mean narrow spectrum diversity (MNSD) to classify firms into broad diversification strategy groups. The BSD and MNSD measures of firm diversity are based on SIC data pertaining to each firm's scope of activities at the two- and four-digit levels. The 10 largest firms in each of the 24 largest industries of the U.S. constitute the sample for this study. Performance differences between diversification strategy groups are examined in reference to their long-term return on equity, return on total capital, sales growth rate, and earnings per share growth rate.
... Growth. Early studies found evidence that conglomerate firms were growing much faster than other firms on many performance dimensions (Weston & Mansinghka, 1971). ...
... Core findings on the relationship between diversification and performance Weston and Mansinghka, 1971 Sales growth, Total assets growth, Net income growth ...
We review the literature on the diversification–performance (D–P) relationship to (a) propose that the time is ripe for a renewed attack on understanding the relationship between diversification and firm performance, and (b) outline a new approach to attacking the question. Our article makes four main contributions. First, through a review of the literature, we establish the inherent complexities in the D–P relationship and the methodological challenges confronted by the literature in reaching its current conclusion of a nonlinear relationship between diversification and performance. Second, we argue that to better guide managers the literature needs to develop along a complementary path—although past research has often focused on answering the big question of does diversification affect firm performance, this second path would focus more on identifying the precise micromechanisms through which diversification adds or subtracts value. Third, we outline a new approach to the investigation of this topic, based on identifying (a) the precise underlying mechanisms through which diversification affects performance, (b) the performance outcomes that are “proximate” to the mechanism that the researcher is studying, and (c) an appropriate research design that can enable a causal claim. Finally, we outline a set of directions for future research.
... Market power is defined as the "ability of a market participant or group of participants (persons, firms, partnerships, or others] to influence price, quality, and the nature of the product in the marketplace" (Shepherd, 1970, p. 3). Previous research has demonstrated that firms with market power achieve faster growth (Weston & Mansinghka, 1971); better profitability (Palepu, 1985); more cost efficiencies (S. J. Chang & Choi, 1988;Montgomery, 1985); and greater risk reduction (Hill & Hansen, 1991). ...
Problem Definition
The purpose of this research is to examine the effect of diversification on interfirm relationships. Given how extensively firms develop key relationships with customers, suppliers, and other stakeholders, understanding the role that interfirm (relational) strategies are affected by diversification likely will be quite informative. This is particularly true of small businesses, which are not as frequently studied by strategy scholars. A relational perspective suggests that investments in relationship-specific assets, substantial knowledge exchange, combinations of complementary resources and capabilities, and effective governance structures between supply/buyer firms in a partnership dyad can generate relational rents.
Methodology/Results
A foundational predication within our research is that firm diversification will lead to more advantageous relationships with business partners, a hypothesis that we test through contract performance. In our study, we review 240 Research & Development and New Product Development contracts with supplier firms and the US Department of Defense that incorporated some form of risk-sharing between the buyer and supplier. We find that diversified firms engage in contracting with suppliers in a way that provides an advantage over their single-segment competitors in terms of total contract cost, the number of change proposals by engineers in contract work, and longer durations of government contracts. We also find that diversified small firms receive more of a benefit than their larger counterparts in terms of contracting advantage.
Managerial Implications
Based on our findings, it is evident that managers of diversified firms provide advantage to their firms by being more accustomed to complex contractual arrangements than their single-segment firm counterparts. Our findings also suggest that enhanced opportunities for organizational learning are available to diversified firms who engage in contractual relationships. Relational contracts that feature risk-sharing between buyers and suppliers provide space for joint-learning, and it is likely that managers of diversified firms have more experience navigating these risk-sharing relationships. This is particularly influential in a dynamic marketplace as firms prioritize innovation and adaptability in order to thrive.
... El opante está dispuesto a pagar dicha prima si está convencido de que bajo su administración de la empresa la valorización bursátil de la sociedad objetivo será similar al pago ofrecido de adquisición en el corto plazo y, posteriormente, a largo plazo tenderá a sobrepasar tal pago. 3 Segunda, la hipótesis de ganancias sinérgicas (Weston & Mansinghka, 1971;Melicher & Rush 1973), que ocurre cuando el oferente evalúa que su sociedad podría ser más valiosa al comprar la sociedad objetivo de la opa en comparación con el escenario en el que ambas fueran valoradas de forma independiente. Tercera, la hipótesis de concentración de poder o imperios (Jensen & Ruback, 1983;Jensen, 1986; Sin importar la razón por la que el oferente efectúa una opa, es común que los precios sobre las acciones de la empresa objetivo tiendan a subir, al menos en el corto plazo (Martynova & Renneboog, 2008). ...
Se emplea un estudio de eventos en el que se evalúa si hay impactos significativos en las rentabilidades anormales del mercado accionario colombiano a partir de las ofertas públicas de adquisición (opa) realizadas sobre las empresas Nutresa y sura. Se define el evento como el 17 de enero de 2022, el cual está relacionado con la adjudicación de las primeras opa y el anuncio de una segunda ronda de estos instrumentos; se encuentra evidencia estadística de que dicho evento tuvo un efecto significativo sobre los retornos de las acciones estudiadas. En particular, se puede afirmar que, bajo las diferentes especificaciones estimadas, los retornos fueron estadísticamente distintos durante el evento respecto a aquellos que se hubieran observado en tiempos normales sin la presencia de este.
... M&A are helpful in enhancing operational performance of the company (Tyran, 1992) and eventually contributes to profits (Shick, 1972). Companies also increased their returns (Shick, 1972), net worth, and market share price after merger (Weston and Mansinghka, 1971) especially in case of conglomerate firms due to increase in financial leverage (Manson and Goudzwaard, 1976). The financial leverage refers to settlement of deal, either through issuing new equity shares or debt or cash settlement or with combinations of all above. ...
To increase the shareholders wealth, it is necessary for companies that they increase profits levels by increasing revenue or decreasing cost. But at the same time companies may carry risk of producing large homogenous goods/ services which may lead to risks of obsolescence and high inventory cost. Mergers and acquisitions (M&A) as a corporate restructuring strategy gives an opportunity to companies to become low-cost providers and increase its market share. The increasing trend of M&A number has attracted the researcher to explore and investigate various concerned issues like, motivations of M&A and its impact on corporate financial performance.
... While the choice between a related and an unrelated acquisition has been acknowledged by seminal studies as crucial in the diversification literature (e.g., Park et al., 2002), with some scholars arguing that relatedness in acquisition is a primary driver of a firm's success (e.g., Lubatkin, 1983;Montgomery, 1985;Palepu, 1985) and others pointing to the effect of a firm's success on relatedness in acquisitions (e.g., Burgelman, 1983;Grant et al., 1988;Miles, 1982;Weston and Mansinghka, 1971), the current knowledge about the mechanisms behind acquisition relatedness has remained quite limited (see, e.g., King et al., 2004;. This is especially regretful when considering family-controlled firms -the most ubiquitous form of business organization worldwide (Gedajlovic et al., 2012;Neckebrouck et al., 2018) in which a family owns and manages the business (Miller et al., 2007). ...
Research on the acquisition behavior of family firms has produced conflicting theoretical arguments and mixed empirical findings on their propensity to acquire related or unrelated targets. While previous work has mainly focused on firm-level variables, this study examines the environment in which family firms operate and the institutional context where acquisitions take place. Drawing on the mixed gambles logic of the behavioral agency model, we theorize that family firms are more likely than nonfamily firms to undertake related acquisitions when they operate in uncertain environments to avoid losses to the family’s current socioemotional wealth. However, family firms are more likely to undertake unrelated acquisitions, when the environment is uncertain but the target operates in a similar and more developed institutional context where prospective financial gains are more predictable. Overall, building on a sample of 1,014 international acquisitions, our study offers important contributions to the literature on family firms and acquisitions.
... Salter and Weinhold (1979) compared operating returns of 36 merging companies and found that acquiring firms under-performed other listed companies. Weston and Mansinghka (1971) analysed 63 conglomerate mergers during 1960s, and found improvement in earnings performance of the conglomerate firms, which was explained as evidence for successful achievement of defensive diversification. Heron and Lie (2002) investigated the operating performance for a large sample of firms that conducted acquisitions between 1985 and 1997, and found that post-acquisitions, acquiring firms significantly outperformed control firms. ...
... Management may change their investing, financing as well as dividends decisions in response to changes in the economic conditions. The literature illustrates how economic fluctuations drive management to alter their financing mix (Hatzinikolaou et al., 2002); delay, cut or expand their investments (Carpenter et al., 1994;Huizinga, 1993), or to decide about strategic decisions such as mergers and acquisitions (Melicher et al., 1983;Melicher and Rush, 1973;Nelson, 1959;Weston and Mansinghka, 1971). These economic fluctuations, also, induce management to modify their dividend policy either to convey signals to investors or adjust the firm's dividend policy to the prevailing economic conditions (Greer, 1984;Mascarenhas and Aaker, 1989). ...
Credit risk has severe impacts on banks’ performance, leading to financial and economic distress. To highlight this interesting issue, this study explores bank-specific and macroeconomic determinants of banks’ credit risk, denoted by the level of nonperforming loans (NPLs). The study includes 98 banks from 10 Middle East and North African (MENA) emerging countries spanning the period between 2003 and 2016. The analysis employs panel data estimation technique. Our results reveal that bank size, capital adequacy ratio, bank operating efficiency, profitability, GDP growth, unemployment, inflation, and public debt represent the main determinants of NPLs in MENA emerging markets. The results of this research have practical implications for bank managers, regulators, investors, and financial analysts. This study provides significant insights on the determinants of NPLs, which will allow bank managers to design credit policies that minimize borrowers’ defaults. The findings of the study are useful to policy makers to establish new and reinforce existing regulations to maintain the steadiness of the banking sector in MENA emerging countries.
... More recent studies on M&As performance, that employed accounting data or ratios, were conducted during the last three decades and concluded on ambiguous results. Many of them supported an improvement in the post-merger performance after the M&As action (Weston & Mansinghka, 1971;Seth, 1990;Parrino & Harris, 1999;Megginson et al., 2004;Choi & Philippatos, 2005;Abhyankar et al., 2010; and others), while others claimed that there was a deterioration in the post-merger firm performance Ravenscraft & Scherer, 1987;Kaplan & Weisbach, 1992;and others). Other researchers concluded in confronting results or simply, a "zero" result from the M&As action 1997;Ramaswamy & Waegelein, 2003;Pazarskis et al., 2013 and others). ...
This book incorporates recent knowledge for Greece on a complex phenomenon as this of Mergers & Acquisitions (M&As). The book provides new evidence and trends with an in-depth analysis, at theoretical and empirical level, from past experience for M&As activities in Greece through the last two decades. This book could be a useful reading, as there is no similar past effort to the best of our knowledge, in order to fill this gap in the existing literature for M&As in Greece and provide a explanatory framework for managers, shareholders, academics, etc. Also, its content can be used in an informative way that will assist them in selecting and developing new projects for M&As in Greece.
... First, they classified these companies. The study found that those diversified companies were higher in economic performance than other companies, and they showed a return on net assets, earnings per share growth rate and sales growth rate indicators [20]. In 1986, Varadarajan used the number of enterprise products as a measure of the degree of diversification. ...
... Under this hypothesis, lower free cash flow can arise because diversified firms generate lower operating cash flows relative to specialized firms or because they invest more (Denis and Sibilkov 2010). The literature provides neither strong theoretical arguments nor clear empirical evidence that diversified firms generate less operating cash flow than specialized firms (Melicher and Rush 1973;Weston and Mansinghka 1971). Hund et al. (2010) find that diversified firms actually have higher profitability than specialized firms. ...
We extend recently documented evidence that diversified firms hold significantly less cash than specialized firms to consider differences in how diversified and specialized firms adjust their cash flows to achieve their target cash balance. We find that diversified firms have higher free cash flows as a result of equal operating cash flows and lower investment in comparison to specialized firms. Diversified firms save less cash by placing less reliance on external financing; by issuing less debt and equity, and distributing higher cash dividends. Our findings support the hypothesis that diversified firms are able to hold less precautionary cash as they are in better position to finance investment opportunities internally from operating cash flows.
... In most observational studies, a treatment group is matched with a single control group. Although costly or difficult, some investigators use a second control group in an effort to detect the hidden biases in the unobserved covariates (Seltser and Sartwell, 1965;Weston and Mansinghka, 1971;Roghmann and Sodeur, 1972;Zabin et al., 1989;Chang et al., 1997;Wells et al., 1997;Bo and Rosenbaum, 2004). As argued by Campbell (2009), although matching can adjust the differences in observed covariates, bias may still exist due to some unobserved covariates and if that is the case, the two control groups may differ from each other substantially on the unobserved covariate. ...
Cluster randomized trials, in which social units are selected as the units of
randomization, have been increasingly used in the past three decades to evaluate
the effects of intervention. This thesis is devoted to design and analysis of cluster
randomized trials.
Regarding design, we introduce a new randomization design in the first project,
the balance match weighted (BMW) design, which applies the optimal full matching
with constraints technique to a prospective randomized design and aims to minimize
the mean squared error (MSE) of the treatment effect estimator. In CRTs, there are
typically rather few participating units and several confounding variables to adjust
for. It is important to balance across these factors given the constraint of sample size.
A simulation study shows that the BMW design can yield substantial reductions in
the MSE of the treatment effect estimators as compared to various designs proposed
in the literature.
In the second project, we extend the BMW design to clinical trials with three
arms or more and with staggered entry. The first extension involves finding optimal
tripartite matching, which is shown as NP hard in graph theory. To circumvent this
1
problem, three ad hoc approaches which would lead to the near-optimal solutions are
investigated and the design extended based on each of these approaches. Simulation
studies reveal the good properties of the generalized BMW designs.
Dependencies among cluster members are typical of CRTs and must be considered
in the subsequent data analyses. The third project deals with the nonparametric regression
analysis of correlated time-to-event data based on a Cox frailty model. There
is much literature dealing with the identification and estimation of frailty models using
both parametric and semiparametric approaches. We consider a frailty model with
both the frailty distribution and the cumulative baseline hazard left nonparametric
and propose an approach based on nonparametric maximum likelihood estimation. A
three-step iterative algorithm is developed for implementation and a numerical study
shows that the proposed nonparametric approach performs well by providing important
gains in robustness while resulting in relatively small loss in efficiency compared
to the popular semiparametric approach by Therneau et al. (2003).
Purpose
The purpose of this study was to explore the motives (especially the agency motives) for corporate diversification from the perspective of corporate executives who make such strategic decisions and manage the diversified firms daily.
Design/methodology/approach
A qualitative research approach was adopted, and 12 chief executive officers (CEOs) of diversified firms in Nigeria were interviewed for their perspectives on the motives for corporate diversification.
Findings
Stewardship motives – diversification to use excess capacities in assets and resources to exploit opportunities in the market and defend against adverse environmental developments – were the most cited reasons for diversification. The relevant agency problem related to corporate diversification motive in Nigeria is the principal–principal (majority shareholder-minority shareholder) one. CEOs with substantial holdings in their firms indicated that they use diversification to reduce their investment risk and retain control of their portfolio.
Practical implications
The findings suggest that in corporate environments such as Nigeria that feature blockholding prominently, the corporate strategy-related agency problem that policymakers should pay greater attention to is the principal–principal conflict rather than the traditional agent–principal problem that has influenced corporate governance over the years. There is also a need to revise the dominant view that diversification is a value-destroying strategy motivated by the self-seeking behavior of managers who have little or no shares in the companies they manage.
Originality/value
The few studies on motives for corporate diversification that incorporated the perspectives of corporate executives did not address the agency motives of diversification. To the best of the authors’ knowledge, this is the first study that has done so.
Diversification is the act of expanding a firm’s business into new product, geographic or vertical markets. Lateral diversification involves some degree of relatedness; conglomerate diversification involves none. The Penrosean resource-based view accounts for diversification as a process of firm growth driven by the opportunity to deploy excess resources into new, but still related, lines of business. The results of empirical research are consistent with a resource-driven view of diversification and growth.
We studied the performance of 60 firms, 30 each from two types of firms namely, focused and diversified. Further, of the 30 firms in each group, 10 each were selected on the basis of three different sizes; small (with assets<INR10 billion), medium (with assets ranging between INR10 and <INR50 billion) and large (with assets >INR50 billion). Our intent was to determine which of these displayed superior economic performance. We analysed data for two points of time 2006-07 and 2013-14 using three measures of economic performance. These include profit after tax (PAT), return on capital employed (ROCE) and asset turnover ratio (ATR). We employed parametric (MANOVA, ANOVA) as well as nonparametric (Mann- Whitney, Kruskal-Wallis and Chi square) tests. Our analysis started with MANOVA to compare the overall performance of the selected firms for all the three measures. Later, ANOVA was used to further understand specifically, which performance measure was influenced by type and size of the firm. Since, there was a possibility for outliers to influence the findings, nonparametric tests were employed with the assumption that both the finding would give similar results. Our study concluded that there is no significant difference in the performance between focused and diversified firms. However, we found significant difference in the performance of firms based on size, though there were no interaction effects between size and type. Particularly, when diversified and focused firms were separately studied, it was found that for focused firms alone there were significant differences in performance between firms of different sizes.
Mergers and acquisitions (M&A) are inorganic growth strategies which have their importance in the present corporate world because of the prevailing stringent business conditions. In the current globalised economy, M&As are progressively utilised for enhancing the intensity of pharmaceutical firms through the rise of their market share in the industry, widening of product portfolio to enter new markets and geographies (competitive advantage) and reaping benefits through enhanced economies of scale. A strong and developing domestic market, a substantial pipeline of generic medicines and a capacity to service established markets abroad have swiftly made the Indian pharmaceutical companies most sought-after in the M&A space. This paper analyses the performance of M&A activities in the pharmaceutical space in India. It aims to consider the pattern in M&A across pharmaceutical companies in India, especially during the period 2005–2017 through a pre-merger and post-merger analysis. The paper performs a pre and post-merger comparison of 4 most crucial M&A deals in the Indian pharmaceutical landscape through metrics like ratio analysis, share price performance (accretion or dilution in case of listed companies) and synergy benefits from the point of view of the target as well as the acquirer and the combined entity as a whole.
The paper argues that gaining information on potential investment opportunities can be a sufficient motive for the acquisition of a firm, at least in conglomerate merger cases. It suggests that search via merger can be efficient and hence rational behaviour under more-or-less stan¬dard assumptions. Some support for a merger-as-search hypothesis exists in the presently available evidence on merger activity, though the relative incidence of search motivated merger is not clear. A potential welfare gain is identified concerning the flexibility of capital transfer in the economy, but this may be offset by an impairment to the long-run corporate competitive process. At the practical policy level the arguments support the use of non-discretionary rules rather than case-by-case review.
Exploiting demand shocks from changes in federal government spending, we examine how the organizational structure of a firm affects its investment behavior. Government spending shocks affect the investment of government-dependent conglomerate segments less than matched stand-alone firms. Investment also increases in lower government-dependent segments when other segments within the same firm experience positive demand shocks, indicating cross-subsidization between segments. We further show that this cross-subsidization leads to worse operating performance and increases the diversification discount. Our findings are robust after addressing the endogeneity of government spending.
Firm-level efficiency is at the centre of competitive strength and financial resilience of any business firm. Operational efficiency directly contributes towards amplifying the profitability and subsequently value maximization of a firm. This chapter makes an effort to measure the level of technical efficiency of the firms in the Indian manufacturing sector by using stochastic frontier analysis. The various microeconomic and macroeconomic factors affecting such technical efficiency were also investigated in this chapter. Sector-wise variation in the level of efficiency was very much evident from the outcome of the study. The effect and significance of different microeconomic and macroeconomic factors were not uniform across different sub-sectors within the Indian manufacturing industry during the period of study.KeywordsEfficiencyStochastic frontier analysisValue maximizationFinancial resilienceMicroeconomic factorsMacroeconomic factors
In today's globalised economy, mergers and acquisitions (M& A) are being increasingly used the world over, for improving competitiveness of companies through gaining greater market share, broadening the portfolio to reduce business risk, for entering new markets and geographies and capitalizing on economies of scale etc. The Indian corporate sector has experienced a major restructuring through mergers and acquisitions, with the changes brought about by the Industrial Policy Resolution of June 1991. This research study was aimed to study the impact of mergers on the shareholder"s value creation, of acquiring Indian companies, by examining some pre-merger and post-merger performance of return on gross capital employed, return on net capital employed, return on share holder"s funds and earning per share. In order to evaluate this, tools like, ratio analysis, mean standard deviation and student paired "t" distribution test have been used. T he results suggest that there is a mixed impact on shareholder"s value creation of acquiring companies.
Diversification decisions in banks can be atypical owing to the nature of banking business. Banks diversify across business segments such as retail, wholesale or treasury, and spread their sources of liabilities, asset exposures and income types across customer groups, industry sectors and geographies. While the more granular decisions of diversification have regulatory and policy norms to follow, less guidance is available for making segment diversification. Using data of business segments from annual reports of five private sector banks in India for the period 2008–2009 to 2015–2016, the study attempts to find out the decision factors behind their diversification. It is found that though being highly diversified universal banks now, these banks were initially oriented toward certain segments from where they have shifted their portfolios over time. Bank diversification decision involves pursuing segment growth and executed by making capital expenditure and risk capital allocation to the segments. Banks make higher capital expenditure on segments that contribute more to generation of deposits and liabilities. On the other hand, risk capital allocation is determined by segment’s share of assets as well as their risk adjusted returns. Segment growth may be targeted with the intent of achieving higher profitability and capital efficiency, but the outcome appears to be uncertain. Business segment diversification of private banks, therefore, seem to be intended toward enhancing resources generation and targeting higher profitability while economizing on risk capital.
How do we assess new forms of economic organization? As with other innovations, the value of a new organizational form is initially unknown. When assets are traded in financial markets, the information embodied in prices represent one mechanism through which organizational innovations are evaluated. We apply an experimental-learning framework to explore the influence of the capital markets on economic organization, using the conglomerate merger wave of the 1960s and 1970s as an empirical context. In our setting, the initial market popularity of conglomerates, followed by their rapid decline, is indicative of investors attempting to determine the value of a new organizational form. We provide event-study evidence that investors systematically updated their beliefs about the value of the conglomerate form based on new information (positive or negative) about the largest and most newsworthy conglomerates. Our results suggest that financial market participants make judgments not only about specific companies, but about organizational structure itself.
Outsourcing is a valuable strategy for firms to gain more benefits from the global supply chain. Outsourcing can be defined as a business agreement in which a firm is contracting out certain existing parts of the firm to either domestic and/or international third parties. In this chapter, we give an overview to the benefits and disadvantages of outsourcing. We also discuss recent trends in outsourcing; in particular, with the benefit of technology development, robots are starting to join in outsourcing.
In an intensely competitive business world, it is of great importance that the firms must perform efficiently for long-term sustainability. The present study made a modest effort to shed some light on the efficiency of the select 47 construction and engineering firms and the different microeconomic and macroeconomic factors affecting such efficiency during the period 1999-2000 to 2018-2019. For the purpose of this study, Stochastic Frontier Analysis was used primarily to determine the firm level efficiency scores. Subsequently, the determinants of such firm level efficiency were looked into using Panel Censored Tobit Regression Model. The results of the study showed that leverage, size, age, openness, exchange rate and price factor were the important determinants of the efficiency of the construction and engineering firms during the period of study.
Key Words:Efficiency, Construction & Engineering Firms, Leverage, Size, Openness, Age, Exchange Rate, Price Factor.
Purpose – We evaluate the evolution of the intellectual structure of strategic management (SM) by employing document co-citation analysis through network analysis for academic citations in articles published in the SMJ.
Design/methodology/approach – We employed co-citation analysis through social network analysis.
Findings –We outline the evolution of the academic foundations of the structure and emphasize several domains. The economic foundation of SM research with macro and micro perspectives has generated a solid knowledge stock in the literature. IO psychology has also been another dominant foundation. Its robust development and extension in the literature have focused on cognitive issues in actors’ behaviors as a behavioral foundation of SM. Methodological issues in SM research have become dominant between 2004 and 2011, but their influence has been inconsistent. We conclude by recommending future directions to increase maturity in the SM research domain.
Originality/value – This is the first paper to elucidate the intellectual structure of strategic management by adopting co-citation analysis through social network analysis.
If small firms are growing in importance, large ones still dominate and this chapter examines their share of economic activity in a range of countries. The motives for firms’ growth are considered, and economies of scale and cooperative ventures are discussed in some detail. A discussion of horizontal and vertical growth is followed by a section on diversification, an examination of internal and external growth, and a review of the growth of medium-sized firms. A survey of research on diversification and refocusing is illustrated by a number of European examples, and the chapter concludes with an examination of the relationship between growth and profitability.
Product policy consists of a series of decisions taken on the basis of information derived from analysis of demand, costs and technical feasibility, taking into account business aims and strategy. Product line changes (except for minor line changes) normally have considerable strategic implications. They involve market, manufacturing and organisational commitment. We therefore need to consider both the strategic aspects of product policy and the more detailed aspects of individual product policy decisions.
The aim of this article is to analyze and compare the nature, extent and pattern of diversification of domestic and multi-national companies (MNCs). A total of 536 companies from BS-1000 (March, 2012) form the sample of the study. The diversification move has been studied over a period of 10 years from 2001 to 2011. Firms are classified into four categories on the basis of Jacquemin–Berry entropy-index measure (1979) as Very Low Diversified (VLD), Related Diversified (RD), Unrelated Diversified (UD) and Very High Diversified (VHD). In order to check the difference in the extent of diversification, chi-square statistic has been employed. The article identifies that both MNCs and domestic companies are following diversification strategy, although the extent of diversification is higher in the case of MNCs than their domestic counterparts. ‘Related diversification’ is the most preferred strategy for both the groups. Further, both the groups follow an irregular pattern of diversification, although Indian companies prefer faster and forward movement, while MNCs are comparatively sluggish with their moves.
Diversification is the act of expanding a firm’s business into new product, geographic or vertical markets. Lateral diversification involves some degree of relatedness; conglomerate diversification involves none. The Penrosean resource-based view accounts for diversification as a process of firm growth driven by the opportunity to deploy excess resources into new, but still related, lines of business. The results of empirical research are consistent with a resource-driven view of diversification and growth.
The objective of the paper is to study the extent of diversification on a sample of 536 companies in India. The Jacquemin-Berry Entropy-Index measure has been used. The study covers a period of 10 years from 2001 to 2011. This period takes into account the influence of both liberalization reforms and global recession. The results show that related diversification (RD) has been the most favored diversification strategy in the Indian corporate sector. Further, the pattern of diversification during this period of 10 years suggests that both forward and backward movements are being followed by Indian companies; thus making the overall pattern somewhat erratic.
Mergers are everyday occurrences. And individual mergers can be motivated by any number of motives. Proportionately, however, history tells us that most mergers are announced during a merger wave; that is, during a period of intense activity, which is usually followed by an interval of relatively less intense activity. And merger waves are very different animals.
Between 1995 and 1999, $9,000 billion was spent by North American and Western European firms on mergers and acquisitions (M&As)1; a near incomprehensible figure which, by way of comparison, was about seven times the UK’s gross domestic product (GDP), and more than 20 times that of the Netherlands (Schenk, 2003) in the same period. So large was the expenditure that, as a percentage of US GDP, M&As soared from 1.6% in the 1960s, to 3.4% in the 1980s, to a staggering 15.4% at the height of the ‘fifth merger wave’ in 1999. And as the ‘sixth merger wave’ unfolded (2003-2008), records were again broken, when “the value of M&A averaged $10 billion a day” (The Economist, 8 April 2006).
Any discussion of faults in governance has to begin with an explanation of the corporation’s ultimate purpose: that is, the criteria by which the corporation’s performance and success are to be measured. Throughout its development the corporation has had one stated objective: ‘the conduct of business activities with a view toward enhancing corporate profit and shareholder gain’.1 While some have argued that employees, suppliers and communities deserve at least some of the residual, or ‘profit’, this has generally been rejected as being in conflict with the conceptual model and state law and judicial decisions.
The first five merger waves were US-led events. In this article we show that the largely over-looked sixth wave (2003–2008) emerged in all regions simultaneously. Because of this, and building upon interconnected literatures – which: (1) suggests that agency is a big predictor of merger performance; (2) distinguishes between three distinct governance traditions; and (3) argues that the
Anglo-Saxon
system puts the most effort into protecting investors and aligning interests, and the
Confucian
system the least – we predicted that
Anglo-Saxon
acquirers would create value in the sixth wave, and
Confucian
acquirers would destroy it. We find the opposite to be true and show that Chinese acquirers, in particular, created the most value in the sixth wave. In attempting to explain why, we find that China outperformed its Asian neighbors while doing the same thing, and outperformed its Western peers while doing what the literature suggests that they shouldn't do. This not only points to the limits of the generalizability of the existing literature, but supports the suggestion that Chinese acquirers are ‘different’. We call, therefore, for additional research into understanding Chinese and Confucian acquirers using the standard comparative merger data.
In den 70er Jahren haben zahlreiche Unternehmen begonnen, ihre Diversifikationsstrategie auf nicht verwandte Tätigkeitsfelder auszuweiten. Diese konglomerate Diversifikationsstrategie wurde vor allem von Großunternehmen verfolgt. Im Zuge konglomerater Diversifikation kam es zur Bildung von Mischkonzernen, die die Unternehmensstruktur in der Bundesrepublik stark veränderten.
For many years, mergers have represented a troublesome public-policy issue. The passage of the Sherman Act (1890) was prompted by concerns about the impact of horizontal concentration. The Clayton Act (1914) and amendments attached to it (1950) were prompted by similar concerns. The Clayton Act amendments, in fact, were aimed specifically at creating an unattractive climate for corporate acquisitions (horizontal and vertical). To an extent, they have succeeded. Since 1950, the number of large vertical and horizontal mergers has declined sharply, but merger activity has continued. Firms have taken to expansion through conglomerate acquisition.1 Conglomerate expansion has continued and increased to the point where the overwhelming majority of mergers are conglomerate in nature, though not necessarily purely conglomerate. Such acquisitions present especially vexing policy problems. Conglomerate mergers are difficult to attack on anticompetitive grounds; yet, they may threaten the competitive nature of the economy through their impact on aggregate concentration.
The key question addressed in this book is: what drives superior financial performance? Important component questions include: why do some firms consistently perform better than others? why do poorly performing firms improve profitability? why do once successful firms suffer profit declines, and what can be done about it? what keeps consistently under performing firms from improving profitability, and what can be done about it? Answers to these questions should lead directly to advice for managers on how corporations might improve financial performance.
An observational study has multiple control groups if it has several distinct groups of subjects who did not receive the treatment. In a randomized experiment, every control is denied the treatment for the same reason, namely, the toss of a coin. In an observational study, there may be several distinct ways that the treatment is denied to a subject. If these several control groups have outcomes that differ substantially and significantly, then this cannot reflect an effect of the treatment, since no control subject received the treatment. It must reflect, instead, some form of bias.
The impact of a government economic policy is an extremely complex question, but obviously an important one for rational decision making by enforcement agencies and firms. Facts on the real productivity of mergers are slowly coming to light, gradually replacing a sizable folklore on the sources and magnitude of merger success. Relating marketing, mergers, and the present value of the firm, this article summarizes merger-policy enforcement patterns, some evidence on profitability and scale, and the financial performance of mergers. With particular reference to large mergers, questions are raised as to the social costs and benefits of an even more stringent merger policy.
If the present trend continues, the United States will soon be left with only a few hundred companies, all possessing net earning streams with the same expected return, the same standard deviation, and the same intercorrelation coefficients.
Only very recently have the courts begun to discuss problems involved in developing legal standards in the area of so-called "conglomerate" mergers. In general the rules that have evolved in connection with mergers of the horizontal and vertical varieties do not seem wholly appropriate for examination of conglomerates. In this article, Professor Turner argues that the law should move toward the development of general rules to test the validity of conglomerate mergers, focusing upon a few selected factual issues that such arrangements involve. He then analyzes the possible anticompetitive consequences that certain types of conglomerate mergers may have, and indicates those situations in which the probabilities of reduced competition are greatest. Based on this analysis, Professor Turner suggests a number of general rules to cover the situations discussed.
During the past few years, many interesting papers have been written on the subject of product-market diversification. A majority of the writers have dealt with either case histories of successful diversification or with qualitative check-off lists to be used in analyzing specific diversification opportunities. A much smaller group of papers has been devoted to formulation of a systematic approach which a company can use to compare alternative diversification decisions.
This paper falls in the latter category. As a first step, diversification is defined and distinguished from other company growth alternatives. Typical growth perspectives are described which may motivate a company to diversify. Diversification objectives are established and related to the company's long-range objectives.
A two-step evaluation scheme is proposed for selection of the preferred diversification strategy. The first is a qualitative step, which narrows a wide field of diversification opportunities to a selected few which are consistent with the company's diversification objectives and long-range policy. In the second step, a quantitative procedure is outlined for evaluating the relative profit potential of the selected alternatives. Finally, limitations of the present method are discussed.
I. The growth maximization hypothesis, 644. — II. The demand and supply of firms when managers maximize stockholder welfare,
648. — III. The demand and supply of firms when managers and stockholders have different expectations, 653. — IV. Differences
in discount rates as a cause of mergers, 654. — V. Growth maximization in light of recent merger history, 657.
Introduction, 624. — Economic disturbances and valuation discrepancies, 626. — Pursuit of monopoly and economies of scale
as determinants of merger, 629. — Statistical tests, 631. — Security prices and valuation discrepancies, 637.
The recent developments o f the conglomerate merger again bring forth the question of bigness, already posed by the trusts and holding companies o f earlier decades. The Pattersons probe into the reasons for such unions and into the legality o f such combinations. Antitrust policy is at a crossroads. Will the necessary decisions concerning these mergers be decided by the courts, which must rely on vague instructions in the law and established legal precedent, or should Congress define new guidelines? Soon it must be decided whither conglomerate mergers.
One of basic functional relationships in the Keynesian model of the economy is the liquidity preference schedule, an inverse relationship between the demand for cash balances and the rate of interest. This aggregative function must be derived from some assumptions regarding the behavior of the decision-making units of the economy, and those assumptions are the concern of this paper.
This study analyzes the effects of right-wing extremism on the well-being of immigrants based on data from the German Socio-Economic Panel (SOEP) for the years 1984 to 2006 merged with state-level information on election outcomes. The results show that the life satisfaction of immigrants is significantly reduced if right-wing extremism in the native population increases. Moreover ; the life satisfaction of highly educated immigrants is affected more strongly than that of low-skilled immigrants. This supports the view that policies aimed at making immigration more attractive to the high-skilled have to include measures that reduce xenophobic attitudes in the native population. --
Melnik et al. [Melnik, A., Shy, Oz, Stenbacka, R., 2008. Assessing market dominance. Journal of Economic Behavior and Organization 68, 63-72] have proposed a new statistic to assess market dominance. In this comment we expand their discussion of certain mathematical properties in their analysis and link their methodology to some previous approaches.
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Conglomerate Mergers Convertibles and Cash Dividends
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Social and Economic Consequences of the Merger Movement in Wisconsin
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Mergers for Whom: Managers or Stockholders?
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Conglomerates and Diversification Under Section 7 of the Clayton Act
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Conglomerate Mergers and the Curse of Bigness
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Conglomerate Mergers, Joint Ventures, and Potential Competition
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Mergers and Profitability
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Conglomerate Mergers: Their Implications for the Efficiency of Capital and the Theory of the Firm
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Social and Economic Consequences of the Merger Movement in Wisconsin
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