Despite the growing interests in entrepreneurial spawning, whereby employees leave an incumbent to become entrepreneurs, there is a lack of studies examining the impact of firm strategies on the process. However, IS literature has documented various influences of IT on firms. This study attempts to bridge these two streams of research by investigating the impact of IT investment (as a form of f...

This paper analyzes a firm’s propensity to commit securities fraud and the real consequences of fraud. The theory shows that fraud has real economic cost, as investment distortions can arise from fraud-induced market misvaluation and management’s ability to influence the firm’s litigation risk through investment. The cost of inefficiency is borne by not only shareholders of fraudulent firms but...

We model the capacity investment problem faced by pharmaceutical firms and other firms with long and risky product development cycles. These firms must balance two conflicting objectives: on one hand, the delay in scaling-up production once the product is approved must be minimized, and on the other hand, the risk of investing in ultimately unused capacity must be minimized. We develop a styliz...

We investigate the strategic incentives for vertical foreign direct investment by oligopolistic firms under exchange rate uncertainty. Domestic final good firms meet their input requirements either by investing abroad and producing directly through a subsidiary (intra-firm trade) or by buying from an oligopolistic market abroad (inter-firm trade). Firms undertaking vertical investment can bid u...

This paper suggests that the use of investment incentives focusing exclusively on foreign firms, although motivated in some cases from a theoretical point of view, is generally not an efficient way to raise national welfare. The main reason is that the strongest theoretical motive for financial subsidies to inward FDI – spillovers of foreign technology and skills to local industry – is not an a...

Applications of the real options approach hardly consider investment returns to be the result of competitive markets. The reason is probably that Dixit and Pindyck (1994, ch. 8) find that the investment triggers of firms in competitive markets are equal to those of firms with exclusive options. In this study, however, it is shown that this finding is restricted to markets in which assets have i...

For many real-world markets (such as media, telecommunications, high tech markets, commercial aircrafts, etc.), incurring endogenous sunk costs (in the form of quality enhancing expenditures), in the presence of R&D spillovers, is an essential feature of competition. We study the interaction between these sunk costs and R&D spillovers relying on the Sutton’s concept of endogenous sunk costs and...

This paper examines the extent of firm level over-investment of free cash flow. Using an accounting-based framework to measure overinvestment and free cash flow, I find evidence that, consistent with agency cost explanations, over-investment is concentrated in firms with the highest levels of free cash flow. Further tests examine whether firms’ governance structures are associated with over-inv...

Does cultural similarity affect destination choices of foreign direct investment (FDI)? To answer this question, I provide a novel identification strategy which explores discontinuous changes in investment from Hong Kong, Macau and Taiwan (HMT) to Mainland China at borders of Chinese dialect zones. Mainland China can be geographically separated into various dialect zones. People who speak the s...

Empirical evidence confirms that trade exposure can shift resources towards the most efficient firms in an industry and induce substantial increases in aggregate productivity. Although recent studies document that much of world trade is controlled by multinational firms, few examine the effect of foreign direct investment decisions on resource allocation and aggregate productivity. This paper p...