The Business Review, Cambridge

Vol. 10 * Number 2 * Sum. 2008

The Library of Congress, Washington, DC   *   ISSN 1553 - 5827

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Variations in an Operational Theory Integrating Cash Discount and Product Pricing Policies

Dr. William Lim, York University, Toronto, ON

Dr. Muhammad Rashid, University of New Brunswick, Fredericton, NB



Building on Lim and Rashid’s (2002) operational theory of cash discounts and product pricing, this paper: (i) explains survey evidence that customers with higher borrowing costs are offered higher cash discounts; and (ii) suggests that demand elasticities and interdependencies are quantitatively more important than default risk. Many theories have been proposed to explain the use of trade credit by vendors. Credit terms specify when invoiced amounts are due and whether a cash discount could be taken for earlier payment. The credit period is the length of time allowable for payment of the invoice amount. The cash discount is the percentage amount that can be subtracted from the invoice if the customer pays within the discount period. Smith (1987) and Ng, Smith and Smith (1999) show that credit terms involving a cash discount provide better screening and monitoring of a buyer’s financial position to protect potential rents from non-salvageable investment in the buyer. The determination of an optimal cash discount from a theoretical perspective originated with Lieber and Orgler (1975), who developed expressions for the expected net present value or NPV of accounts receivable and implicit form solutions of the optimal discount. Later, Hill and Riener (1979) derived an explicit form solution of an optimal discount in a situation where the firm has no bad-debt exposure and the fraction of buyers discounting is certain. In further work, Beranek (1991) provided analysis of behavioral factors determining the optimal discount. Recognizing that a cash discount is equivalent to a reduction in price, Rashid and Mitra (1999) linked it to the price elasticity of demand. Equally, if not more, important as the abovementioned theories of trade credit are those that integrate credit policy with other policy decisions. It has been recognized (Kim and Atkins, 1978; Kim and Chung, 1990) that suboptimal results will occur whenever interrelated policy variables are modeled independently. Therefore, it is desirable that credit management decisions be made jointly with other policy decisions. The significance of this research can be appreciated in the context of integrating efforts of several papers. Perhaps the most important area of integration is the integration of a firm’s credit policy with its product pricing as recognized by Kim and Atkin (1978, p.403) who state that Ait is conceptually incorrect to analyze credit programs in isolation of pricing schemes.” Their paper, along with Atkins and Kim (1977), use wealth-maximizing frameworks in their integrating efforts.  Recognizing that a cash discount for early repayment separates buyers with respect to their borrowing costs, Lim and Rashid (2002) introduce a partial equilibrium model of third-degree price discrimination where the firm sets two prices to maximize NPV: a product price, and a cash discount (which determines the effective price in the second market). Setting two prices then requires two elasticities: a cash discount elasticity of demand (which measures the sensitivity of sales to the cash discount or credit terms in general), and the product price elasticity of demand (which measures the sensitivity of sales to the product price). The main conclusion of their paper is that the effect of the cash discount elasticity is mainly on the optimal cash discount, while the effect of product price elasticity is mainly on the optimal product price. Lim and Rashid’s (2002) model has been empirically tested by Lim, Rashid and Mitra (2006) using a detailed database compiled by the United States National Survey of Small Business Finance (NSSBF). This dataset focuses on small firms, where trade credit is more likely to be a significant form of finance as such firms are more likely to face financial constraints. Lim, Rashid and Mitra (2006) find that proxies for the cash discount elasticity and the product price elasticity (SIC code) are statistically significant determinants of the cash discount offered to these firms, with the proxies for the cash discount elasticity being more significant, providing empirical evidence for Lim and Rashid’s (2002) main conclusion. Lim, Rashid and Mitra (2006) also find that credit terms are positively correlated with each other. Therefore, a higher cash discount implies more generous credit terms. The two most significant explanatory variables are firm size and credit quality, both of which are negatively related to the size of the cash discount offered. Generally, smaller firms and higher credit risk firms have higher borrowing costs. Therefore, Lim, Rashid and Mitra’s (2006) survey evidence shows that customers with higher borrowing costs are offered higher cash discounts. In this paper, we attempt to explain this phenomenon and to perform a sensitivity analysis to further examine Lim and Rashid’s main conclusion. Although default risk has been incorporated into models integrating credit policy with product pricing (Lam and Chen, 1986), the quantitative importance of default risk vis-à-vis uncertain product demand has not been established. This issue is also addressed in this paper. Our numerical computations suggest that demand elasticities and interdependencies are quantitatively more important than default risk in credit pricing. This finding is consistent with Cheng and Pike’s (2003) evidence that credit terms vary primarily for customer reasons and pricing flexibility, with Summers and Wilson’s (2003) evidence that firms vary terms in anticipation of capturing new business, attracting specific customers and achieving specific marketing aims, and with Lim, Rashid and Mitra’s (2006) evidence that credit terms vary primarily for marketing purposes. The rest of the paper is then organized as follows: Section 2 provides an explanation of the two types of demand elasticities. Section 3 details the behavioral specifications of buyers and interdependencies, while Section 4 performs the analysis. In Section 5, the demand elasticities and interdependencies (i.e., the proportion of customers who take the cash discount to a change in credit terms) are shown to be quantitatively more important than default risk. Section 6 concludes.  Different factors are involved in the responsiveness of quantity demanded to changes in the cash discount rate and the product. As discussed in Lim and Rashid (2002), when we examine the response of quantity demanded to a change in d, credit constraints reflected in borrowing costs play a key role in determining the numerical magnitude of ηd, with customers facing higher borrowing costs having higher cash discount elasticities. Also, Lim and Rashid (2002) explain why the numerical magnitude of ηd is expected to be small. As far as the product price elasticity is concerned, its numerical magnitude is affected by factors in the product market as discussed in Lim and Rashid (2002). The two elasticities separate buyers into those who are more credit-elastic (with high ηd) and those who are more product price-elastic (with high ηp). More credit-elastic buyers would be more sensitive to changes in the cash discount rate, while more product price-elastic buyers would be more sensitive to changes in the product price. This is similar to Frank and Maksimovic’s (2004) separation of firms that are “financially-distressed” and “economically-distressed”. Financially-distressed buyers are those who are undervalued by the stock market and therefore have higher borrowing costs. These buyers would be more credit-elastic and should respond more to changes in credit terms. Economically-distressed buyers are those who are suffering from falling sales (perhaps due to falling demand for their products). These buyers are looking to increase the profit or contribution margin from each sale and should respond more to changes in the supplier’s product price to reduce their variable costs.


Exploring Facets of Job Satisfaction:  Lessons for Expatriate Managers in Vietnam

Dr. Kathryn J. Ready, Winona State University, MN

Van Dinh, Hanoi Economics University



Understanding job satisfaction measures is crucial in retaining experienced employees in a global economy, yet job satisfaction measures vary across countries. This study examines differences between American and Vietnamese students in their expectations of factors which are important to overall job satisfaction. Two samples, taken separately from the U.S. and Vietnam, were used to test differences in job satisfaction measures. The results show that while both groups agree on factors contributing to job satisfaction, differences are found in the importance of factors such as job security, recognition for work, creativity on the job, relationship with supervisors, and benefit packages. Theoretical and practical implications of the finding as well as directions for future research are discussed. Employees’ job satisfaction has been studied widely in the United States in order to understand the concept and its causes as well as its consequences. Researchers have identified factors such as recognition, working conditions, relationships with coworkers and supervisors, wage and benefits, promotional opportunities, fairness of treatment, as well as many others (e.g., Locke, 1976; Witt & Nye, 1992; Vander, Emans, & Van DeVliert, 2001) as being important to an employee’s job satisfaction.  Understanding facets of job satisfaction is important for today’s managers because it is associated with many critical organizational outcomes. For example, employees who are more satisfied with their jobs are less likely to be absent (Hackett & Guion, 1985), less likely to leave the organization (Carsten & Spector, 1987), are more likely to display organizational citizenship behavior (Organ & Konovsky, 1989), and more likely to be satisfied with their lives overall (Judge & Watanabe, 1993). Although several comparative studies have been conducted to investigate the differences in job satisfaction across cultures, few studies have examined job satisfaction in Vietnam. Vietnam is a developing country which attracts considerable foreign investments with the U.S. being one of the leading investors. In 2006, Vietnam exported $8.6 billion of goods to the U.S. and imported $1.1 billion of U.S. goods. This bilateral trade relationship has increased more than five-fold from 2001 when the U.S. and Vietnam signed a bi-lateral trade agreement.  This agreement included provisions on trade in goods and services, enforcement of intellectual property rights and protection of investments (U. S. State Dept., 2007).  In 2007, Vietnam became the 150th member of the WTO and signed a Trade and Investment Framework Agreement with the U.S. to facilitate future economic cooperation (U.S. State Dept, 2007).  As business increases and demand for qualified Vietnamese workers grows, an understanding of factors leading to job satisfaction will become increasingly important.  This study provides information on expectations of job satisfaction factors for college-educated Vietnamese workers and compares them with U.S. student’s factors.  Implications for expatriate managers in the growing Vietnamese marketplace are provided. Job satisfaction is an affective response toward various facets of one’s job (Kreitner & Kinicki, 2007).  The traditional view of job satisfaction is that overall job satisfaction is formed from individual facets (Weiss et al., 1967), or dimensions. According to Locke (1976), the important factors conducive to job satisfaction are mentally challenging work, equitable rewards, supportive working conditions, and supportive colleagues. Similarly, Arnold and Feldman (1986) pointed out that there are six principal sets of variables that influence employees’ positive or negative attitudes toward their jobs, including salary, the job itself, promotion opportunities, management style, the work group, and working conditions.  The facet model of job satisfaction examines job facets to determine how satisfied employees are with each facet.  Weiss et al, (1967) in the Minnesota Satisfaction survey determined that the following facets play apart in determining job satisfaction.  These facets include:  ability utilization, achievement, activity, advancement, authority, company policies and practices, compensation, co-workers, creativity, independence, moral values, recognition, responsibility, security, social service, social status, human relations supervision, technical supervision, variety, and working conditions.  We use several of these measures of job satisfaction in our research. Employees’ job satisfaction is directly involved with the profitability and condition of an organization. Measuring employees’ job satisfaction can help managers improve operational effectiveness.  Kreitner and Kinicki  (2007) concluded that there are seven major consequences of job satisfaction. First, job satisfaction can increase an employee’s motivation and involvement at work. Second, job satisfaction is positively related to organizational citizenship behaviors, which are employee behaviors that exceed work-role requirements (LePine, Erez, & Johnson, 2002). Organizational citizenship behaviors can then impact organizational effectiveness (Koys, 2001). Third, job satisfaction is shown to be positively and strongly related to organizational commitment and negatively related to withdrawal cognitions (Hom & Kinicki, 2001) and turnover (Tett & Meyer, 1993) . High commitment can facilitate productivity, and high turnover can be very costly. Fourth, job satisfaction has a strong and negative relationship with perceived stress.  Stress can have very negative effects on organizational behavior, such as absenteeism or turnover, and an individual’s health, such as coronary heart disease and viral infections (Blegen, 1993). Lastly, researchers found that job satisfaction and job performance are positively correlated but both variables indirectly influence each other through a host of individual differences and work-environment characteristics (Schleicher, Watt, & Greguras, 2004).  Culture also influences factors leading to job satisfaction. To examine the impact of cultural differences, Hofstede (1980) constructed four distinct dimensions of culture: individualism, power distance, uncertainty avoidance, and masculinity to explain and identify different values and beliefs across countries. Individualistic societies encourage its members to be independent and look out for themselves, whereas collectivistic societies emphasize the group’s responsibility for each individual.  In culture with high power distance, there is little consultation between superiors and subordinates. In lower power distance culture, greater equality and information sharing among different organizational ranks occur.  The values more likely to be held in a society can be depicted as masculine where there is more of an emphasis on the importance of materials goods and money versus feminine culture that are characterized by concerns for relationships, nurturing, and quality of life. In societies with high uncertainty avoidance, people prefer stability, structure, and precise managerial direction. Individuals in low uncertainty avoidance societies adapt more readily to ambiguity and unstructured situations (McGinnis, 2005).


Small Business Taxation: An Evaluation of the Role of Special Treatment Policies

Dr. Jeff Pope, Tax Policy Research Unit, Curtin University, Perth, Australia



In many countries small businesses expect and generally receive special treatment, concessions or arrangements regarding taxation compared with medium and large business. Such policies are based primarily upon the role and importance of small business in economic growth and especially job creation, and the high administrative and compliance costs of including a large number of small entities in the tax system. This paper focuses on the latter aspect, using examples and data from various countries in the world, particularly the UK, USA, New Zealand and Australia. The arguments for special treatment seem compelling, particularly lower administrative and compliance costs, although difficulties usually arise at the margin or threshold where the special treatment ends. However, an often neglected argument is that small business often engage in high levels of tax evasion, based on the so-called ‘cash economy’, an opportunity generally denied to large business (at least domestically). It can be argued that benefits arising from evasion roughly approximate to the higher compliance costs endured by small business, particularly for income taxation. This paper evaluates this argument and the extent that special treatment taxation arrangements of small business are warranted. The conclusion sums up the experiences of the countries considered, the key policy implications, the limitations of the analysis, and indicates areas for further research.  In various countries throughout the world, both developed and developing, small business has long enjoyed favourable tax policy treatment. Generally, the term ‘small business’ is used favourably by politicians and bureaucrats, and others in the community. It is seen by many as synonymous with business enterprise, creativity and dynamism, healthy competitive markets and most importantly the creation of employment and a generator of economic growth. In economic policy terms, favourable tax treatment of small business is justified in terms of market failure (Freedman, 2003 p14), but difficulties are well noted (eg Freedman, 2006). There is a reasonably large literature on small business taxation and this paper uses selected examples and data primarily from the USA, UK, New Zealand and Australia to support its arguments; a comprehensive coverage of international literature on this topic is not intended. Wider public policy issues are discussed by Chittenden and Sloan (2007). Overall, there is a strong positive relationship between small business entrepreneurship and both the level of GDP per capita and GDP growth, certainly in developed countries where reliable data exists. For example, in Australia small business accounts for around 30% of economic activity and has grown at an annual rate of 3.5% per annum since 1983 compared with large business (those with more than 200 employees)  growth of 2.5% per annum over the same period (Commonwealth of Australia, 2002). Small business accounts for around 30% of GDP and 49% of all private sector employment (Coleman and Evans, 2003, p147, citing Industry Tourism Resources and Australian Bureau of Statistics data for 2002 respectively). In the USA small business accounts for 51% of private GDP and generates 58% of non-farm employment. Of the 22.4 million businesses in 2001, 99% were classed as small business. Around 9 million were owned fully or partially by females, and a significant number by Native Americans, Asians, Hispanics and Afro-Americans (Karlinsky, 2003, p45, citing Office of Advocacy, Small Business Administration data). Better economic opportunities for females and ethnic minorities need to be considered in any evaluation of small business taxation policies, factors often ignored by some tax analysts. Nearly all analysts of small business taxation discuss the problem of defining exactly what is meant by the term small business. Even within any one country there are not just several definitions but a plethora – for example, around 42 in the USA. Analysing data and making comparisons for policy purposes within any one country is difficult because of different definitions by different agencies. To attempt to do this between different countries is practically impossible without a great deal of tedious work and simplifying assumptions.  Having defined what is meant by the term small business, the question of tax structure emerges in most countries. For example, a small business may operate on the basis of a sole trader, partnership or company, or possibly, in some countries, a more complicated structure such as a unit trust or discretionary trust. An important consideration often ignored concerns the ownership of small business in terms of income, assets and wealth. For example, a small business could be owned by a person with both low income and wealth, or alternatively be owned by a wealthy person yet the small business itself may have low income. Ownership becomes an important issue in terms of equity particularly where small business receives special and favourable tax treatment, a factor not considered further in this paper. The types of special tax treatment for small business may be identified, focusing on major taxes prevalent in most developed countries rather than claiming to be comprehensive because of the complexities involved across different tax jurisdictions. Generally these take the form of exemptions, thresholds, lower rates and special concessions for payment of taxes.  There is a reasonably large literature on the tax compliance costs of small business, as one of the major findings of nearly all studies worldwide is the regressive nature of tax compliance costs. In other words, large business benefits from economies of scale of tax compliance and vice versa. There is often a ‘fixed cost’ nature of tax compliance that particularly disadvantages small business who generally resent acting as an ‘unpaid tax collector’ for government. Such sentiments often generate calls for compensation for tax collection by small business, particularly in Europe regarding the Value-Added Tax (VAT), also known as the Goods and Services Tax (GST) in Australia, New Zealand and Canada (Pope, 2001).   Importantly, this paper discusses a factor nearly always ignored by politicians and commentators and even by most academic researchers, namely significant tax evasion by small business, analysed by Slemrod (2004) in the context of the US income tax. One of the reasons for this is the high number of taxpayers that generate a relatively low amount of tax revenue, certainly in percentage of total tax revenue terms. Auditing and enforcement costs of the tax authorities are therefore high, and it is much more cost effective to focus on large business. There may also be political considerations to be taken into account, particularly in less well-off countries. The paper presents a succinct analysis of the main issues, as well as recognising the complexities of this topic. The structure of the paper in terms of sections essentially follows the key points made in this introduction. The paper concludes with some major observations.


Content Oriented Development of a Situational Interview

Dr. Douglas Flint, University of New Brunswick

Lynn Haley, University of New Brunswick



Content validity is typically determined qualitatively after test development.  This study conducted a quantitative content validation early in the development of a situational interview (SI).  By conducting quantitative content validation immediately following job analysis, important items were identified and the task field narrowed for further development.  The identification of those items early in the developmental process increased the criterion validity of the selection instrument.  The only quantitative content validity measure currently in use is the content validity ratio (CVR) developed by Lawshe (1975).   Even with the relatively small sample size in this study, most task and KSA items had significant CVRs.  In order to provide better discrimination among items, a confidence interval measure was developed. Cronbach (1970) stated that content validity was “evaluated by showing how well the content of the test samples the class of situations about which conclusions are to be drawn.” Content validity is usually assessed by examining the extent that subject matter experts (SMEs) agree that success on a test item is essential for doing the job (Carrier, Dalessio & Brown, 1990). SMEs, are usually job incumbents, their managers, or supervisors.  Content validation is commonly a qualitative report in which consensus is achieved between SME’s on two levels.  First, agreement is sought as to whether particular items sample the content domain.  Second, consensus is sought on the issue that, collectively, test items reflect a representative sample of the content universe of the particular job.  These judgments are usually qualitative since many positions have too few incumbents or supervisors to make quantitative assessments possible.  Criterion validity determines how well the scores on the interview predict performance on the job.  Criterion validity can be either concurrent or predictive. Concurrent validation is the correlation between interview scores and performance appraisals from current job incumbents. Predictive validity is a correlation between interview scores taken from job applicants and a performance score taken later in time from those hired for the job (Cascio, 1991, p 155-157).  In this study criterion validity was determined through a concurrent procedure. A few studies have examined content validation in qualitative terms (e.g., Carrier, Dalessio & Brown, 1990; Ford & Wroten, 1984; Lawshe, 1975; Schmitt & Ostroff, 1986), employing the content validity ratio (CVR) (Lawshe, 1975).  The CVR makes use of panels of SME’s to determine how essential each item is.  Independently each SME is asked: Is this skill (or knowledge) measured by this item, essential/useful or not essential/not necessary to the performance of the job?  When fewer than 50% of the panelists say “essential” the CVR is negative; when 50% say “essential” and 50% do not the CVR is zero; and when more than 50% say “essential” the CVR is positive (Lawshe, 1975). The CVR presents SMEs with two choices. This restricts the range of responses and makes a statistically significant “essential” rating more likely for an item as sample sizes increase.  The scale also makes perfect agreement scores likely if all experts agree that an item is either essential or not essential.  These factors limit the CVR’s capacity to discriminate among important and unimportant items and restrict its utility in identification of important items. A confidence interval (CI) measure was developed for this study.  It uses a six-point Likert scale and assesses significance through a confidence interval measure.  The scale provides finer discrimination between items making it possible to rank order tasks in terms of relative importance.  This method should result in better discrimination of important tasks, and higher criterion validity, than is possible with the CVR. Hypothesis 1:  The confidence interval measure provides better discrimination of items for test development and higher criterion validity than the CVR.  One of the objectives of content validation is to assure the whole universe of items is sampled in a representative manner.   One way to achieve this is to sample items from all job constructs.  Tenopyr (1977) argued that sampling representative items of a content universe involves either an implicit or explicit assumption about the constructs within that universe.  Tenopyr (1977) identified both personality and ability constructs within job content domains.  In the current study, five ability constructs were identified in job analysis focus groups.  These constructs formed the categorical basis of content analysis and subsequent test development.  Tasks were selected on the basis of their ranking within each category to ensure items used to develop selection and performance appraisal questions were representative of all ability constructs. There has been debate in the literature as to whether or not content validity is a “true” measure of validity.  Messick (1975) noted, “’content validity’ deals with inferences about test construction, and not about test scores.  Therefore ‘content validity’ cannot be equated with other aspects of validity.”  Guion (1987) suggested that it should be called “content oriented test development.” Ebel (1977) went further and suggested that content validity is the foundation of criterion related validity and asserted: “If the test does not have it [content validity], the criterion measures used to validate the test must have it (p 59).”  Following these arguments the current study deliberately included a quantitative content validation step in test development.  Extending Ebel’s logic we predict that test development based on items sampled from a representative content domain will result in superior criterion validity. Hypothesis 2: The use of a quantitative measure of content validation, early in the development of a selection system, to identify important tasks for further development, results in greater criterion validity than tests developed without this measure. A situational interview (SI) was developed for the position of service representative for a communication company.  Service representatives answer inbound customer inquiries.  All tasks necessary to the job are performed over the phone assisted with a computer terminal.  Different participants were involved in the focus groups (n = 12), the content (n = 28) and criterion (n = 29) validations.


Examining the Bank Service Quality from Personnel Point of View: The Comparisons of State, Private and Foreign Banks in Turkey

Dr. Musa Pinar, Valparaiso University, Valparaiso, IN

Dr. Zeliha Eser, Baskent University, Ankara, Turkey



This research examines the bank personnel’s perceptions of the quality of banking service offered by the Turkish banks. Specifically, the study is aimed to: (a) examine the perceptions of the bank personnel regarding the importance of the bank services; and (b) to compare the perceptions of the bank personnel at state, private and foreign banks. The study, which provided some insights into the personnel perceptions in identifying the strong and weak areas of banking services at Turkish banks, found a significant difference between the personnel of private vs. state bank, foreign bank vs. state bank, but not between private vs. foreign personnel. These differences, or “gaps”, if not taken care of, could have an adverse impact on bank customer satisfaction and bank performance. The study also presents the implications of the results for service quality and competitiveness of the banks in Turkey.  In today’s dynamic, global marketplace, consumers have more choices and a wide variety of alternative banking services. A main challenge for banks is to understand how a customer decides which bank to choose when many of the banks offer similar products and services, such as extra services, free checking, phone access, and on-line and/or mobile banking, to name a few. Stickler (2001) states that two things that can differentiate one bank from another and attract the customer are (1) customer service and (2) how the banks present and sell their products and services. Customers tend to go where they are made to feel welcome and offered the best quality service (Stickler, 2001). As the domestic and global competition has intensified, the above differentiating factors have become even more critical for the survival of the banks. Therefore, the banks must offer not only better services to their customers, but also they must communicate their services to the customers.  In order to be successful banks must monitor quality of their services and must compare their performances in order maintain and/or improve their competitiveness in the marketplace. Since the main mission of banks is to provide their customers with the most value at the lowest cost in the shortest amount of time (Sweeney, 1997), banks must be effective (do the right things) and efficient (do things right) in order to accomplish this mission. Today’s customers place a premium on service quality and value-added products. This means that the bank managers must find ways to get feedback from their customers regarding the quality of their bank services, the level of customer satisfaction with the services and the competitiveness of their banks. In recent years, benchmarking has emerged as a prominent technique in improving the operations and offerings in the banking industry and has become a common practice to gauge services, products, and customer satisfaction (Myers, 1993).  Also, secret or mystery shopping is commonly used both internally and externally to collect information about the business performances. Secret shopping serves such purposes as pinpointing service delivery weaknesses and strengths, strengthening sales culture, and improving customer service (Lubin, 2001). The mystery shopper study by Pinar and Eser (2007) provide some insights about the quality of the bank services in Turkey. Their study identified that while that banks collectively provided fairly good service quality in these areas of presentation, giving attentive service and need determination.  They did a poorer job in the service areas of greeting, building rapport, and closing, indicating deficiencies in those banking services that need to be improved. Also, the comparisons of quality of services offered by individual banks showed that the government-owned banks provided significantly lower quality service than private and foreign banks in all areas of banking. Their findings are consistent with the recent rankings of the Turkish banks, which are dominated by the private and foreign banks, in the absence of any state bank in any area of the rankings (Green, 2005).  In addition to feedback received from customers about the bank service quality, it is also essential for the banks to examine how the bank personnel perceive the services and activities that banks offer to their customers. Whether or not bank personnel perceive the services as being important for creating customer satisfaction will have a significant impact on the quality of services actually delivered and, in turn, impact actual customer satisfaction and banking performance. This is especially true for the contact persons, where customers interact with the firm (bank) for the first time and form their first impression of the organization. If customers have no other basis for judging the organization, these initial contacts are of great importance in consumers’ perception of bank service quality (Zeithaml, Bitner, and Gremler, 2006). Moreover, prior studies dealing with bank service quality, bank performance, and benchmarking in banking have been conducted in the United States and Western Europe. While those studies have contributed to our understanding of these issues, little is known about the same issues occurring in developing countries.  Before the economic liberalization of the banking in the 1908s, the banks in Turkey enjoyed a protected market with virtually no foreign competition, and most banks, generally state-owned, provided identical undifferentiated services, with customers having little or no choice. However, as a result of the economic liberalization and globalization policies implemented by the government, the post-1980s era of the Turkish banking industry is characterized as being free of interest rates, having full convertibility of the Turkish Lira, institutional reforms, licensing of foreign and domestic banks, introducing foreign investment and international standards for capital adequacy. One of the noticeable results of these changes is that the number of foreign banks in Turkey increased from 4 to 23, giving them a significant presence in Turkey (Kibritcioglu, 2005). These foreign banks brought with them sophisticated service quality know-how that were unheard of in the Turkish banking sector (Akan, 1995; Bilgin & Yavas, 1995), which began to threaten the domestic banks. In response, the domestic banks sought to emulate western management tools and techniques such as TQM and other initiatives to increase service quality. Also, a number of private banks have increased as a result of the changes in Turkish banking industry, and in 2004 there were over 48 private and state-owned banks with more than 6,106 branches (Pinar and Donmez, 2005).


Foreign Products Images and Ethnocentrism among Consumers in Five Latin American Countries: An Analysis of Their Similarities and Differences

Dr. John E. Spillan, Pennsylvania State University at DuBois, PA

Dr. Orsay Kucukemiroglu, Pennsylvania State University at York, PA

Dr. Talha Harcar, Pennsylvania State University at Beaver, PA



All over the world consumers are attached to countless products and services that arrive to their ports as a result of global trade.  Rapid communication and transportation has provided consumers with far more knowledge about products than any time in history. The results of this timely information accessibility allow the consumer to investigate the product’s country-of- images more thoroughly. Consequently, their information and opinions about the country and its products affects the consumer’s behavior. This situation is a major concern of marketers. The aim of this paper is to report the results of a study that was conducted to analyze the views of five Latin American Country consumers concerning country of origin images of products that they receive from other countries. Additionally, these counties ethnocentrism tendencies were investigated to develop a view on what other factors may be influencing their buying patterns. The findings of the study discovered that various perspectives exist among the five country consumers which have an influence on their ethnocentric buying tendencies. Country-of-Origin (CO) is a compelling image concept that can be used to affect a product or company’s the competitive positioning and success in the global market-place foreign products. Research on Country of Origin effects has a long history. Over time, an increasing various new aspects and further aspects of this construct have been accounted for. The country of origin literature indicates that consumers assign predetermined ideas about countries and their products during pre-purchase assessments.  Country-of-Origin (CO) image refers to "buyers' opinions regarding the relative qualities of goods and services produced in various countries" (Bilkey 1993, p. xix). CO serves as a useful extrinsic cue (and as a surrogate for difficult-to-evaluate intrinsic characteristics such as quality and performance) because consumers tend to be less familiar with foreign than with domestic products (Han and Terpstra 1988). An indication of the importance of country-of-origin images in international marketing strategy can be gauged by the sheer volume of research on the topic. Consumer perceptions of foreign products have been examined from a wide variety of perspectives. The consumer behavior stream represents a fifth of all the empirical research conducted in the field of international marketing and is also the stream that has made the most progress in theory development (Aulakh and Kotabe 1993). A major limitation of the country-of-origin image studies is that they lean towards a view of consumers in a specific country as being a homogeneous group Aulakh and Kotabe (1993). Descriptions, ideas and images consumers have of specific countries are well documented. These beliefs can have a major impact on the inclination to purchase products from those countries (Papadopoulos and Heslop, 2002). The mental picture that consumers have of products from a country, as well as their opinions towards the people of that country and the preferred amount of interaction with those people, add to a country’s classification. The more encompassing expression, product-country image (PCI), includes the multidimensional makeup of the images of products and brands. This notion is connected together with the array of locations that could be engaged in the design, manufacture and assembly of products (Papadopoulos and Heslop, 1993a, 1993b). Stereotypes associated with a given country provoke different perceptions in the minds of people of other countries. The product-country image literature is relates primarily to high-involvement consumer purchasing of durable products, and especially products labled with well-recognized brands. Johansson (1993) argues that COO is employ by consumers to emphasize, establish and prejudice early opinions of products, and the gathered data indicates that consumers in many markets are prepared to shell out a premium for products made in more industrialized countries. The judgments consumers compose regarding a country and its people are conveyed in their assessments of the functioning of products from that country. Consumer evaluation of products is prejudiced by the stage of development of a country from which the product originates, with consumers possessing less positive point of view of products from less developed countries (Wang and Lamb, 1983; Hulland et al., 1996). Heslop and Papadopoulos (1993) construed from their eight-country study that 'good products are seen to come from well-managed, technologically advanced nations with hardworking people. Moreover, good products are perceived to be created by people who have sophisticated preference, and are likeable, trustworthy and admirable for their role in world politics' (Heslop and Papadopoulos, 1993: 67). Consumer ethnocentrism is a construct which has been widely used in studying consumer attitudes toward foreign products. It derives from the more general construct of ethnocentrism, which in turn is rooted in a belief that one's own group (the in-group) is superior to other groups (out-groups) (Adorno et al 1950). Consumer ethnocentrism is defined by Shimp and Sharma (1987) as beliefs held by consumers about the appropriateness or morality of purchasing foreign products. Purchasing imported goods is seen as wrong as it will harm the domestic economy, have an adverse impact on domestic employment, and is unpatriotic. Shimp and Sharma (1987) developed a measurement instrument, the CETSCALE, to assess these attitudes. Previous studies (Shimp and Sharma 1987, Netemeyer, Sharma et al 1995, Klein et al 1998) have found high ethnocentrism scores are related to reluctance to purchase foreign products and tendencies to evaluate them negatively. Ever since the CETSCALE was published (Shrimp and Sharma 1987), studies have used the scale in an assortment of research situations. The scale's importance originates essentially from its predictive properties. In particular, CETSCALE scores have revealed the affect consumers' beliefs, attitudes, and behavioral intentions toward foreign-made products (Netemeyer, Durvasula, and Lichtenstein 1991; Shrimp and Sharma 1987). The basic idea behind this concept is that non-ethnocentric consumers are likely to judge foreign-made products on the products’ own qualities whereas ethnocentric consumers will view foreign products as undesirable due to patriotic reasons (Han, 1988). The CETSCALE is the most popular method for assessing ethnocentric tendencies. This scale consists of a series of Likert type statements for each which respondents state the level of agreement or disagreement on each statement.  Theoretically, the concept of consumer ethnocentrism can provide a better understanding of buyer behavior for individual buyers and for commercial buyers. Its use can predominantly add to our understanding of how buyers decide on choosing domestic versus foreign goods and how individual assessments are subject to biases (Orth and Firbasov, 2002).


Guidelines for Retirement Net Income Replacement Ratios

Dr. Ginette McManus, Saint Joseph’s University, Philadelphia, PA

Dr. Rajneesh Sharma, Saint Joseph’s University, Philadelphia, PA

Dr. Ahmet Tezel, Saint Joseph’s University, Philadelphia, PA



Our main objective is to simulate retirement net income replacement ratios that can be achieved under both constant and variable real savings rate scenarios over a 30-year pre-retirement wealth accumulation period.  Retirement income replacement ratios are estimated using an historical overlapping periods methodology and Ibbotson quarterly data over the 1926-2007 period.  Our methodology is performed for 10 portfolios, 5 having various fixed asset allocation percentages to equities and bonds and the remaining 5 providing life-cycle or shifting asset allocations.  Our results support that individuals need to save more than 10% of their pre-retirement annual gross income to have an acceptable chance at maintaining their standard of living in retirement, more so with more conservative asset allocations. Given that individuals are most likely to stop saving in retirement, the most useful target value for pre-retirement planning is the retirement net income replacement ratio.  It expresses the level of retirement income needed to maintain pre-retirement standard of living upon entering retirement.  The retirement income replacement ratio (R) is best defined as the ratio of the annual withdrawal amount for the first year in retirement (Wn x w) over the pre-tax pre-retirement annual net income at the end of the savings period (In (1 – s)) as follows:  where Wn is the pre-retirement wealth level or the wealth level accumulated at the end of the savings period of n years (or the beginning of the retirement period), w is the withdrawal rate in retirement or the percentage of wealth paid out as annual retirement income at the beginning of the first year in retirement, In is the annual pre-retirement gross income, and s is the pre-retirement savings rate.  For example, a 4.5% real withdrawal rate from a pre-retirement wealth of $1 million would provide a $45,000 retirement income at the beginning of the retirement period.  Assuming a pre-retirement savings rate of 15% and a pre-retirement gross income of $65,000, the pre-retirement net income is estimated at $55,250 and the retirement income replacement ratio is 81.45% ($45,000/$55,250) of pre-tax pre-retirement net income.  Estimating replacement ratios on pre-retirement net income rather than gross income is a more realistic way to provide retirees with a lifestyle in retirement similar to their pre-retirement lifestyle (Ibbotson et al., 2007). where I1 is the pre-retirement gross income at the end of the first year of the savings period of n years, I0 is the pre-retirement gross income at the beginning of the first year of the savings period, i1 is the annual inflation rate for the first period and gr1 is the annual real growth rate in pre-retirement gross income for the first period. The retirement income replacement ratio needs to be carefully estimated for each individual and its adequacy depends on the particular situation of each retiree.  However, income replacement ratios less than 100% are sufficient for retirement because most retirees will receive a Social Security income and will experience lower tax rates, no Social Security taxes, less spending on food, commuting and clothing expenses, as well as smaller mortgage expenses.  On the other hand, higher medical goods and services will raise retirement income replacement ratios.  Schieber (2004) estimates net income replacement ratios at around 70% for a wide range of income classes.  Alford, Farnen, and Schachet (2004) report net income replacement ratios of 89% for individuals with a low income level of $20,000 and 78% for those in the high income level of $90,000.  Of course, Social Security benefits represent a larger percentage of income for low-income individuals (60-65%) and a smaller percentage of income for high-income individuals (30-35%).  Using an 80% net income replacement ratio, Ibbotson et al. (2007) estimate that, for single earners with gross income of $60,000 and $100,000 at retirement age of 65, 43% and 33% of their retirement income will come from Social Security while the remaining 37% and 47% will come from pre-retirement savings.  Therefore, the savings rates of higher income individuals need to be significantly higher than those of lower income individuals. Helman and Paladino, (2004) as well as Thaler and Bernatzi, (2004) report that most individuals in the U.S. do not save enough to meet their retirement needs.  Saving adequate amount for retirement is more crucial today as self-directed contribution plans are increasingly the main vehicles for accumulating retirement savings.  Pre-retirement savings and forecasted rates of return on invested capital are both very important for building and appropriate pre-retirement wealth level (W), which is one of the main determinants of retirement income replacement ratios (R).  Obviously, higher pre-retirement savings rates and higher rates of return on invested capital reduce the needed retirement income replacement percentages.  The main objective of this paper is to simulate retirement net income replacement ratios that can be achieved under both constant and variable real savings rate scenarios over a 30-year pre-retirement wealth accumulation period using an historical overlapping periods methodology and Ibbotson quarterly data over the 1926-2007 period.  To provide pre-retirement savings guidelines to individuals, recent empirical studies employ various assumptions and methodologies to solve equation (1).  Ibbotson et al. (2007) report constant real savings rates that are necessary to achieve 80% and 60% retirement replacement ratios for individuals with current pre-retirement gross incomes of $20,000 to $120,000 (at increments of $20,000) and 30 years to retirement.  Pre-retirement gross income is assumed to grow at a constant annual inflation rate, that is, g = (1 + i) - 1.  For estimating investment returns, Ibbotson et al. (2007) perform Monte Carlo simulations and employ Ibbotson data as of December 2005.  Their portfolio asset allocation strategy includes two basic asset classes - large stocks and long-term bonds - and is based on the average of three life-cycle funds in which the asset allocation shifts every 5 years starting with 91% invested in stocks 30 years before retirement to end with 46% invested in stocks at retirement.  In addition, their withdrawal amount in retirement is estimated by assuming that pre-retirement accumulated wealth is invested in inflation-indexed lifetime fixed-payout annuities.  Their study supports that achieving sufficient retirement income is possible with reasonable savings rates if one starts to save between the age 35 to 40.  They conclude that individuals who do not accumulate adequate savings by the age of 65 will need to delay retirement or take a substantial reduction in their standard of living in retirement.


Exchange Rate Regimes: Challenges from the Globalization for Emerging Market Countries

Dr. Chaiporn Vithessonthi, Mahasarakham University, Thailand



In light of recent currency and financial crises, this paper reviews the literature on exchange rate regimes and evaluates the fixed and flexible exchange rate regimes with the focus on the possible choices of the exchange rate regime for emerging market countries. Given the recent trend of World’s financial integration, as a result of the globalization, has pushed most countries towards the full financial integration, the analysis touches upon the topics of roles of monetary policy, fiscal policy, currency crises, inflation, credibility, employment, and income under different exchange rate regimes. Overall, the results indicate that the complexity of the economic system and the dynamics of the economic development in emerging market countries have proven the difficulty of sticking to one exchange rate regime for a long period of time. Consequently, an emerging market country should consider a change of the exchange rate regime upon changes in the priority of its economic objectives.  Over the past decade, many developing countries such as Thailand, Indonesia, Mexico, or Argentina as well as developed countries such as England or Sweden have experienced currency crises, and thus have changed their choice of exchange rate regime towards either the extreme of floating rates or fixed rates. The debate on the causes of the crises is still ongoing. However, it is apparent that the financial markets of the emerging market countries have gradually been integrated into international financial markets in recent years. That means that the countries lifted the control on capital mobility and consequently opened up their domestic financial market. A surge in capital inflows into emerging market countries was initially due to domestic developments. However, large and persistent capital inflows can also create undesirable effects, including, for example, rapid monetary expansion, real exchange rate appreciation, inflationary pressures, and moral hazard problems. This surge in inflows may pose serious dilemma and trade-offs for economic policy, particularly in countries with high capital mobility. Hence, these countries are more likely to be vulnerable to currency crises, as the sudden stop in capital inflows will lead to the balance-of-payments crisis and therefore currency crisis. History has demonstrated that these events have occurred from time to time. Latin America received large capital inflows during 1978-1981 and experienced major economic crises and capital outflows in mid-1980s. Mexico experienced a balanced-of-payments crisis in 1994. Following several years of strong economic growth, currency and financial crises hit Asian countries during 1997-1998.  Hybrid exchange rate regimes - including, for example, crawling peg, crawling bands, and the pegged-but-adjustable system - were very popular among the policymakers in emerging market countries. However, in the late 1990s, as a result of successive currency crises, the monetary authorities in emerging market countries tended to opt for either a freely floating exchange rate or a rigidly fixed exchange rate regime, that is, a currency board or dollarization (2001). In response to recent financial crises, the debate on appropriate exchange rate regimes has begun to emerge once again. A different view suggests that countries should let their exchange rates float freely or peg them fixedly to a stable currency (Obstfeld and Rogoff, 1995). Another view proposes that currency boards or dollarization would be optimal choices for many developing countries (Calvo, 2001), while another view still advocates intermediate regimes between the extremes of freely floating exchange rate regime and rigidly fixed exchange rate regimes (Frankel, 1999).  This paper reviews the possible choices of exchange rate regimes for emerging market countries with consideration of the implication of their choice on the possible incident of currency crises and vice versa. In this paper the main questions are: how does economic or financial theory explain the phenomenon of exchange rate crises, and what is the most suitable exchange rate regime for emerging market countries? On the basis of these questions posed, the purposes of this paper are twofold: (1) to review the literature on major currency regimes; and (2) to evaluate each of these regimes for open economies with focus on emerging market countries. To establish a boundary of this paper, it is first to emphasize that this paper does not attempt to justify or suggest any exchange rate regime for any specific country. Because doing that would require a thorough analysis of the exchange rate regime and the specific context of the country in question. Even if the appropriate exchange rate regime is identified for the country in question, changes in economic environments can easily invalidate the appropriateness of the suggested exchange rate regime for the country. Second, the main emphasis of this paper is on theoretical arguments for and against each exchange rate regime. In addition, the arguments in this paper are not grounded on mathematical equations due to three reasons: First, this will provide sufficient space for a holistic view on the major exchange rate regimes. Second, the inclusion of mathematic equations would reduce the readability of the paper for those who are not familiar with the topics or the mathematical equations. Third, it is the writer’s personal belief that all arguments should and could be made and explained sufficiently and clearly with or without mathematic formulas. The paper starts by discussing briefly the causes of and consequences of currency crises. The objective is to gain the understanding of the phenomenon and possible linkages to exchange rate regimes those crisis countries adopted before and after the crisis. The next section focuses on the examination of two exchange rate regimes: (1) fixed exchange rate, and (2) floating exchange rate. The aim of examining the exchange rate regimes is to better understand the nature of each of the exchange rate regimes. The following section performs comparative analysis of the exchange rate regimes, draws some policy lessons from the recent experiences and discusses areas for future research.



The Performance of Filter Rules for the Norwegian Stock Index

Dr. Massoud Metghalchi,  University of Houston-Victoria, TX

Dr. Vera Adamchik, University of Houston-Victoria, TX



This paper tests various filter rules for the Norwegian OBX stock index. Our results indicate that trading filter rules do indeed have predictive power and could discern recurring-price patterns for profitable trading. Moreover, our results support the hypothesis that filter trading rules can outperform the buy-and-hold strategy.A dominant theme in financial economics since the 1960s has been the concept of an efficient financial market. Fama (1970) defined an efficient financial market as one in which security prices always fully reflect the available information; any new information will be quickly and instantaneously reflected in prices. Furthermore, since news on any company, by definition, is unpredictable (arrives randomly), price changes will be unpredictable, or follow a random walk.  Fama made a distinction between three forms of Efficient Market Hypothesis (EMH): (a) the weak form, (b) the semi-strong form, and (c) the strong form. Advocates of the weak-form market efficiency hypothesis believe that investors who use any trading rule that depends solely on past market information (such as price or volume) cannot drive profits above a buy-and-hold strategy, implying that technical trading rules are useless. The early results from the literature about the profitability of technical trading were overwhelmingly negative. For example, Larson (1960), Osborne (1962), Alexander (1964), Granger and Morgenstern (1963), Mandelbrot (1963), Fama (1965), Fama and Blume (1966), Van Horn and Parker (1967), Jensen and Benington (1970) all showed that the stock market was weak-form efficient. By the early 1990s, it was concluded that it was not possible to outperform the market using technical trading rules.  However, since the early 1990s, technical trading has been enjoying a renaissance both on Wall Street and in academic circles. Several papers have presented evidence that some simple trading rules are useful for predicting stock market returns. The cornerstone of this new research on technical analysis is an article by Brock, Lakonishok and LeBaron (BLL hereafter) published in 1992. BLL analyzed moving averages and trading range breaks on the Dow Jones Industrial Index from 1897 to 1985. They used various short and long moving averages of prices to generate buy and sell signals. They tested long moving averages of 50, 150 and 200 days with short averages of 1, 2 and 5 days. They point out that “all buy-sell differences are positive and the t-tests for these differences are highly significant” and they go on to conclude that their “results are consistent with technical rules having predictive power.” Other researchers have used different variants of BLL’s moving averages to investigate whether stock market indices can be predicted by some simple form of technical analysis. Bessembinder and Chan (1995) conclude that BLL’s rules are successful in predicting stock price movement in Japan, Hong Kong, South Korea, Malaysia, Thailand and Taiwan, with the predictability being strongest in the last three markets. Ergul, Holmes and Priestley (1997), using daily closing prices of 63 stocks traded on the Istanbul Stock Exchange, conclude that technical analysis based on volume can aid the prediction of returns which cannot be predicted by the analysis based solely on past returns. Pruitt and White (1998), using the University of Chicago’s CRSP daily data tapes over the 1976-1985 period, conclude that technical trading rules are capable of outperforming a simple buy-and-hold strategy even after adjustment for transaction costs. Bessembinder and Chan (1998) confirm the basic results of BLL; however, they argue that BLL’s results can coexist with the notion of market efficiency when considering transaction costs. Gencay (1998a, 1998b), Ratner and Leal (1999) also support the predictive power of technical trading rules. Kwon and Kish (2002), applying three popular technical trading rules to NYSE index over the period 1962-1996, conclude that the technical trading rules have the potential to capture profit opportunities over various models when compared to the buy-and-hold strategy. Metghalchi and Chang (2003), using two different moving average trading rules, conclude that moving average trading rules beat the buy-and-hold strategy for the Italian stock market. In a recent study, Chang, Metghalchi and Chan (2006) conclude that selected technical trading rules are predictive for Taiwan stock markets.  At the same time, there are studies that do not support technical trading strategies. Hudson, Dempsey and Keasey (1996) apply BLL’s technical trading rules to the United Kingdom stock market returns over the 1935-1994 period and conclude that technical trading rules did not generate excess returns after taking into account transaction costs of 1 percent per round trip. Szakmary, Davidson and Schwarz (1999) find that trading rules applied to an individual stock perform poorly but trading rules for the overall NASDAQ index tend to earn statistically significant abnormal returns; however, the authors believe that since there is a high level of transaction costs associated with NASDAQ trading, these abnormal returns are generally not significant in economic terms. Coutts and Cheung (2000) analyze the Hang Seng returns from 1985 to 1997 and conclude that both the moving average and trading breakout rules fail to provide positive abnormal returns, net of transaction costs. Ready (2002) points out that the apparent success of BLL’s moving average rules is a spurious result of data snooping and need not persist in the future. Technical trading rules have also been applied to foreign exchange markets. For a survey of technical trading on foreign exchange markets, see Taylor and Allen (1992) and Maillet and Michel (2000).  In this paper, we apply filter rules to the Norwegian stock index (OBX). Filter rules assume that trends do exist in the stock markets but are masked by small short-term price movements. The filter rules therefore attempt to filter out these very small short-term price fluctuations. The second issue we are considering in this paper is that if filter rules are found to show predictive ability for the Norwegian stock mark, then can we identify a trading strategy that will beat the buy-and-hold strategy? This paper is structured as follows: section 2 discusses data and methodology, section 3 presents empirical results on filter rules trading, section 4 compares various strategies with the buy-and-hold strategy, and finally section 5 concludes.


Total Quality Management Practices and Performance

Dr. Esin Sadikoglu, Gebze Institute of Technology, Kocaeli, Turkey



There are mixed and unclear results about the relationship between total quality management (TQM) practices and firm performance in the previous studies. In conjunction with this, the models developed in these studies lack a complete nature of the direct and indirect relationships among all important TQM practices and key performance measures in. For this purpose, this study developed a model of the direct and indirect relationships among total quality practices of leadership, strategic planning, training, employee management, information and analysis, supplier management, process management, customer focus, and continuous improvement and performance measures of employee fulfillment, innovation performance, operating performance, quality performance, customer satisfaction, and financial performance based on a comprehensive literature review. The model explains complex relationships among TQM practices and performance clearly. It is more comprehensive than the models developed in the previous studies as well. The model developed in this study can be tested to support the hypothesized relationships in the future study. Total quality management (TQM) is a holistic quality improvement approach to firms by means of continuously improving products, services, people, processes, and environment involving all employees to satisfy customers, and maximize competitiveness of the firms. The benefits of TQM are improved customer satisfaction, quality of goods and services, productivity, delivery times, employee participation, and employee satisfaction as well as reduced waste, inventory, cost, product development time, and work-in-process among others (Evans and William, 1993; Lowery et al., 2000; Besterfield et al., 2003; Goetsch and Davis, 2006).  Previous studies give mixed and unclear results about the relationship between TQM practices and firm performance (e.g. Kaynak, 2003; Nair 2006; York and Miree, 2004; Sadikoglu, 2004; Prajogo and Sohal, 2001, 2006; Rahman and Bullock, 2005; Fuentes et al., 2004; Chong and Rundus, 2004; Kannan and Tan, 2005; Douglas and Judge, 2001). Some scholars (e.g. Kaynak, 2003; Prajogo and Sohal, 2003, 2004) suggest identifying direct and indirect relationships between TQM variables and organization performance measures. The objective of this study was to investigate the relationship between TQM practices and performance considering multiple TQM factors and multiple performance measures to find success of TQM practices in the firm.  The study used the critical factors of total quality as leadership, strategic planning, training, employee management, information and analysis, supplier management, process management, customer focus, and continuous improvement. This classification is consistent with the literature (e.g. Sila and Ebrahimpour, 2003; Conca et al., 2004; Claver et al., 2003; Cua et al, 2001; Prajogo and Sohal, 2006; Black and Porter, 1995; Flynn et al, 1995; Saraph et al, 1989; Rungtusanatham et al, 1998; Anderson et al, 1995; Ahire and Dreyfus, 2000; Fuentes et al, 2004; Rahman and Bullock, 2005; Das et al, 2000; Kannan et al, 2005; Pun, 2002; Wali et al, 2003; Besterfield et al, 2003; NIST, 2008; EFQM, 2008). The study used performance measures as employee fulfillment, innovation performance, operating performance, quality performance, customer satisfaction, and financial performance.  Leadership is management’s role of maintaining and practicing a vision of the organization with respect to customer requirements as opposed to internal management control (Anderson et al., 1994). Leaders will determine purpose and direction of the organization, organize, and make synergy of employees’ efforts to achieve the common goal of the organization with the employees’ full commitment to work. Training based on quality implementation, problem solving skills and teamwork for all employees will increase employees’ knowledge and, thus, increase employee involvement in TQM, their acceptance to changes, and awareness of quality-related issues (Claver et al., 2003; Goetsch and Davis, 2006; Conca et al., 2003; Kaynak, 2003). Top management must provide necessary resources quality-related training such as quality improvement tools (Anderson et al., 1995; Flynn et al., 1995; Ho et al., 1999; Kaynak, 2003). Leadership must support employee management by developing compensation schemes, which are related to quality goals as well as through training (Flynn et al., 1995; Kaynak, 2003).  Leadership must define and address values and performance expectations, participate in quality activities, make an environment of involvement, open communication, cooperation and learning among employees and between employees and management, encourage and motivate employees to suggest and implement changes for improvement, empower them to solve problems within their area of control so that the employees will accept changes and work harder. Employees will also participate in suggestion, teamwork and decision-making to improve the process, product or service (Pun et al., 2002; Goetsch and Davis, 2006; Claver et al., 2003; Conca et al., 2003; Anderson et al., 1995; Flynn et al., 1995; Das et al., 2000). Based on the reviewed literature, the following hypotheses are suggested: H1a: Leadership is positively related to training.  H1b:  Leadership is positively related to employee management.  Participative leadership must set a quality culture such that employees will be considered as a valuable asset in the firm. Employees’ ideas and suggestions will be respected and entered into problem solving as inputs. Leadership must motivate employees to direct the employees’ individual goals to the organization’s goals to work harder. Since management in a total quality setting takes the responsibility for most of the problems (about 85%), which are caused by the failures of the system not by the workers, employees are not blamed for the problems. Employees do not feel fear and job insecurity either. Top management must initiate open communication between employees and management, support employee involvement and empowerment so that employees will feel a sense of ownership, self-actualization, loyalty to the organization, pride in work, and satisfaction from work (Goetsch and Davis, 2006; Deming, 1986; Flynn et al., 1995). Thus, the following hypothesis is offered:


Predicting Organizational Commitment: A Field Study of Full-Time and Part-Time Retail Employees

Stefanos K. Giannikis, University of Macedonia, Thessaloniki, Greece

Dr. Dimitrios M. Mihail, University of Macedonia, Thessaloniki, Greece



In the current empirical research we attempt to shed light on the organizational commitment of full-time compared to part-time retail employees.  For this purpose, we develop a theoretical framework in order to evaluate possible differences in affective, continuance and normative commitment between these two groups. Apart from just identifying whether employees “want to”, “need to” or “ought to” remain in retail firms, this research discusses why full-timers and part-timers might differ on attitudes. The sample consisted of 275 full-time and 213 part-time retail sales employees. Regression Analysis revealed that full-time and part-time sales workers differ on organizational commitment. Such knowledge is vital for retail firms that seek to retain a highly committed workforce in their demanding work environments. Theoretical and managerial implications for human resource management are discussed.   In recent years, organizational commitment has attracted considerable attention due to its impact on both work and life behavior of employees. Specifically, previous research has documented that organizational commitment is positively related to job performance and organizational citizenship behavior, while it is negatively related to turnover and absenteeism rates, as well as to stress and work-family conflict (Meyer et al., 2002; Tett and Meyer, 1993; Mathieu and Zajac, 1990; Mowday, 1979). A sizeable body of research has focused on the comparison between the commitment level of full-time and part-time employees. Research on part-time labor has become more critical for the reason that part-time work is expanding. According to official statistics, part-time work in 2006 represented approximately 18 percent of the total employment in EU (Eurostat, 2007) and 19.1 percent of the US workforce (Bureau of Labor Statistics, 2007).  Nevertheless, the literature review reveals that the findings regarding the level of commitment of full-time versus part-time employees have been inconsistent and contradictory (Conway and Briner 2002; Lee and Johnson, 1991; Sinclair and Martin, 1999). Some studies report that part-timers are more committed to their company (Jacobsen, 2000; Martin and Peterson, 1987; Sinclair and Martin, 1999), some report that part-timers are less committed (Lee and Johnson, 1991; Martin and Haffer, 1995; Morrow et al., 1994; Marchese and Ryan, 2001), and some recent studies report no significant difference on organizational commitment by work status (Maynard et al., 2006; Thosteinson, et al., 2003; Kalleberg 1995; Krausz, et al., 2000; McGinnis and Morrow, 1990).  However, with regard to past research we should notice the following three points. Firstly, research on job attitudes of full-time and part-time employees has been criticized as being atheoretical in design and having sought to document simple empirical differences between these two groups (Lee and Johnson, 1991; Barling and Gallagher, 1996; Conway and Briner, 2002). Secondly, previous studies, with the exception of Maynard et al. (2006) and Sinclair et al. (1999), assumes that part-timers are a homogeneous group (Feldman, 1990). Thirdly, past research examined a diversity of part-time job positions, for example, call-centers employees, nurses, teachers, salespeople, bank and insurance employees etc. Consequently, based on the lack of a theoretical background and the heterogeneity of part-timers, it is clear that it is not appropriate to compare and generalize previous findings. Different groups of part-timers may develop different job attitudes.  For instance, one would expect that a part-time sales worker may differ on attitudes compared to a part-time white-collar professional employee.  A significant trend is that the large numbers of part-timers are found in the retail sector. Specifically, 30 percent of the persons employed in retail trade during 2006 in EU, were working on a part-time arrangement (Eurostat, 2007).  We should notice that both part-time workers and retail sales workers are more likely to be part of the secondary labor market (Tilly 1992; Dickens and Lang, 1992; Freathy 1993). Employees in the secondary labor market face low compensation, low training, minimal skill level, low job security and low level of demarcation between jobs. It would be valuable to examine the job attitudes of part-timers in such a demanding and stressful work environment.  Therefore, focusing on the retail sector, this empirical study attempts to shed some light on the level of organizational commitment of full-time versus part-time employees. Initially, we develop a theoretical framework in order to evaluate affective, continuance and normative commitment of sales employees. Furthermore, apart from just identifying the level of organizational commitment, this research considers why full-time and part-time retail employees might differ on attitudes and reveals the different predictors of commitment for both groups of sales employees (Full-Time/Part Time).  Organizational commitment is an attitude that reflects the nature of the relationship between an employee and an employer (Meyer and Allen, 1997, Mowday et al., 1979). Meyer and Allen (1991) proposed that commitment is multidimensional and that a distinction should be made between the three components of commitment: affective, continuance and normative. Affective commitment is defined as “the relative strength of an individual’s identification with, and involvement in, a particular organization” (Porter et al., 1979, p. 604) and can be characterized by at least three factors: (a) a strong belief in, and acceptance of, the organization’s goals and values; (b) a willingness to exert considerable effort on behalf of the organization; and (c) a strong desire to maintain membership in the organization. Employees with strong affective commitment remain in the organization because they want to. Continuance commitment refers to the perceived costs associated with leaving the organization. Employees with strong continuance commitment remain because they need to. While, normative commitment reflects a feeling of obligation to continue employment. Employees with strong normative commitment remain in the organization because they feel they ought to do so (Meyer and Allen, 1991). Organizational commitment researchers have shown that antecedents of affective commitment include: structural and job-related characteristics, personal characteristics and work experiences, (Mowday, et al., 1982; Allen and Meyer, 1990; Meyer et al., 1991; Eby et al. 1999).


Strategic Implications for the Future of the Texas Wine Industry

Dr. Michael H. Lau, Sam Houston State University, Huntsville, TX

Dr. Roger D. Hanagriff, Hanagriff Consultants, Huntsville, TX



In Texas there are currently 113 bonded wineries.  Even with this growth, Texas wine is losing market share to out of state and out of country competitors.  The Texas Department of Agriculture (TDA) is searching for industry strategies to slow this trend.  The market analysis objective was to gather market information and create a comprehensive strategic outline that analyzes the Texas wine market.  The results indicate wineries have goals to increase production, but cost of production, grape supply and maintaining quality are concerns.   According to a recent report by the Texas Wine Marketing Research Institute (2006), wine consumption is on the rise across the United States.  Over the past ten years, total consumption of wine in the U.S. has increased by 39%.  Total wine consumption in the U.S. has reached a high of 279 million cases in 2006, a 3.3% increase from 2004-2005.  The increased consumption is the result of young adults finding greater interest in wine.  The Gallup Poll results show an 11% decrease in preference for beer and a 12% increase in the preference for wine from 2004-2005. With this increase in consumption, production of U.S. wines is also on the rise.  Texas is one state which has seen major growth in wine consumption and production over the past several years.  Texas is currently ranked 4th in U.S. wine production but is facing major challenges due to grape production and the changing structure of the industry.  These challenges must be met if the Texas wine industry is to maintain its status as a top 5 producing state.  The Texas wine industry is defined by three major stakeholders; wineries who produce grapes, wineries who do not produce grapes and grape producers who do not produce wine.  These three stakeholders must work together to produce a “Texas made wine”.  The Texas Department of Agriculture (TDA) currently requires that “Texas made wine” states it is produced in Texas and must contain 75% juice produced in Texas.  Historically TDA has relaxed the standard to as low as 5% but TDA wants to maintain the 75% requirement and increase production of Texas wines.  However, because of production limitations, inefficiencies in the supply chain between stakeholders, and the evolving structure of the industry, these two goals are impossible to meet without improving the value chain from grape producers to winemakers. For Texas, the wine industry has a tremendous economic impact.  However, there are great challenges facing the Texas wine industry.  Texas wineries are facing the problem of losing consumers to out of state competitors and are facing production and capacity problems with limited grape supply.  These problems are causing an identity preservation problem where consumers as they are not buying a Texas product, but buying a product made in Texas.  Strategies are needed to reverse these problems and promote the continued growth of the Texas wine industry. In Texas there are currently 113 bonded wineries (TDA, 2007).  Even with this growth, Texas wine is losing market share to out of state and out of country competitors.  The Texas Department of Agriculture (TDA) is searching for industry strategies to slow this trend.  Texas currently employs programs such as a Texas Wine Marketing Assistant Program.  The market analysis project objective was to gather market information and create a comprehensive strategic outline to describe the Texas wine market.  The aspects of the market to consider are the supply-side of, the demand side and the internal aspects to wineries.  Internal aspects of the market include interaction between wineries and dealing with market firm rivalry.  Specific objectives are to determine accurate current statistics on demographics, business practices, and marketing practices.  From these statistics, policy recommendations can be made to promote the growth of Texas wine. Perceptions of the wineries are essential for market assessment as their current business objectives and current business practices are key aspects of the wine market in Texas.  Starting March 2007 and ending in July 2007, the assessment team visited 52 wineries to obtain information about their needs and objectives.  Nearly all assessments were completed on-site, while others were completed at the Texas Wine and Grape Growers Conference or at the locations of winery owners or main offices.  Visiting wineries enabled the assessment team to see winery capacity and visit tasting rooms. A secondary aspect of this project was to review production numbers for the Texas wine market as well as consumption of Texas wines.  This information was acquired from the Texas Alcohol and Beverage Commission (TABC).  This information baseline values for wine consumption and production in Texas.  The most current information available relating to wine production in Texas is 2005 numbers, but sales of wines in Texas were available through fiscal year 2007. The following sections are primary question and answer areas that describe wineries perceptions related to the Texas wine market and major challenges.  This information is descriptively summarized. A large group of wineries report participation in tasting competitions (67%). The recognized primary benefit of participating in competitions is exposure (68%) with a much smaller sector using the event for feedback value regarding the quality of their wine (6%).  A large percent (88%) of those participating in competitions reported success and participated predominately in Texas competitions with some out of state participation.


Regime-switching in Dow Jones EUROSTOXX 50 Spot and Futures Index Markets

José Luis Fernández-Serrano, National Institute of Statistics, Spain

M. Dolores Robles-Fernández, Universidad Complutense, Madrid, Spain



This paper analyses the behavior of spot and futures DJ Eurostoxx 50 returns from the regime-change model perspective. We study a daily sample from January 1999 to June 2006. We consider different patterns in the mean and variance of both series allowing changes in the parameters depending on the state of the economy. Regime changes are governed by a first order Markov process. We find very strong evidence of switching behavior in Eurostoxx markets returns. The first one is characterized by low level of volatility and no dynamic behavior in the mean. The second one shows high volatility level and autoregressive behavior in the mean.  The main objective of this paper is to provide new evidence about the nonlinear behavior of stock returns by analyzing cash and futures DJ Eurostoxx50 indexes. It has become clear over the last years that nonlinear processes can explain the behaviour of different financial variables better that the linear ones. Financial markets have typically shown periodical switches from a low-volatility regime to a high-volatility regime related with jumps or crashes in the markets. There is a consensus in the literature about the linkage among speculative and noise trading and fads, bubbles or even market crashes. Furthermore, regime shifts may also be caused by changes in monetary policy or technological shocks. Flood and Hodrick (1990) indicate that misspecified fundamentals could cause this kind of behaviour.  Among other alternatives, Markov switching regime models have shown their capacity to model accurately the dynamic behaviour of stock market return, showing some attractive features for modeling such transitions as a Markov process. Moreover, this method can capture asymmetries, fat tails, volatility clustering, or mean reversion better than other alternatives. From Hamilton (1989), the use of the regime-switching method in a growing variety of contexts for modeling dynamics and asymmetries in stock market returns has become very popular. Some examples are Hamilton and Susmel (1994), Gray (1996), Kim et al. (1998), Kim and Nelson (1998), Ang and Bekaert (2002), Ang and Chen (2002), Chauvet and Potter (2000) or Perez-Quiros and Timmermann (2001). On the other hand, a large body of literature focusing on modeling stock returns has examined the relationship between spot and futures prices in stock index futures markets. In particular, a number of empirical studies have focused on the persistence of deviations from the cost of carry and have studied the cointegrating relationship between spot and futures prices (see Wahab et al., 1993, Flemming et al., 1996, Dwyer, et al., 1996 or Booth et al., 1999). However, jumps and market crashes affecting spot prices may involve sharp breaks in the relationships between both variables. In this sense, is important to analyze if there also are regime switches in futures markets and the relationships between the different regimes in both indexes. Under the market efficiency assumption, such regimens must be almost perfectly correlated. In this context, our purpose to give new evidence about the Eurostoxx50 spot and futures indexes nonlinear behavior. The DJ Eurostoxx-50 index is from 1998 one of the most important indicators of the European stock market evolution but it have been scarcely analyzed previously (see Robles et al., 2004). We want to analyze the main characteristics of both series in a Markov switching regime framework. The literature lacks of studies that evaluate competing models focusing on the time variation of conditional moments. We try to fill this gap analyzing different specifications of the conditional mean and the conditional variance. After that, a systematic evaluation of competing models also allows us to get a deeper insight of the fundamental factors influencing the time variation of the return distribution.  The paper is organized as follows. Section 2 presents the general Markov switching model. Section 3 contains the data and some preliminary analyses. In Section 4 we show the different models we estimate and we report the estimation results and the analysis of the obtained model estimations. Section 5 concludes.


Insider-Outsider Hypothesis Revisited: The Context of Tunisian Business Environment

Dr. Mohieddine A. Ghecham, Sheffield Hallam University, UK

Atef Albahri, Manchester Metropolitan University, UK



The paper endeavours to discuss insider-outsider hypothesis in the context of the Tunisian business environment. By doing so, the paper expands our understanding about the underperformance of Tunisia in attracting fair level of foreign direct investors. The paper argues that privatised firms with domestic owners perceive the constraints imposed by the institutional framework differently than the privatised firms of foreign owners. Institutional constraints are less important to privatised firms with domestic owners than to privatised firms with foreign owners. Domestic owners have a better endowment with information that allows them to cope with institutional constraints hence can minimise the associated the transaction costs.  Moreover, the paper shows that the difference in the perception appear to be more pronounced with regards to informal institutional constraints than with regards to formal institutional constraints. This underlines the importance of tackling the informal institutions before reforms in formal rules achieve their expected outcome in the business environment. This paper aims at enriching the recent debate that covers the role of institutional factors in the international business field (e.g. Weitzel and Berns, 2006; Kwok and Tadesse, 2006). It does so by adding to the discussion of the insider-outsider hypothesis that has emerged in some studies (Hellman, et al, 2000; McDonald and El-Said, 2002). The analysis of this paper is fairly distinct from these counterpart studies as it stresses on a number of variables that have been categorised into formal and informal institutions and looks into the differences in their effect on two types of investors: privatised firms owned mainly by domestic investors (insiders) and privatised firms owned mainly by foreign investors (outsiders). This is researched within the context of the business environment of Tunisia which is fairly an under investigated case in the area of international business studies.  Indeed, the role of the institutional factors is crucial in explaining and determining the insider or outsider status. Notwithstanding, the literature on this role is thin and lacks empirical investigation especially in the MENA region. Therefore, this research attempts to contribute to fill this gap by assessing whether the institutional framework explains the existence of these two types of status. The informal constraints are summarised by a number of variables like corruption, cronyism and tribal mentality and the formal institutions are referred to by a variables like tax administration, financial system.  Therefore, by assessing the insider-outsiders hypothesis, this paper argues that the Tunisian business environment can be assessed on its ability to provide the investors with fair and equal rules of game that similar environment would be found in more developed business settings. By investigating such point, this paper contributes to understand the reasons why a country like Tunisia is still lagging to attract more foreign investment at a level that can be seen in countries with similar potential and level of development.  The paper starts this investigation by reviewing the concept of Insider-outsider hypothesis and assessing it by comparing between two different ownership types operating in Tunisia using a number of non-parametric tests. The results are then discussed and finally some implications are concluded.  It is argued that the MENA region is a deficient recipient of FDI inflow compared to other regions in the world like East Asia and Latin America. The weak FDI record in the MENA region has been largely explained by poor and insufficient reforms of the economies as well as the institutional infrastructure underpinning the countries in this region (World Bank, 2007; Sekkat et al., 2004).  Indeed, the annual level of FDI in Tunisia has varied widely over the past decade but on average reaches some 2.2% of GDP. Large share of this comes as a result of the privatisation of state owned companies. Although, Tunisia has made a fair effort to attract FDI by setting various regulations that provide foreign investors with tax, tariffs and other incentives to invest in all sectors, as well as providing them with equal business opportunities with the local investors, the level of FDI in Tunisia is still well below the 4.6% level enjoyed by the new eastern European members of the EU and is not enough to generate the level of activity the country needs if it is to meet its target of boosting GDP growth to 6% annually and reducing persistently high unemployment level.  Therefore, a number of reasons to explain this underperformance were cited. Amongst them is the level of public debt that is even as high as above 50 % of GDP. International rating agencies generally identify the Tunisian public debt as the key indicator that sets Tunisia apart from comparable economics in the BBB rating category and undermine its attraction as a location for FDI (Emerging Tunisia, 2004). Moreover, the business environment in Tunisia suffers from institutional deficiencies that hinder the business operations of the investors in the country. According to some surveys which reviewed the concerns of the business operators in Tunisia, a number of institutional factors have been underlined like regulatory uncertainty, high discretionary intervention by the government, and rigidity of administrative procedures (Casero and Varoudakis, 2004; El hedi, 1998). In fact, according to the World Economic Forum's Global Competitiveness Report for 2007-08, the three most problematic factors for doing business are access to financing, tax rates, and tax regulations.   It is to note that although Tunisia scores better scores in general than the average scores of the MENA region in the context of the indicators evaluating the business environment like it is the case for the decent average of number of days required to open a business and which, amounts actually to 93 days, even lower than OECD’s average (153 days) (World Bank, 2008), delays are still reported in vital areas sensitive to doing business in the country. This concerns areas of getting credit to secure finance, land and registering property as well as obtaining the construction permit. Amongst other indicators, the percentage cost per capita to start a business for example amounts to the staggering 922% well above the OECD’s percentage of 62%. 


Energy: The Financial Dilemma of the Century

Dr. Flory Anette Dieck-Assad, Instituto Tecnológicoy de Estudios Superiores de Monterrey, Monterrey, N.L., Mexico.



Petróleos Mexicanos (PEMEX), a Mexican state-owned company, is the only authorized by law to produce oil and gas in Mexico. PEMEX can neither issue equity nor borrow money by selling bonds; however, it finances one-third of the Federal Government expenses, leaving scarce money for drilling activities and, thus, restricting its ability to develop new reserves. PEMEX requires huge flows of investment in order to avoid its financial bankruptcy and secure the energy supply for Mexico’s sustainable development. The objective of the case is to place the student in the debate about sustainable development that encompasses political, economic, financial, and ethical decisions, in a geopolitical changing scenario where the “global warming” issue is presenting a new challenge for doing business in the future. A detailed Teaching Note is available from the author. In the foggy morning of April 7, 2006, Elba Esther Gordillo Morales, national president of the Education Syndicate—Sindicato Nacional de Trabajadores de la Educación (SNTE)—was staring through the window. Suddenly, she decided to call for a reunion in her office with Expert Consultants, Inc. (EC, Inc.). She needed their evaluation to know if what she did in 2003 to support the energy reform was the right decision. As a member of the Mexican Congress, she had supported the energy reform even though the rest of the members of her political party, the PRI, decided not to support it. As a result, she was expelled from her political party. She worried about the repercussions that her decisions had caused.  When she read the statement of José Ramón Ardavín, undersecretary of Natural Resources and Environment—Secretaría del Medio Ambiente y Recursos Naturales (Semarnat)—on April 1, 2006, she was reminded of the effects her decision would have on Mexico’s energy future. She was sad, disturbed, and uneasy by the ill-advised decisions of law-makers that had allowed the Federal Government to take advantage of Petróleos Mexicanos (PEMEX), the Mexican petroleum state-owned company, for more than twenty years. “They have been milking PEMEX by taking its profits and starving this ‘cash cow’ to death through insufficient investment in technology and exploration,” she thought, “the feared ghosts of the past are a reality now in a new geopolitical scenario where the threat of global warming is endangering PEMEX’s role in Mexico’s future development. What will happen if the Federal Government continues to bleed PEMEX to make up for insufficient tax revenues? How long will PEMEX be able to survive without sufficient funds for development and exploration? Will national energy independence be lost to the private sector? Will PEMEX be alive and financially able ten years from now to provide the energy for Mexico’s sustainable development? Am I on the right track?”  Elba Esther felt that she needed to re-evaluate the circumstances that triggered her decision to support the energy reform. She hoped that EC, Inc. could give her an objective analysis of the present situation including the role of the Secretary of Energy (SENER), and others, involved in the energy and fiscal reforms.  Semarnat’s undersecretary, Jose Ramon Ardavín, stated that Mexico requires an energy reform urgently: “Mexico needs to reframe and develop an integral energy policy to take advantage of investment opportunities and to guarantee sustainable development”. In a statement directed to Notimex, Ardavín suggested that the lack of such an initiative could cause the loss of investment opportunities and delay the application of an environmentally friendly strategy of sustainable development. “We are the only Latin American country that has yet to approve an energy reform. Now is the perfect time to re-evaluate and to create a diversified portfolio of renewable energy alternatives”, he said.  The undersecretary of Semarnat participated in Belo Horizonte (Brazil) in the meetings previous to the 47th Assembly of Governors of the Inter-American Development Bank (IDB). Ardavín considered the present moment as the “ideal time” to make reforms of this sort because of the convergence of diverse factors that make them possible such as the high oil prices, the availability of technologies at competitive costs, and a recently increased environmental awareness. (2)  He maintained that the government must design an energy policy, propose specific goals, and define incentives to attract investment for “clean energy”, for which a reform in the subject is required.  “If Mexico takes this huge step, it will be worthwhile for this reform to include an integral diversification of its energy sources, because in most of the countries where they have made these reforms, the achievements were limited and they were not sufficiently oriented to hydrocarbon substitution”, he said.  He indicated that it is a paradox that most of the energy reforms in the region had led to the increase in the carbon emissions, instead of reducing them, because they kept stimulating the consumption of non-renewable energy indiscriminately. There are funds from banks and international organizations that could be advantageously used, but there are not enough projects in the country oriented toward hydrocarbon substitution by non-polluting energy sources.


Challenges in Teaching Business Studies

Dr. Tahir Ali, University of Karachi Pakistan



Effective teaching of business studies can be linked with the economic development of a country due to its unlimited, multiplier effects. In the present fast moving digital world, teaching of business demands acquaintance of latest teaching methods and techniques on the one hand and knowledge of global business activities on the other. In most of the developing countries, there is a gap between the methodology of teaching business studies and its application in the market. The situation has been further deteriorated by the uncooperative behavior of business industries towards business education institutions. Effective teaching of business requires leadership qualities not only for better career counseling and development of students but also contributes to the resolution of business issues. Most of the teachers of business studies in such countries are deprived of good returns, recognition and growth opportunities in their field, resulting in low motivation and performance. To overcome these issues, a twofold strategy, comprising improvement of teaching methodology through concept development techniques and practical exposure of students to the business world and the development of research oriented environment for teachers with close liaisons with the business and industries is needed. Market is the best judge and its response would be the source of evaluation and modification for both the teacher and student.  In the present scenario of globalization and digital revolution, effective teaching of business studies is a challenge for teachers. However, it is expected that the suggested model and strategy will considerably help in understanding the issues and improving the standard and overall environment in business institutions in the developing countries in particular and the world in general.  The pivotal objective of teaching business studies at higher education level is enhancing and updating the knowledge and capabilities of students to meet the challenges of time. Method and style though vary from one discipline to another, theme remains the same. “Most of the contents, teachers are expected to learn in their professional development has been pre-packaged and standardized. However what works in one situation, does not necessarily work in other. Hence, it is very important that strategies be developed so that they cater for the specific needs of particular teachers (Diaz Maggioli, 2004). In the Faculty of Business Administration, effective teaching of business studies requires latest knowledge of the subject and teaching aids on the one hand and critical and analytical information of the local and global businesses and industries on the other. Besides, an individual’s initiative and motivation, collaborative efforts from institution and industries are crucial to accomplish this task successfully. Today, teachers at higher business education must possess all managerial qualities of planning, influencing and controlling and should be so practical that, not only students but the business and industries depend on their intellectual and creative abilities for the resolution of their issues. Importance of practical knowledge of the global business and industries for teachers of business administration at higher education can also be justified by the fact that the latest editions of most of the prescribed and/or recommended business books are more a collection of practical examples and cases than the text. For instance, the 11th edition (2003) of the well known book of Marketing Management by Philip Kotler  contains 410 practical examples from global business and industries, approximately covering 2/3 portion of the book. In short, today effective teaching of business studies requires not only the dissemination of concepts and text but also discussion on problems and opportunities of global business and industries to contribute to the resolution of the same.  Effective teaching of business studies requires some specific methods and techniques, which may not be emphasized in other disciplines. Considering the objectives of teaching business studies at undergraduate and graduate levels, knowledge of current issues in business organizations and industries, latest management practices and technological exploitation in management are imperative, besides conceptual and textual knowledge. Furthermore exposure of students to market and organization not only enables them to relate their knowledge with practical applications but also enhances confidence and professional communication skills considerably.  To accomplish these objectives more effectively, most of the business education institutions have been considering case studies, questionnaire and debate & discussion as the integral part of their teaching. Although these methods and techniques have been successfully applied by many business institutions, a lot depends upon teacher’s ability, overall environment of institution and the enthusiasm of student towards such activities.  Case Studies: “Case studies are used in business studies because they represents one of the best ways to discover, what a candidate really knows, and perhaps more importantly, whether the candidate has though through and about the subject” (Ian Marcouse, 1990). As case studies are narrative account of the problem or situation in an organization, expressed in the form of a story, it is usually considered the best method of teaching due to the fact that  the students are required to approach the subject  through problem or issue, and not by simple  textual knowledge. Case studies provide opportunity for identifying and analyzing business problem, applying concepts, principles and theories to actual situation and evaluating options for suitable actions.  Questionnaire: Questionnaire has been used as an effective tool of teaching and learning in business studies for many decades. Questionnaire as a teaching method helps in identifying, prioritizing and evaluating business issues.  Nowadays, questionnaire teaching technique has been commonly used in online courses, quizzes and assignments in business studies. This method induces student to in-depth studies, resulting in high creativity and efficiency. As in questionnaire technique, students are required  to give answers in comparatively short time period, it helps in acquiring actual pure knowledge level in a field or subject.


The Anti-Competitive Effects of Entry Barriers on the Market: The Case of the Romanian Tobacco Industry

Dr. Alina Mihaela Dima, Academy of Economic Studies, Bucharest

Dr. Radu Musetescu, Academy of Economic Studies, Bucharest

Dr. Alina Popescu, Academy of Economic Studies, Bucharest



Economists suggest that although contestable markets are a refined extension of the competitive markets theory, almost all real markets have some entry barriers, which could have strong implications for the market structure. Government intervention through fiscal measures might have adverse effects, especially on the concentrated markets, where competition is shared by few important players. The paper analyses from the economic perspective the impact of the entry barriers on the Romanian cigarette market, especially the negative effects of the measures taken by the government in order to comply with EU requirements and their impact on the competition. Adoption of EU’s acquis communautaire necessitates the raising of cigarette taxes to levels determined by EU directive 92/79/EEC, amended by directive 2002/10/EC. These established limits for cigarette excise in EU countries, but national authorities have the right to find the most appropriate way to implement them. As the Romanian cigarette market is characterized mostly as an asymmetrical oligopoly, the structure of the excises, along with other entry barriers, will distort severely the competition within the market.  The prices in a competitive market are the result of an equilibrium position that is considered optimal. The optimum is defined in Pareto’s sense, meaning that no individual can be made better off without another being made worse off. The imposition of a specific excise is an intercession of this kind, because it changes the relative price rates and therefore leads to a resource allocation that is not optimal. Pareto’s optimum is more a necessary condition than a sufficient one. It doesn’t take into account a model of distribution of the existing income, nor does it forecast a unique optimal point.  However, a distortion of the relative prices determined by the application of taxes contradicts the necessary condition which assumes that a tax on the general income, or a tax on the total sales, leaves the relative prices unchanged and doesn’t influence the optimal allocation of resources. Of course, the theory of the optimal allocation of resources is subject to criticism. The first limit of this theory is that it cannot be applied unless the situation before the application of the tax is one of competitive equilibrium. Since this is not the case, it cannot be said for sure whether the excise will worsen the allocation of resources. It could be difficult to appreciate whether the specific excise will push the system farther or closer to the Pareto’s optimum. On the other hand, if the position before the tax is not one of competitive equilibrium, it could be stated that in terms of economic wealth a tax on income (output) or on factors of production (input) cannot improve the allocation of resources. This tax will maintain the existing status quo situation that is less than optimal.  Another limit could be determined by the fact that the optimal resource allocation only can take place if we assume that there are no external economies in the system. On top of that, a social decision, such as a fiscal measure, could not be conceived in the absence of external economies. Still, one could argue that some excises can ameliorate resource allocations on the market, even when external economies are not present.  A principle established by Ramsey in 1929 shows that if we assume that the demand and supply functions for a product’s market and the production factors’ function are linear, the smallest distortion in the optimal resource allocation would be determined by those excises whose rates vary indirectly proportional with the elasticity of demand. Due to this theory, and the corresponding argumentations, we can conclude that in order not to distort the current situation on the tobacco market, the specific excise should be higher where the elasticity of demand is lower (i.e., on the prestige segment) and should be decreased to its lowest rate for the base segment (where the elasticity of demand is highest), rather than the opposite situation generated by the way excises actually are applied in Romania (Rozental, 1957). According to Article 176 of the Romanian Fiscal Code, the excise for one thousand cigarettes is determined by the specific component, in the amount of 16.28 euros (increased from 15.53 euros), and the ad-valorem component of 29 percent (reduced from 30 percent), without making any distinction between different quality segments. The most important element to notice is the increasing trend of the specific excise and the decreasing trend of the ad-valorem component in the overall tax structure. Article 177 adds that, for cigarettes, when the sum of the specific component and the ad-valorem component is less than the minimum excise, the minimum excise must be paid. In this case, the difference increases between the excise rate for the base segment and the one for the prestige segment (the rate is indirectly proportional to the price and directly proportional to the elasticity), a situation opposite to Ramsey’s principle on the optimal resource allocation. Any tax (which modifies relative prices) determines distortions and inefficiency, because of the different ways in which producers and consumers perceive the price of the same product on the market. The consumers adjust their marginal substitution rates to prices that include taxes, whereas the producers adjust their marginal costs to prices that do not include taxes. Thus, distortions occur, since taxes determine different relative prices for consumers than those for producers. Such a situation takes place when a product is taxed and another one is not, or when the effects of taxation have different influences on the price. In the case of Romania, the excise ranges between 65 and 95 percent of the product’s price, a situation that changes relative prices from the buyers’ and the sellers’ points of view (the seller perceives a rather small price, lowered by the excise, whereas the buyer of the same product perceives a higher price, which includes the excise). Hence, the difference between the relative prices from the two points of view rises once the cigarette brand stands closer to the base segment, meaning that the greatest distortions occur between consumers earning low incomes and the producers of cheaper cigarettes


Strategic Orientation and Performance: The Case of Equifinality from a Developing Market Perspective

Dr. Sarwar M. Azhar, IQRA University, Karachi, Pakistan



This paper tests the hypothesis of equifinality inherent in Miles and Snow’s (1978) research on strategic orientation and business performance. The results show that equifinality may not necessarily hold for firms in developing economies. Further, the present research also suggests that its underlying logic, which holds that research applicable to one business environment can be assumed to apply to other business environments, cannot be accepted as an assumption, as Sis also inherits from Miles and Snow typology. The research further suggests that the typology proposed by Miles and Snow does not work in the clear cut manner that is proposed by the authors; rather configurations of various orientations may be the norm in developing market contexts. The author notes that this research does not intend to suggest a new characterization of ideal types of strategic orientations, but shows that such ideal types do not necessarily exist, as proposed, in business environmentsExtant research is concerned with the role of business strategy or strategic marketing behavior (used synonymously in this paper) in the overall performance paradigm and value creating capability of the firm (Stoelhorst & Raaij, 2004; Slater & Olson, 2001; Doyle & Wong, 1998; Appiah-Adu, 1998). With regard to the positive association between strategies and firm performances, there is unequivocal evidence. For example, in a recent study, Yoon and Lee (2005) find that business strategy has a positive relationship with performance (p. 14). “Marketing strategy and marketing planning are also highly correlated with performance” (Doyle and Wong, 1998, p. 531). On the other hand, Stanley (1995), finds no empirical evidence as to the direct contribution of marketing strategy to firm performance. Further, there is a general lack of extant studies on local indigenous firms in developing market economies that link business performances with strategies. This limits our present understanding of the role of strategy in the survival and growth of local firms in developing market economies. In turn, this limits and hinders theory development in the corresponding fields.  The aim of this paper, therefore, is:  a. To understand if a business strategy in the shape of strategic orientations has a significant impact on a firm’s performance in a developing market economy? And;  b. To establish if these impacts are the same or different as those found in developed market environments? Business strategy, or competitive strategy, is largely concerned with how an organization should compete in a given business environment, (Varadarajan & Jayachandran, 1999; Hofer & Schendel, 1978) the goal of which is to achieve and maintain competitive advantage (CA) (Slater & Olson, 2001; Baker, 2000; Varadarajan & Jayachandran, 1999).  Marketing strategies, on the other hand, are typically considered to serve as those that implement the strategic purpose of an organization and act as vehicles, or operating tools, by which objectives, such as CA, are secured in the marketplace (Boulton & Natrajan, 2003, p. 461). Marketing strategy is also seen as a broad means of achieving given aims (Baker, 1978); a grand design (Kotler, 1984) or fundamental means or scheme (Luck & Ferrel, 1979) to achieve objectives. Thus, marketing strategy, in many ways, resembles a firm’s business and competitive strategy, as mentioned above. This paper assumes a position similar to what Baker (2000, p.4) proposes: that business strategy is largely marketing strategy, with other functional strategies all supporting the core marketing strategy, which is aimed at achieving and sustaining CA.  A paradigm that is proposed to study business strategy or strategic behaviors is to study the strategic orientations of firms. According to Slater and Olson, (2001) strategic orientation typologies are the dominant frameworks of business strategies (p. 1056) in the specific product market domain (Varadarajan & Jayachandran, 1999, p. 120). Over the years, a study of typologies of business and marketing strategies receives considerable attention from business researchers as a framework for understanding the normative and prescriptive contents of strategies. And a number of typologies of generic strategic behaviors or orientations are proposed (McGee & Thomas, 1986; Porter, 1980; Miles & Snow, 1978) and empirically tested (Miller, 1986; Dess & Davis, 1984; Hambrick, 1983 a, b). Their popularity can be judged by the frequent references made in textbooks to some of these popular typologies (Doty & Glick, 1994). Among the most dominant, (Hambrick, 2003) not withstanding criticisms, are Miles and Snow (1978) and Porters (1980; 1985). This paper builds on the Miles and Snow (1978) typology as the framework to study the strategy phenomenon in a developing market economy, such as Pakistan.  Strategic orientation is defined as "how an organization uses strategy to adapt and/or change aspects of its environment for a more favorable alignment," (Manu & Sriram, 1996, p. 79) or “the strategic directions implemented by a firm to create the proper behaviors for the continuous superior performance” (Gatignon & Xuereb, 1997, p. 78).  It is variously defined as strategic fit, strategic thrust, strategic choice and strategic predisposition (Chaffee, 1985).  For nearly a quarter of a century, the Miles and Snow (1978) strategic choice typology is widely embraced and is the subject of considerable research in both management and marketing literatures (Desarbo et al., 2005). A number of studies are cited that demonstrate the enduring strength of their typology of strategic choices. For example, studies that are carried out in the last quarter of the last century include those by: Hambrick (1983); McDaniel and Kolari (1987); Ruekert and Walker (1987); Snow and Hambrick (1980); Zahra (1987); Conant et al. (1990); Mckee et al. (1989); and Shortell and Zajac (1990), while the more recent of such studies include: Desarbo et al. (2005); Olson et al. (2005); and Vohries and Morgan (2003).


The Application of Structural Equation Modeling (SEM) in Determining the Antecedents of Customer Loyalty in Banks in South Thailand

Nattakarn Eakuru, Universiti Utara Malaysia

Dr. Nik Kamariah Nik Mat, Universiti Utara Malaysia



The purpose of this study is to examine the relationships of several antecedents of customer loyalty in the banking sector in South Thailand. Customer loyalty is crucial in bringing long term profitability and managing services in tandem with the development of the global sector. From the literature, six antecedents of customer loyalty were identified. Each variable is measured using 7-point Likert-scale: perceived service quality (13 items), perceived value (11 items), trust (5 items), image (15 items), customer satisfaction (7 items) and commitment (6 items). Using survey method, 150 questionnaires were distributed to customers of four bank branches in the South of Thailand. The responses collected were 140 completed questionnaires representing 93 percent response rate. The data were analyzed using Structural equation modeling (SEM) method using AMOS 6. Confirmatory factor analysis of measurement models indicate adequate goodness of fit after a few items were eliminated through modification indices verifications. Goodness of fit for the structural models of hypothesized model shows promising findings. Four hypotheses were asserted: H1, H5, H8 and H9. H1: Perceived service quality is related positively with customer satisfaction, H5: Image is related positively to customer loyalty, H8: Image is related positively to commitment, H9: Trust is related positively to commitment.  With the increasing importance of relationship marketing in recent years, particularly in the service industries, the emphasis now is on customer loyalty. Several authors emphasize the positive relationship existing between customer loyalty and business performance (Reichheld and Sasser, 1990; Reichheld, 1993; Sheth and Parvatiyar, 1995). Consumer loyalty is considered an important key to organizational success and profit (Oliver, 1997). Selin et al. (1987) state that, “those consumers that demonstrate the greatest levels of loyalty toward the product, or service activity, tend to repurchase more often, and spend more money”. As a result, a great deal of research attention has focused on the identification of effective methods of actively enhancing loyalty, including loyalty programs such as point reward schemes (Lach, 2000). Loyalty programs “create a reluctance to defect” by rewarding the customer for repurchasing from the organization (Duffy, 1998). Loyal customers not only increase the value of the business, but also enable it to maintain costs lower than those associated with attracting new customers (Basky 1994, Barroso and Martin, 1999). Moreover, loyalty rather than satisfaction is becoming the number one strategic goal in today’s competitive business environment (Oliver, 1999). With a growing focus on offering excellent services and meeting the needs of customer, banks need to have a good understanding of their customer behavior so that appropriate marketing strategies directed towards relationship building and retention can be developed. Past research on loyalty in the banking sector has been limited, and has tended to focus on retail banking, with an emphasis on the positive effects of customer satisfaction (Colgate and Hedge, 2001; Loveman, 1998; Jamal and Naser, 2002).  Much of the original work on loyalty defined it in behavioral terms (repurchase or purchase frequency), and then later admitted an attitudinal component (Jacoby and Chestnut, 1978). Ganesh et al. (2000) found two factors in their loyalty items, active loyalty (word – of mouth and intention to use) and passive loyalty (not switching even under less positive conditions). Other authors have considered loyalty as a process rather than an outcome. Oliver (1997a), for example, distinguishes among four stages of loyalty: cognitive, affective, cognitive, and action loyalty. Clearly, loyalty is a rich concept with many possible definitions. A common approach is to distinguish between a consumer’s attitudinal loyalty and behavioral loyalty (Dick and Basu, 1994; Zeithaml, 2000; Chaudhuri and Holbrook, 2001). Behavioral loyalty is repeated transactions (or percentage of total transactions in the category, or total expenditures in the category) and can sometimes be measured quite simply with observational techniques. Attitudinal loyalty is sometime defined equivalently with relationship commitment (Morgan and Hunt, 1994).  Behavioral loyalty is highly prized, because it means sales. Attitudinal loyalty is also highly prized, because as Oliver, (1997a and 1999) argues, behavioral and attitudinal loyalty are highly intertwined, repeated purchases lead to positive affect which leads to cognitive loyalty, high levels of involvement and intention to continue repurchase. We may consider both affective and cognitive loyalty to be kinds of attitudinal loyalty. Strong attitudinal loyalty makes customers more resistant to attempts by other marketers to steal them away (Gundlach et al., 1995) and more resistant to counter – persuasion and search for alternatives (Dick and Basu, 1994). However, the extent to which these findings explain business customer behavior in banking is unclear. Thus, the objective of this study is to examine the causal relationships of several antecedents of customer loyalty in the context of retail banking in South Thailand. This paper is structured as follows. First, we review the marketing literature on the antecedents of customer loyalty: customer satisfaction, commitment, trust, image, perceived service quality and perceived value. Next, we present the research framework, methods, measures and findings. Finally, the results were discussed in terms of its contribution to global banking business and recommendations for future research.  Bank customers could become loyal due to a myriad of reasons.  From our readings we have identified six main antecedents vis-à-vis customer satisfaction (Oliver, 1997. 1999; Kotler and Clarke, 1987; Ehrenberg and Scriven, 1999; Blooemer et al. 1998; Berrli et al. 2004, Hallowell, 1996; Strauss and Neuhaus,1997; Cassel and Eklof, 2001), commitment (Oliver, 1997; Beatty et al. 1988; Luarn and Lin, 2003), trust  (Moorman et al., 1993; Morgan and Hunt ,1994; Deutsch, 1960; Luarn and Lin, 2003; Ball et al, 2004), image (Keller, 1993; Fornell, 1992;  Sirgy and Samli, 1985; Bloemer et al, 1998; Kandampully and Suhartanto, 2000; Heung et al, 1996), perceived service quality (Zeithaml, 1988; Juran, 1988);      Bloemer, 1998), and perceived value (Zeithmal, 1988; Roig et al., 2006; Luarn and Lin, 2003;  Parasuraman and Grewal, 2000; Dodds et al., 1991; Grewal et al., 1998; Reichheld, 1996; Dodds et al., 1991; Buzzel and Gale, 1987; Patterson and Spreng, 1997; Rokeach, 1973; Sheth et al., 1991a &1991b; Bolton and Drew, 1991).


Catastrophic Risk Management Mechanism for Tourism Industry

Dr. Chung-Hung Tsai, Taiwan Hospitality & Tourism College, Taiwan



The risk analysis of earthquake is provided and developed by special modeling organizations that have developed portfolio loss models for the tourism industry. For a long time, it has been applied in the insurance industry to estimate loss by traditional empirical approach. An event-based probabilistic seismic risk assessment model was established for The Taiwan Tourism Earthquake Insurance Pool (TTEIP). Based on the request of TTEIP, the risk assessment analysis results were provided to TTEIP as reference for capacity adjustment, reinsurance arrangement, and exercise plan of claim process. The purpose of this study is to build a mechanism of catastrophic risk assessment and management for tourism. The mechanism integrates knowledge from many fields including earth science, structural engineering, and the insurance profession. Finally, management methods and pricing of earthquake risks are provided for government agencies, insurance/investment banking industries, and tourism asset owners.  Earthquake risk, a long-time concern in Taiwan, is increasingly being recognized as a concern in insurance industry and government. The Taiwan Tourism Earthquake Insurance Pool (TTEIP) was proposed to facilitate a risk sharing partnership between private insurance companies and the Government covering insured tourism earthquake losses. TTEIP collects premium for the earthquake risk from the insurance companies and redistributes the premium to the various risk sharing entities (including itself).  If losses occur, TTEIP collects the appropriate funds from the risk sharing entities and reimburses the direct insurers for their payments to the policyholders. This paper established the event-based earthquake loss model to analysis the TTEIP insurance scheme to find out the loss exceeding probability curve, both the annual aggregate loss and standard deviation of loss for each layer. Based on the analysis result, we can provide the TTEIP how to modify the insurance scheme. The framework of catastrophe model can be described by Fig. 1. It would be introduced how the primary components work in the following sections. There are four primary components within earthquake loss assessment and management model, which are as follows: 1) Stochastic earthquake event generator, which uses a collection of relevant inventory and analysis parameters for the development of seismic damage assessment and loss estimation. 2) Hazard analysis procedure, can assess the intensity of ground shaking, maximum surface acceleration with the attenuation function in Taiwan and soil condition. 3) Vulnerability analysis procedure, can calculate the probability of different damage state to structural and content. 4) Financial analysis procedure, can assess loss include the direct and indirect economic losses. It also provides the loss exceeding probability curve and dynamic financial analysis result.  An representative earthquake event set is important to an event–based earthquake model .For this reason, we collect the historical distribution of the epicenters of earthquakes in Taiwan during 1900 to 2004 from the Taiwan Central Weather Bureau. It includes 43 seismic zones, 21 shallow seismic sources, 7 deep seismic sources, and 15 subduction zone seismic sources [1]. There are also 42 active faults in the event generator [2]. The rate of occurrence of different magnitude events is estimated based on a Gutenberg-Richter [3] frequency-magnitude relationship. The earthquake occurrence rate is modeled by the Poisson model. There are 17,710 hypothetical earthquake events distributed across all sources in the generator and each event includes the parameters which the other analysis procedure need such as location, depth, magnitude, direction…etc. To asses the intensity of ground shaking for each simulated earthquake event is the purpose of the hazard analysis procedure. As described in the following diagram, we can calculate the Peak Ground Acceleration (PGA) for the location of the building.  In analysis procedure, all crustal sources use the attenuation developed by Loh [4] while the subduction sources use Young et al. [5]. For the site effect, we also consider soil classifications are rock, weak rock / dense soil, stiff soil, and soft soil. Soil map inferred from the analysis of records of Free-field Strong-Motion Stations of Taiwan Central Weather Bureau and Geologic Map from Taiwan Central Geological Survey, MOEA.  Geotechnical data is derived from geologic maps published by the Taiwan Ministry of Economic Affairs at 1:50,000 and 1:250,000 resolutions.


Antecedents of Compensation and Relationship Among Compensation, Motivation, and Organizational Profitability

Imran Ahmed Shahzad, Mohammad Ali Jinnah University, Pakistan

Komal Khalid Bhatti, Mohammad Ali Jinnah University, Pakistan



The purpose of this study was to find antecedents of both financial and non financial compensation, to investigate the relationship between compensation and employee motivation and impact of employee motivation on organizational profitability. The researchers used a single questionnaire containing three types of questions. Regression analysis, correlation and other statistical calculations proved that basic pay, indirect pay, variable pay and social pay have positive impact on employee motivation. Further sufficient evidence is available to support that variable pay and social pay are major antecedents of compensation whereas basic salary has maximum influence on employee motivation. Study shows that there is a positive correlation between compensation and motivation whereas motivation is also highly correlated with organizational profitability. Finally it was concluded that organizations having proper and updated compensation plans as per industry trends are more profitable as compared to rest of the organizations, which do not update pay plans according to the current trends. Today at the turn of the millennium, Pakistani textile industry is at critical juncture. While the WTO agreement has shifted the paradigm of quality of products for different market segments, skyrocketing competition among profit making players further compelled organizations to think more seriously about their cost cutting at every level. WTO has triggered a race of quality and price where cost of production is becoming question of time to business community not only in South East Asia but all over the world. Keeping cost of production at minimum level along with highest quality standards looks no more an easy task. All production resources like; land, entrepreneurship and capital can be achieved with less hard efforts but labour (human resources) that actually can play winning part in the game; is developed over long period of time and its retention with organization is really a critical challenge due to its scarcity in South East Asia and specifically in Pakistan. In particular many researchers were able to show an association between compensation plans used to boost employee motivation which ultimately had a strong impact on organizational profitability in the west. What employee and employer expect from each other may differ and create conflict. This confusion, if handled poorly may prevent organization to achieve predefined goals; while on other hand it may result in fruitful coordination between employee and employer by sharing high profits. More specifically role of middle and higher level managers is becoming critical as every organization needs motivated and dedicated employees at these levels to handle activities prudently to cope with domestic competition as well as international markets because of WTO had got wide acceptability. Compensation plan can be effective if it is (Armsatrong, Murlis -2005); Adequate: must meet minimum wage criterion. Equitable: fairly paid according to the efforts, competencies and skills. Balanced: package must be balanced among basic pay, benefits, incentives and other rewards. Cost effective: must be affordable for the organization. Incentive providing: must provide more than the efforts pooled by individuals. Secure: must make employees secure. Acceptable: it should also be acceptable to employees in terms of payment systems.  Some reviewed studies show that following three types of pay strategies are opted by firms; High pay strategy: compensation is paid higher than competitors / industry.  Low pay strategy: compensation is planned to be paid lower than the industry, this strategy is normally adopted by well known organizations intending to exploit the full potential of the labour market. Studies show that such firms has high turnover rate. Comparable pay strategy: here organizations develop and offer their compensation plans according to the competition in the labour market. No single plan can be suggested to all organizations. Generally; it varies from industry to industry, market to market and organization to organization and specifically it may vary with in different departments of an organization.  58 years of Pakistan have gone through a number of abrupt and slow changes under army and civilian regimes. Pakistan largely imports hydrocarbons, capital goods, chemical and food processing products, and export efforts are focused mainly on clothing and textile products, the country's three main export destinations are the United Kingdom, United States of America and United Arab Emirates. It exports; textiles (garments, bed linen, cotton cloth, and yarn), rice, leather goods, sports goods, chemicals, carpets and rugs. Main export partners: USA, UAE, UK, Germany, Hong Kong. In spite of persistent water shortages, agriculture rests at the center of Pakistan’s economy, employing approximately 50 percent of the working population. Cotton, cereals and sugarcane are principle crops. In addition, Pakistan has an abundant supply of natural resources, with its manufacturing industry accounting for 20% of the GDP. After several years of reforms, Pakistani authorities have achieved a fast and steady economic growth within the region. However, foreign investment has been limited as a result of long-running tensions with India. (World Fact Book) Textile industry is adopting new technology, and has invested over $3 billion in BMR for improving production quality and moving towards more value addition during 2003-05. It imported $585 million worth of machinery in FY04 and $532 million in FY03. Program called Textile Vision - 2005 was launched to attract more investment in the sector and diversify its products, "This investment activity has resulted in a growth of exports to over $12 billion in the last fiscal year." (The News,2004)


Is Training Evaluation Necessary?  What Are The Constraints that Might Exist in the Evaluation of Training Programmes in Taiwan?  How Can the Constraints be Overcome?

Hsien-Mi Lin, Cardinal Tien Hospital, Taiwan, R.O.C.



Training is one of the human resource development strategies, and training programmes have been seen as an essential feature of organizational life.  Furthermore, Mann and Robertson(1996, p14) pointed out that “the evaluation of the effectiveness of training programmes is critical because without it, organizations have no good way to know whether training pounds are being spent wisely”.  This study, which reports the findings of training evaluation issue, is divided into four major sections.  The first section gives a brief exploration of the evaluation of training.  In the second section, the reasons why training evaluation is necessary are provided.  It then considers some of the constraints that might exist in the evaluation of training programmes in Taiwan and attempts to show that these are related to Taiwan’s culture, economy and politics in the third section.  The final section gives some suggestions on how to overcome these constraints and follows by a conclusion. Training programmes have been seen as an essential feature of organizational life.  However, in spite of the heavy investment in training, organizations often find that they fail to evaluate adequately the value or success of their training programmes.  Following Lewis and Thornhills’ study of training in Britain (1994, p25), they revealed that “85 percent of British employers make no attempt to assess the benefits gained from undertaking training”.  It seems that training evaluation is the least well conducted aspect of all training activities.  But this should not be the case, the evaluation of training programmes is an essential part of the training process, although there are many constraints exist in it, such as a country’s culture, economy and politics.  As Mann and Robertson commented (1996, p14), “the evaluation of the effectiveness of training programmes is critical because without it, organizations have no good way to know whether training pounds are being spent wisely”. Training is a variety of activities that aim to influence the ability and motivation of individual employees as well as to improve the employees’ worth to their employer and to themselves.  According to the Manpower Services Commission (1981), training can be defined as “a planned process to modify attitude, knowledge or skill behaviour through learning experience to achieve effective performance in an activity or range of activities.  Its purpose, in the work situation, is to develop the abilities of the individual and to satisfy the current and future needs of the organization”.  In a similar way, training can be seen as “a systematic development of the attitude / knowledge / skill / behaviour pattern required by an individual to perform adequately a given task or job” (The Department of Employment Glossary of Training Terms, 1971). Training is one of the human resource development strategies, and furthermore the effective training must have value both for the organization as well as employees.  Therefore, it is vital to evaluate training in order to assess its effectiveness in producing the learning outcomes specified.  Following Goldstein’s definition (1980, p237), “evaluation is the systematic collection of descriptive and judge mental information necessary to make effective training decisions related to the selection, adoption, value and modification of various instructional activities”.  Effective training should have value to the whole organization.  On the basis of Buckley and Caples’ definition, they emphasized that training evaluation is “the process of attempting to assess the total value of training: that is the cost benefits and general outcomes which benefit the organization as well as the value of the improved performance of those who have undertaken training”. Armstrong reminds us (1999) that four levels of training evaluation that have been suggested by Kirpatrick (1994), which are Level 1: Reaction, Level 2: Learning, Level 3: Behaviour, and Level 4: Results, each level requires different techniques.  The evaluation of training can take place at any level, but the ultimate objective is always the same – to achieve a better performance of individuals and organizations.  In the Kirkpatrick’s model, it is easier to start the evaluation from level one and then progress up with increasing difficulty to level four.  It is obvious that the overall performance will be better if there is more successful evaluation achieved by organizations at the earlier stages. It is said that all social organizations are required to provide evidence of their effectiveness of training programmes.  With training evaluation, this “evidence” will usually be established.  In addition, there are many reasons why training evaluation is required.  These will be explained as follows: (1) The training evaluation provides information which can justify the cost of a particular training event, and furthermore it will enable the effectiveness of an investment in training to be appraised.  In general, training can be seen as a kind of investment so that it demands an expenditure of resources and money by the organization that is expected to be returned.  One of the difficulties in obtaining money for a training budget is that the results are often regarded as intangible or an act of faith. (2) Training evaluation provides feedback to trainers about the effectiveness of training activities and the extent of the organizational objectives that have been achieved.  This will help in the training programmes being run and in the planning of future ones (Bramley, 1996).  In other words, the results of training evaluation enable improvements to be made, either on the current proceeding training event, or on the next training programme events in the future.  (3) The training evaluation provides a better discrimination of training programme events between those that are worth to support and those that should be dropped.  Apart from this, for those training programme that are worth to support, training evaluation can be seen as a diagnostic technique to permit the revision so as to meet the large number of organizational objectives. (4) The training evaluation can help organizations to decide who should participate the future training programmes, because a good evaluation result can show which trainees are likely to benefit organization most.  Thus, it will be more cost effective to offer those trainees the further training. (5) Bramley (1996, p6) pointed out that one of the reasons for evaluating training is “to relate the training policy and practice to organizational goals”.  The training evaluation is required to give decisions about whether training is the best way of achieving changes and whether a particular training programmes is worth sponsoring.  It provides invaluable information of what objectives have been achieved by individuals and organizations, and what lessons have been learned from the training programme.  Hence, the results of training evaluation can identify whether and what further training needs might be required. (6) From the training evaluation, the trainers will get feedback about how well they have performed and in what way the methods can be improved.  Therefore, it will become a part of their learning experience. (7) The training evaluation may improve the relationship between the department of training and the rest of the organization by providing worthwhile evidences, and by linking training events to improved organizational effectiveness.  In addition, it may also improve the cooperative relationship between trainers and line managers. (8) With respect to the training evaluation in political organizations, their organization usually consists of different groups of people with distinct opinions on training.  For example, they may have different view on the importance of training programme.  Therefore, a formal results of training evaluation can give them a critical standard for doing it. (9) Finally, the most common reason why doing training evaluation is that it completes the process of planned training programmes (see the Figure below).  Bramley reminds us (1996, p7) that “the process of evaluation usually affects the views of people concerned with, or affected by, the training.  Therefore, If a training programme is being evaluated, it will encourage people to think that ‘it must be important’.


The Significance of Relationship Marketing Orientation on International Joint Venture (IJV) Performance in Thailand

Wanida Wadeecharoen, University Utara Malaysia, Kedah, Malaysia

Dr. Nik Kamariah Nik Mat, University Utara Malaysia, Kedah, Malaysia



Relationship Marketing Orientation (RMO) has played a vital role in successful relationship management and firm’s performances. This paper reviews and synthesizes prior studies to address the significance of relationship marketing orientation (RMO) towards IJV firm performance specifically in a developing country like Thailand. In addition, this study investigates the conceptualization of relationship marketing orientation (RMO) within IJV context, as well as examining the relationship of RMO   and IJV performance by past researchers. Finally, this paper proposes a research framework to investigate the relationship of RMO with IJV performance in Thailand. The international joint venture (IJVs) foreign investment has increased in the last three decades across all business sectors worldwide. IJVs represent one of the most popular strategies for firms from multiple countries to share risk and resources, to gain knowledge, and to obtain access to new markets. IJV enable firms to bring in foreign expertise and then upgrade their operating competencies. Hence, IJVs play a significant role in the dynamic world economy not withstanding Asian countries like Thailand. It can shown in the doubling of Thai foreign investments in 2007 as compared to 2006 (27 billion baht in 2006 compared to 42.8 billion Baht in 2007) (Board of Thailand Investment, 2007).  International Joint Venture (IJV) is formed when two or more firms form a third party entity to carry out a productive economic entity (Harrigan, 1985). JVs thus involve two or more legally distinct organizations (the parents), each of which invests in the venture and actively participates in the decision-making activities of the jointly owned entity (Geringer and Hebert, 1991). A JV is considered to be international if at least one partner has it headquarters outside the venture’s country of operation or if the JV has a significant level of operation in more than one country (Geringer and  Hebert, 1989). As a form of strategic alliance, International Joint Venture (IJV) involves a long-term cooperation arrangement between at least two or more partners established for the achievement of mutually beneficial exchange that result in the establishment and management of a separate legal entity (Parkhe, 1993) Each partner makes both equity and non-equity contributions and actively participates to some extent in the management of IJV (Geringer, 1988). The number of joint venture projects in Thailand has increased from 415 in 2004 to 423 in 2005 (Board of Thailand, 2007).  Long term cooperation can be translated in marketing terms as maintaining relationship marketing. Relationship marketing is part of a developing “network paradigm”, which recognizes that global  competition occurs increasingly between networks of firms (Thorelli, 1986). These global dynamics have resulted in somewhat paradoxical nature of relationship marketing. To be an effective competitor in the global economy requires relations with outsider or other parties to be a cooperator (in some network). For most global businesses, many multinational companies are learning that they must collaborate to compete. Due to the several partners involvement, maintaining long-term relationship amongst partners in IJV become inevitable. Building relationship will ensure success of IJV especially in building relationship marketing between partners of IJV.  Various marketing academics and practitioners have been examining relationship marketing for more than a decade (Berry, 1995; Gronroos, 1989; Levitt, 1983), most of the studies on relationship marketing were focused on the relationship between firms to customer but only few studies focus on business to business relationship and business within its own organization. (Barwise, 1995) emphasizes on the context of customer retention and relationship marketing. Barwise observed that in many markets, the increasing cost and difficulty in attracting new customers mean, it is more profitable to concentrate limited resources on retaining long-term relationships with existing ones and enhances firm competitive performance through IJV formulation.  To fill in this research gap, this study attempts to make a link between relationship marketing and performance of International Joint Venture (IJVs). Thus, this study will examine and verify empirically the impact of RMO on IJV firms’ business performance in manufacturing sector in Thailand. Moreover, most of the past discussions on relationship marketing were mainly in the context of western culture. Seldom has this concept been discussed in Asian culture, a context where a relationship is always considered to be an essential factor in IJV business operations.  To conceptualize relationship marketing, this study basically traces back to relational exchange theory whereby the equity is the indicator of the IJV relationship management, interactions and fair dealing between partners (Ring, 1994). Further, (Dwyer, 1987) iterates that “Relational Exchange” as ‘traces to previous agreement which is long in duration, and reflecting an ongoing process’. These two arguments strongly point towards long term relationship marketing whereby Goonroos (1989) defines it as ‘identifying and establishing, maintaining and enhancing and when necessary also terminating relationships with customers and other stakeholders, at a profit, so that the objectives of all parties are met, and that this is done by a mutual exchange and fulfillment of promise’.  The concept of relationship marketing can likewise be identified in inter-organization context like International Joint Venture (IJV) firms, where the partnering concept is applied. Therefore, according to relationship marketing view, partnering was defined as a long-term commitment between two or more organizations for the purpose of achieving specific business objectives by maximizing the effectiveness of each participant’s resources (Pheng, 1999). Pheng suggests the merging of relationship marketing with partnering as shown in figure 2. 


Determining the Service Quality Dimensions and Zone of Tolerance for Hospital Services in Malaysia

Dr. Ahmad Azmi M. Ariffin, Universiti Kebangsaan Malaysia

Norzalita A. Aziz, Universiti Kebangsaan Malaysia



This paper attempts to identify the dimensions of service quality for hospital services in Malaysia and subsequently examine the gap between the expectation and perception on the various aspects of the services. The conceptualization of the hospital’s service quality of HOSPIQUAL in this study was developed based on SERVQUAL scale. A total of 210 respondents from Kuala Lumpur and a smaller town known as Batu Pahat involved in this study. The results of factor analysis revealed that HOSPIQUAL comprised of four dimensions namely tangible, empathy, reliability and responsiveness, in the sequence of their importance. This study also indicated that customers (patients) are most tolerable with factors related to tangible dimension and least tolerable with factors related to reliability dimension. In this overall, the size of zone of tolerance for hospital services was 0.81 on the scale of 5-point. The gap analysis between service expectations and perceptions showed that all scores for expectations were lower than their perception scores, indicating that there are a lot of service improvement efforts need to be carried out to enhance the quality of services rendered by hospitals in Malaysia. The key to competitive advantage in today’s challenging business environment lies in delivering notable high quality service that resulted in satisfied customers (Shemwell et al., 1998). Generally, service quality promotes customer satisfaction, stimulate intention to return and encourage recommendations (Nadiri and Hussain, 2005). In order to enhance the service quality, it must be reliably assessed and measured. Based on the SERVQUAL model as developed by Parasuraman et al. (1988), service quality can be measured by determining the gaps between customers’ expectations of the service to be delivered and their perceptions of the actual performance of the service received. Gap scores provide valuable insights on the scope of improvement necessary to enhance overall quality evaluations from patients on the hospital services. Large gap scores show that there is more space for improvement in that particular service area. Healthcare services provide by hospitals have a distinct position among other services due to the highly involving and risky nature of services and the general lack of expertise possessed by consumers. This makes conceptualizing and measuring customer satisfaction and service quality in health care settings more important and at the same time more complex (Taner and Antony, 2006). Malaysian society places importance on the expansion and development of healthcare, putting 5% of the government social sector development budget into public healthcare in 2005 - an increase of more than 47% over the previous figure (UNICEF, 2005). Over the last couple of years the government has increased their efforts to overhaul the healthcare systems and attract more foreign investment. There is still a shortage in the medical workforce, especially of highly trained specialists. As a result certain medical care and treatment is available only in large cities. The majority of private hospitals are in urban areas and, unlike many of the public hospitals, are equipped with the latest medical facilities. During the Ninth Malaysia Plan (2001-2010), a total of RM10.3 billion is allocated for the development of healthcare industry in Malaysia. As at the end of December 2007, there were 137 government hospitals and 273 private hospitals in the country. Given the potential of health or medical tourism as a foreign exchange earner, the government has taken a series of proactive measures to enhance the healthcare services provided by the Malaysian hospitals. The healthcare industry in particular the hospitals are now pressured with the requirement to provide evidence of quality controls and quality improvements.  The objectives of this paper are to determine the underlying dimensions of service quality for hospital services in Malaysia, and subsequently to diagnose the zone of tolerance for the services. The findings of this study would provide hospital administrators and marketers with a conceptual and operational framework integrating patients' expectations and perceptions of services with their quality of assessments and satisfaction judgments.  The purpose of SERVQUAL is to provide an instrument for measuring service quality that would apply across a broad range of services with minor adaptation to the scale. In general, the 22-item SERVQUAL consists of five dimensions namely:  I. Tangibles – refers to the physical environments and surroundings represented by objects as well as subjects. II. Reliability – refers to the capability of the service providers to render dependable and accurate services as promised. III.  Responsiveness – refers to the willingness of the service providers to assist its customers by delivering fast and efficient services. IV.  Assurance – refers to diverse features of the service that provide confidence to customers.  V. Empathy – refers to the readiness of the service providers to provide personal attention to each customer. The SERVQUAL has been employed in a wide variety of studies in health care to assess customer perceptions of service quality in a number of service categories such as acute care hospital (Carman, 1990); independent dental offices (McAlexander et al., 1994); at AIDS service agencies (Fusilier and Simpson, 1995); with physicians (Brown and Swartz, 1989; Walbridge and Delene, 1993) and nurses (Uzun, 2001); hospitals (Camilleri and O'Callaghan, 1998; Lim and Tang, 2000; Alakavuk, 1996). Parasuraman et al. (1991) contended that the gap between expectations and perceptions provides a way to analyse the level of service rendered, so that effective actions can be taken to enhance service quality. According to Zeithaml et al. (2006), customers hold different types of expectations about service. The highest can be termed “desire service” - level of service the customer hopes or wishs to receive. However, customers recognise that this is not always possible in the real situations. The threshold level of acceptable service is called “adequate service” - the minimum level of service the customer can tolerate or in another words, the bottom level of acceptable performance of service. Service performances are heterogeneous in nature and the extent to which customers recognize and are willing to accept this variation is termed “zone of tolerance” or ZOT. If actual service falls below adequate service, customers will be dissastisfied and frustrated. If service performance is higher than the zone of tolerance at the top end, customers will be very pleased or satisfied. Thus, the zone of tolerance can be considered as the range in which customers do not particularly notice service performance. The size of ZOT will change according to the factor affecting the desired and adequate service expectations (Zeithaml et al. 2006; and Gronroos, 1990). Thus, ZOT would be one of the key determinant of overall service quality that leads to overall customer’s satisfaction (Bolton and Drew, 1991).


Impact of Employee Participation on Job Satisfaction and Perceived Organizational Performance in Banking Sector of Pakistan

Komal Khalid Bhatti, Mohammad Ali Jinnah University, Pakistan

Imran Ahmed Shahzad, Mohammad Ali Jinnah University, Pakistan



It is widely believed, employee participation in decision making can effect their level of job satisfaction; productivity, commitment and turnover intentions. These variables can create comparative advantage for organizations. Study provides empirical evidence to support theoretical models that link job satisfaction, productivity, commitment and turnover intentions with organizational performance. For this purpose 34 banking organizations were selected. Response rate was 100%. Findings show that employee participation is an important determinant of job satisfaction components. Increasing employee participation has positive impact on job satisfaction but it also strengthens the link between other outcomes of job satisfaction. Naturally increasing employee participation is a long-term process that requires management interest and employee initiative. The concept of employee participation as a more effective approach for managing human resource of an organization has attracted enormous attention and initiated significant debate among academics and practitioners. Employee participation practices have to be introduced in organizations so that everyone is given an opportunity to participate, work is conducted by consensus and multidisciplinary teams are utilized to implement processes. All this demands a change in organizational culture, in which everyone particularly top management must adopt the new principles and values. Here corporate culture means collectively held perceptions about organizational life and its identity; it also means organization shared expectations for consensually approved behavior as the most important component of culture. If the organizational culture is democratic, it will be easy to change to a culture based on employee participation. One could find many research studies on employee participation but there is hardly any data available about Pakistani organizations in this regard, even though the fact that employees of organizations are becoming key to strategic decision-making seems reasonably indisputable even in Pakistan. For sometimes government of Pakistan has been trying to make the corporate sector feasible for investment and for overall uplift of the economy. It is generally believed that organizations from different sectors are playing a significant role in the economic development of Pakistan specially banking sector.  Despite their economic importance, different organizations suffer from a variety of structural and institutional weaknesses, which have constrained their ability to take full advantage of rapidly advancing process of globalization similarly management of professional and non professional human resources in different organizations from different sectors is also a constraint.  Employee participation “is a term used to qualify employee relation practices, which management believes to encourage employee commitment to managerial goals and the success of the enterprise” (Mariapa, 1998).  Different studies have tended to excavate a direct relationship between participation and job satisfaction. In contrast, Daniel and Bailey (1999) argued that individuals and situational variables could affect the evidence regarding the impact of employee participation and jobs satisfaction. The best way to improve productivity is to strive for the shared goals of employees and managers. By allowing worker contribution for developing the mission statement, establishing policies and procedures, determining perks, etc, organizations can improve communication with in the organization and ultimately will increase morale and satisfaction of employees (Cotton 1993). Past studies showed that employee participation is positively related to employee performance, satisfaction, and productivity (Pfeffer 1994; Wagner 1994; and Verma 1995). According to Blinder (1990) profit sharing programs are more effective when combined with employee participation in management. The word ‘employee participation’ usually covers comprehensive terms like industrial democracy, cooperatives, employee sharing schemes, employee involvement, and human resource management.  Locke (1976) defined job satisfaction as “a gratifying or positive emotional state resulting from the appraisal of one’s job or job experience.” That is, it is the difference between what an employee values and what the situation provides. Smith et al. (1969, p. 6) suggested that “... job satisfaction are feelings or affective responses to different aspects of the situation.” Dawis and Lofquist (1984) defined job satisfaction as the degree to which the work environment fulfills the individual’s needs. These definitions, as Lease (1998) pointed out, are similar to other definitions where job satisfaction is viewed as the degree of an employee’s affective orientation toward the work role occupied in the organization. According to Spector (1997) job satisfaction is defined as "the extent to which people like (satisfaction) or dislike (dissatisfaction) their jobs". This definition suggests job satisfaction is a general or specific affective reaction that individuals hold about their job.  Job satisfaction and organizational commitment are topics that have been extensively researched in the United States, Europe, Asia, and other industrialized countries. (Angle & Perry, 1981; Bateman & Strasser, 1984; Dewar & Werbel, 1979; Farkas & Tetrick, 1989; Johnston et al., 1987; Katz, 1978; Mobley, 1977; Mowday et al., 1979, 1982; Wiener, 1982; Williams and Hazer, 1986). The focus on these two key concepts cannot be over stated because job satisfaction and commitment are primary determinants of employee turnover intention, performance, and productivity (glisson and durick, 1988). Productivity is a performance measure encompassing both efficiency and effectiveness. It is therefore, important to know the productive workers. Sherman, Bohlander & Snell (1998) suggests that more productive employees are, better is the performance of their organization. Locus of control, Machiavellians, values and attitudes predict job satisfaction influence the motivation levels of employees and are all direct or moderating variables related to individual job performance (Robbins 2003). Usually turnover means voluntarily cassation of membership of an organization by an employee (Mobley 1977), but it should be acknowledged that from a more institutional or organizational perspective turnover may also include employee entry or succession.


Impact of Compensation on the Turnover Intentions of Employees:  A Case of Pakistan Telecom Sector

Kashif Amin Butt, Mohammad Ali Jinnah University Islamabad, Pakistan



Main problem for today’s employer is to hire and retain talented employees. All over the world every organization has realized the importance of human capital. It is perceived notion that compensation is accurate measure to reduce turnover. The present study will examine the impact of compensation on the turnover intentions of telecom sector employees of Pakistan. For this research 15 telecom companies were selected and 300 questionnaires were distributed physically for better response rate; the response rate was 89%. For the data analysis, Correlation and stepwise forward regression analysis were performed. The result showed that compensation has direct positive impact on employee retention and consequently reducing turnover intentions. As technological development and competition are continuously growing, the requirement and demand for skilled labor is ever on increase. The organizations are regularly trying and developing such policies, which are employee friendly. Therefore all HR practices may it be hiring, developing compensation packages or plans for the development of employees are aimed at attracting, retaining and further developing good employees. Turnover is prevailing almost in every industry and sometime uncontrollable and can create severe problems for the organizations. There are many reasons of turnover but the main problem might be the failure of management to provide appropriate working environment or wrong induction at the time of hiring. In such a situation, the organizations in which members feel themselves responsible and involved in the success of organization are most successful (Lawler, 1992).As competition grew and demand for skilled labor increased- it became inevitable for the organizations to focus on HR practices, their implementation and subsequent impact on the employee. HR practices are continuously been developed for the convenience and betterment of the employees.  Pakistan is a developing country and is an important member of world community due to its strategic location, skilled manpower and natural resources (AFACT 2006). Average GDP of Pakistan during the last three years is 7.5%, and Foreign Direct Investment is USD 6 Billion. In 2005-06, the services sector accounted for over 52.3% of GDP and absorbed approximately one-third of workforce in Pakistan. The services sector has been an important contributor to Pakistan’s economic growth over the past five years. It grew by 5.9% in 2003-04, 8.0% in 2004-05 and 8.8% in 2005-06. Growth in the service sector in 2005-06 was primarily attributable to strong growth in the finance and insurance sector, better performance of wholesale and retail trade, as well as transport and the communications sector (Pakistan Economic Survey 2005-06). If we take a look at service sector, telecom is the only sector, which is growing at a fast pace. Huge investment is taking place in this particular sector. As a result of government’s policies of deregulation, privatization and liberalization the telecom sector has attracted an investment of US $ 9 billion (Pakistan Times 19 Feb 2007). As a result the competition in telecom industry of Pakistan has increased. Recently Pakistan Telecommunication Authority (PTA) has issued 12 LDI (Long distance international) and 76 LL (Land Line) licenses in addition to 92 WLL licenses, 2 new mobile companies (Telenor and Warid) are in full operation now. Due to this expansion, increased number of skilled labor is required to fill the gap in this sector. It is pertinent to mention that due to increased competition world over, human capital has become a more valued asset for companies now a days. At the same time companies are facing the problem of employee retention. Pakistani companies are also confronted same situation. The problem with employee retention has been further aggravated with the arrival of Telenor and Warid Cellular operators and other telecom companies like Dialog, NayaTel, Burraq etc. These companies offered extremely lucrative and attractive compensation package and fringe benefits to attract relevant/ efficient. Due to this hand some reward policies, most of the employees from the other companies switching their jobs and creating problems for companies.  The present study will look the effects of compensation on the turnover intentions of telecom sector employees in Pakistan. The study will explore the current compensation practices of the telecom companies in Pakistan. It also explores what factors, cause employees to leave one organization and join other. The study also looks into the demographic effects on the turnover intentions of telecom sector employees. 1.Does the compensation plan offered by the telecom sector, lead to reduce turnover intention? 2.What elements of compensation influence the turnover intentions of employees? 3.What is the effect of employee demographic characteristics on the turnover intentions of employees?  The term compensation can mean different things to different people. American Compensation Association’s (1995) defines this term as “cash and non-cash remuneration provided by an employer for services rendered” (ACA, p. 9). According to Lawler (1981) compensation is the combination of all cash incentives and the fringe benefits mix that an employee receives from a company constitutes an individuals total compensation. Recently the compensation, which is offered to employees, is extended both in terms of type and amount. Traditionally, employees were compensated with a base pay and a business period bonus based on meeting preset goals for revenues and expenses (Muller, 1999). Given this scope, compensation can be classified, sorted, characterized, and re-defined in many ways. For example, compensation can be intrinsic or extrinsic, financial or non-financial, and/or direct or indirect (Clampitt and Potempa, 1994). Dibble (1999) expands the definition of earnings, “it is money even when we do not use the word” and further elaborates by stating that a benefit like employee development, even though not necessarily viewed by the employee as compensation, is a substitute for money and a major cost for employers.


Perceived Fairness of and Satisfaction with Employee Performance Appraisal and Its Impact on Overall Job Satisfaction

Zara Sabeen, Muhammad Ali Jinnah University, Islamabad

Syed Ali Abdullah Mehboob, Muhammad Ali Jinnah University, Islamabad



Employee performance appraisal is one of the most commonly used and widely researched management tools in the world. Recent research has moved to themes of employee reactions towards performance appraisal as indicators of system satisfaction and efficacy. This study investigated employee reactions to fairness of and satisfaction with an existing performance appraisal system and its impact on overall job satisfaction, utilizing a survey questionnaire, from 500 participants from eighteen private banks of Rawalpindi, Islamabad (Pakistan). The findings of the study indicated that respondents perceived the performance appraisal system to be fair. Satisfaction (although not too high) was indicated with the performance appraisal system overall. The overall job satisfaction was explored to be least affected by the appraisal satisfaction. The performance appraisal process, whereby a supervisor monitors the employee performance, compares it with the expected goals and targets, and then uses it for the further improvement of the performance and outputs, is, a common practice all over the world now a days,(whether formal or informal) The purpose of use and scope of the practice may range from very effective , future progress and career growth as well as organizational growth oriented to the least effective just for the sake of monitoring, promotion, punishment, and termination purposes. Whatever the purpose would be, it is an essential part of the organizational systems and processes.  Performance evaluation has been the area of interest for the researchers for very long time and a lot of research has been done in this area for the improvement of the system. This ranges from evaluation criteria, rating instrument to the procedures, so that the validity, accuracy and perceived fairness of the system is improved. It has always been believed to be one of the most effective tools for effective human resource management and performance improvement. Even with all that due importance given to the process, it is an undeniable fact that there is an overall dissatisfaction associated with the process by the system users i.e. employees (Walsh M.B 2003). The dissatisfaction associated with the performance appraisal process might be due to the perceived unfairness of the system by the system users. According to the researchers employee reactions are a valid measure of the efficacy of the system. A very well constructed and well designed system can totally result in a failure if it is not accepted by its users. So the perception of fairness of the employee is the ultimate check for the success of the system (Bretz, Milkovich and Read 1992).According to the organizational justice theorists, the efficacy of the appraisal system also depends upon the perception of fairness related to it. The components of fairness, procedural as well as distributive should have a positive impact on the employee in order to make him accept the whole procedure and its results without any reluctance. This fact is also evident in the studies that procedural fairness is considered to be more important by the employees than distributive justice, and they are willing to accept some injustice in the outcomes if they perceive the procedure itself to be fair. So, the acceptance of the evaluation system also depends on the perceived fairness associated to it. With that it is also important that they perceive that they are being evaluated against what they are actually supposed to do on the job. That is the evaluation instrument clearly measures their performance against their job related activities. The perceived fairness of the appraisals not only increases the receptivity of the system, but also contributes to the overall job satisfaction level. Some studies reveal that between twenty to fifty percent of the overall job satisfaction is explained by satisfaction with appraisals. The developing countries such as Pakistan are facing the problem of the ineffective use of the system. This fact is proved by the performance appraisal system used by the government sector especially. It uses PER (performance appraisal report) previously known as ACR (annual confidential report) that is used only for the administrative purpose developmental aspects of appraisal are out of the scope of its objectives. The private sector however is trying to use the process more effectively, linking it with the employee development. In such cases the appraisal process is thought to be a source of motivation for the employees, making it sure that all their positive efforts, inline with their job responsibilities are being acknowledged and rewarded.  The current study is aimed at exploring the fairness perceptions of the Pakistani employees in the private sector (Banking Sector). This is the first effort in Pakistan to relate fairness perceptions with appraisal satisfaction as well as with the overall job satisfaction. It is initially focused at exploring the responses of employees against the same factors that have been used in Europe and America, so that it is confirmed that the same results hold true for different cultures and work environments or not. Performance appraisal is a process of judgment and evaluation of subordinate’s performance by the supervisor. Mohrman, Resnick, West and Lawler (1989) defined four activities in the performance appraisal cycle in organizations, namely, definition of performance, performance measurement and evaluation, feedback to the employee, and application of the results on different organizational systems.  For the purpose of evaluation, there is need for using proper and appropriate evaluation method and instrument. There are many methods and their combinations used, but overall these can be categorized into three major groups, i.e. Trait formats, management by objectives (MBO), and behavioral system formats, e.g. BOS, BARS etc. (Gabris & Ihrke2001) Along with the use of appropriate evaluation method, communication in performance evaluation process is also given much importance due to its impact on the success of the process as well as employee satisfaction with the job and system. Karol (1996) emphasized upon including a communication event, between a manager and an employee for the evaluation of that employee's past job performance and discussing relevant areas for future job performance. In fact it is the communication process that helps improving the satisfaction level of the employees with the process as well as their jobs overall.


An Empirical Analysis of Association between Operating Cash Flows and Dividend Changes in Pakistan

Nousheen Zafar, Mohammad Ali Jinnah University, Islamabad

Syed Zulfiqar Ali Shah, Mohammad Ali Jinnah University, Islamabad



Miller and Modigliani’s 1961 work for establishing relationship between dividend changes and management’s expectations of future earnings and cash flows, which has not been proved to be a success is again tested in this paper. A data set of non financial companies of KSE 100 index is taken as a sample. OLS regression is used on cross sectional data for 40 firms to test the relationship between operating cash flows and dividend changes. Despite of the importance of operating cash flows in assessing dividend policy of a firm, this study has not found any significant relationship between dividend changes and level of operating cash flows of a firm. In order to check the importance of cash flows in determining dividend policy of the firm, whole sample is divided in three sub samples as per their growth levels. OLS regression is applied on each sub sample but again this study failed to develop any positive relationship between operating cash flows and dividend policy of the firm. This means that there are certain other factors which are responsible for the changes in dividend policy. Corporate finance is almost always invariably based upon dividend policy. Corporate dividend policies are special point of interest for all theorists these days. The most initial idea developed about dividend policy changes was that dividend changes are associated with the earnings of the firm (Lintner, 1956).Then another argument was raised that value of a firm is only determined by the earning power of the firm’s assets or its investment policy, and that the manner in which earning stream is split between dividends and retained earnings does not effect the value of a firm (Miller and Modigliani, 1961). His analysis of dividend payout found that dividend changes are mainly dependent upon management’s expectations of future earnings and cash flows. However previous studies conducted in this regard to find out any such relationship between these two variables did not prove to be success. This study is another effort to dig out some relationship between operating cash flows and dividend changes as did the previous studies. Here we argue whether cash flows indicate something about dividend changes or not and whether growth of a firm has any relation with its dividend policy? Reasons are being given for these two arguments. The cash flows of any business entity provides information to all the stake holders about financial position of the firm  to enable them to evaluate the ability of that firm to generate cash and cash equivalents in future  and the requirements of that firm to utilize those cash flows. But along with this, information about accrual accounts is also necessary because a cash transaction does not provide information about all of the business activities such as revenue to be received on credit and future liabilities. With the help of accrual’s data, stake holders can calculate what a company owes in future and what cash revenue it expects to receive. The major benefit of accruals is that it helps in mitigating the problems of timing and mismatching in the underlying cash flows. However, accruals’ data can not solely be trusted as it is mainly based on assumptions and estimates about future cash flows, which implies that accruals may include errors of estimation (Dechow, 2001). Secondly, in accruals there is a chance of manipulation. Managers may manipulate accrual data to present a better picture of the firm’s financial position which can not be easily verified as did cash flows. As current cash flow data is considered a more reliable source to determine future cash flows as compared to current earnings, the combination of cash flow and accruals data proves to have the greatest explanatory power (Al-Attar and Hussain, 2004). A lot of research in different countries and at different point of times has been conducted on the ability of Accrual and cash flow measures to evaluate the firms’ performance. However none of them has proved to be conclusive yet. Based on the hypothetical arguments that current income alone is unable to provide information regarding the operating, investing, and financing activities of the firms, cash flow measures are considered to be an added source of information to find out firms’ performance. (Norita , Shamsul, 2004) Another reason to re evaluate the association of cash flows and dividend changes under this study, believing that cash flow are a good indicator of a dividend change is that even if accruals and cash flows are equally valuable in measuring firm performance, cash flows should be more useful than accruals in predicting dividend changes since cash flows are a more direct liquidity measure. Liquidity is expected to be a more contributing factor towards setting of dividend policy (Vafeas, Charitou, 1998) In this study we will hypothesize that level of cash flows is associated with the determination of dividend changes. And then we will check that whether the relationship between cash flow and dividend changes depends on each firm's growth opportunities. Rest of the paper is organized in a way that section two that is next reviews the available literature in this regard. Third section explains the development of hypothesis. Fourth section describes whole of the methodology i-e sample selection, variables, model to be used. Fifth section is about Descriptive analysis of data. Sixth section will discuss empirical results and last section gives conclusion of the studies.  Efforts to find out relationship between dividend and cash flows started with the work of Lintner (1956) however all the prior studies failed to develop any such relation between cash flows and change in dividend. Lintner (1956) established that level of current earnings and preceding dividend determines the changes in dividend policy. He also established that year to year changes in dividend policy are dependent on earnings for that year and also on the target pay out ratio. Fama &Babiak (1968) supported this idea by adding Last year’s dividend as an additional factor for change in existing dividend policy. Conclusively, their studies did not rule out the ability of cash flows to incrementally predict the dividend changes, given earnings as they defined cash flows as income plus depreciation which they used as a proxy for profitability and not liquidity. Crum et al (1988) added depreciation and working capital from operations as another factor for the dividend changes. Simons (1994) once again tried to test the association between cash flows and dividend by isolating the firms having weak dividend-cash flow relationship but failed to establish any such relation.


Nature of Managerial Decision Making Along the Continuum of the Decision Making Pyramid

Ivana Pavic, University of Split, Croatia



Decision making is immanent to any managerial function, because managers are not only administrators. By profession they are decision makers. Having that imperative their importance for organizational existence is not doubtful. Managerial decision making is not easy to describe because managers largely use intuition, instincts, feelings and judgments in everyday decision making (Harrison, 1999), avoiding hard systematic thinking and analysis of data, relying more on intuitive judgment (Tipuric, Prester and Hruska, 2003:366). But the framework for understanding managerial decision making lies in the piece of evidence that managerial work is largely the work of making decisions. What is more important is the fact that since management realizes itself through decision making processes, (Harrison, 1999) with the purpose of fulfilling various business tasks, managers have to act rationally in dynamic and turbulent settings. They, as decision makers, are expected to implement a high level of decision making quality, which depends on a variety of factors: managers' knowledge and experience, their ability to grasp and understand a problem, ability to analyze and synthesize, on one hand, availability of information in their environment and their use of decision making techniques and methods, on the other hand. Different levels of management (on management pyramid) use different approaches to the decision making process what implies the existence of the decision making pyramid. One of the questions in an organization concerning managerial decision making is dealing with an answer: "how much of the decision making should be done by the executives of the higher levels and how much should be delegated to the lower levels" (Simon, 1997:115). Led by this question and by the notion that nature of decision making should be explored and its relevance emphasized, this paper investigates the relationship between the theory and practice of managerial decision making in Croatian large companies using case study methodology approach by linking two companies. The purpose of this paper is to highlight the importance of managerial decision making describing its essence and exploring its nature in an organizational existence. The paper discusses the nature of managerial decision making along the continuum of the decision making pyramid answering the questions to what extent managers make decisions, types of decisions they make, decision making methods and techniques they are applying as well as the influence of available information’s on their decision making process.  There is a broad range of studies, theories and researchers that have been done in the field of managerial decision making, all having in common general conclusion that quality in managerial decision making is vital for any organization (Gilmore, 1998). Theoretical discipline of decision making in managerial literature begins at the time of the II. World War and was mainly used for solving war problems (Harrison, 1999:9). Only within the last ten or fifteen years have the behavioral sciences-sociology, psychology and social psychology begun to contribute to the body of knowledge comprising decision theory. Decision theory has interdisciplinary character, it is developed through contribution from several academic discipline; economy, statistics, psychology, politics, sociologic etc. All these disciplines have studied decision making from its perspective, applying different methods to the same problem. This resulted in different backgrounds and different approaches to the decision issue. Decision making is a process which characterizes every human being and every organization created by him (Borozan and Pfeifer, 1996). Without decisions an organization can not function, adapt, progress, take advantage of opportunities and overcome crises (Jennings and Wattam, 1998). Decision making pervades the activity of every business manager. Various definitions of the decision making process could be found in the literature but what all of them have in common is stating that it is a continuous process, very time consuming for the decision maker, requiring significant preparation and knowledge. It represents the basis of the organizational existence and business performance, targeting mainly managers of an enterprise. Managers are always searching the ways to improve their decision making in order to improve organizational performance. At the same time, they do their best to make sure that they make no costly mistakes that will hurt organizational performance. Making decisions is considered by managers and academics as curtail element of business management. Being aware of the fact that every time a manager acts to plan, organize, direct organizational activities, he or she makes a stream of decisions, author will quote Jones, George and Hill (2000:192) saying that decision making is a basic part of every task in which manager is involved and Jennings and Wattam (1998) saying that decision making is an activity that lies at the heart of management being vital organizational activity.  Today, in the period of globalization, where all organizations are trying to keep their piece of the "market cake", the differentiation among successful and not successful companies is based mainly, among the rest of the factors, on the efficiency and effectiveness of the company management. In other words success of a company is more than ever the result of an effective and an efficient acting of the management pyramid which realizes itself through decisions making process. Given the complexity of organizations and the problems they face, together with the inability of any decision maker to obtain all the information’s he would like, it is unlikely to be sure that the choice that has been made in fact represents the best possible alternative. That is why decision making process needs to be traced carefully and managerial decision making needs to obtain significance in management theory and practice.  For the modern business organizations ensuring that decision making is as effective as possible is extremely important because it enables companies to achieve their objectives in an efficient manner (Gore, Murray, Richardson; 1992:1). Which way the business organization will take, and where that way will lead it, depends on broad range of decisions made by managers on managerial pyramid in an organization. Of course, the importance of all managerial decisions is not the same. Namely, an organization can be pictured as a three-layered cake (Simon, 1997:110) so can and managerial structure of an organization and decisions made by them Using sequential approach to the categorization of management decisions in accordance to the management levels there are levels of decision making across managerial pyramid what is called the decision making pyramid (see figure 1.).  For the purpose of this paper Ansoffs (1969) classification will be applied because he showed their implication to management. Ansoff divided decisions into strategic, administrative and operating decisions. As he explained first category is a subset of Simons (1) non-programmed and Druckers (2) unique decisions and is concerned with objectives and long-range plans, which are the province of top management. Second category - administrative (or tactical) decisions are the area of middle management. Ansoff divided Simons programmed and Druckers generic decisions into the latter (Gore, Murray, Richardson; 1992:2) which are concerned with control, motivation and organizational systems. The third category – operating decisions are the area of lower management. They are concerned with routine decisions and are explained by rules, methods and procedures.


Non Executive Directors and Performance of Firms: Empirical Evidence from an Emerging Market

Syed Shahbaz Ali Shah, Mohammad Ali jinnah University, Islamabad, Pakistan

Syed Zulfiqar Ali Shah, International Islamic University, Islamabad, Pakistan

Nausheen Zafar, Mohammad Ali jinnah University, Islamabad, Pakistan



The study examines the relationship between Non Executive Directors and performance of the listed companies in an emerging South Asian market. Performance of the firms has been quantified by using market based measures as well as accounting based measures. Marris Ratio and Tobin’s Q represents the market based measures of companies performance whereas Return on Equity and Return on Investment captures the financial reporting perspective. Percentage of Non executive Directors present in Board of Directors has been used as the proxy for Non executive Directors. Sample has been divided into three groups by using Cluster analysis. It is evident that companies which are having more non executive directors in board show good performance whereas the companies with weaker Board perform unfavorably. Descriptive statistics also confirms the result. The study reveals Non executive Directors are positively related with the performance of firms. Therefore we can safely say that a more independent and effective board of Directors accelerates a firm’s performance.  Firms are defined by a network of relationships representing contractual arrangements for financing, capital structure, managerial ownership, and compensation, though from the earliest of business history these relationships had conflicts with each other, but the objective of every relation was same that is good performance of the business. The intention behind every business is earning profit. So, Individuals invest in the business for profit motives. On the other hand, Businesses around the world need to be able to attract funding from investors in order to expand and grow. Investors prefer to invest their funds in a business, which is financially sound and is expected to be so in the future. That is only possible by the proper leadership. Investors therefore, need to have confidence that the business is being well managed and will be profitable in the long run.Large incorporated businesses are usually owned by a group of people (owners or shareholders), whilst being run by another group of people (management or directors). This separation of ownership from management creates an issue of trust. Thus management has to be trusted to run the company in the interest of the shareholders and other stakeholders. It should ensure the optimum utilization of the resources available for an enterprise like human, physical and financial as well as time and ownership structure involving the percentage of shares held by Board of Directors. The governance structure of the modern corporation is concerned with two main problems; first, the assignment of the right people to the management, and second the efficient provision of incentives to the managers. The former problem stems from adverse selection, while the latter stems from moral hazards. So it is very important to construct the proper ownership structure.  The significance of studying ownership in the Pakistan Economy is recently recognized. Capital markets are possibly becoming increasingly efficient, with information on firm strategy and investment decisions more readily accessible to investors. At the same time, modern corporations have become less reliant on physical assets and are more dependant on intangible assets such as intellectual property and highly skilled employees who are often awarded ownership stakes as a form of compensation. Recent changes in ownership patterns are also likely to increase the importance of understanding the distributive consequences of ownership. In short, present study is very important because it provides a decisive view to the investors that what sort of ownership creates good results on the performance of the firms. Conflict of interest between the manager and shareholders lead to the understanding of “agency theory”.  In this study our focus is to find out the relationship between Non executive Directors, and performance of the firms, The purpose of this study is to undertake an empirical analysis of Non Executive Directors in the Board and performance of firms in Pakistan.  Internationally, over the past few years, much emphasis has been laid on the importance of corporate governance. Corporate governance can be defined as the way the management of a firm is influenced by many stakeholders, including owners / shareholders, creditors, managers, employees, suppliers, customers, local residents and the government. Different economies have systems of corporate governance that differ in the relative strength of influence exercised by the stakeholders, and in their influence on the management. Corporate governance is all about governing (running or managing) corporations (incorporated businesses). As Board structure is an integral part of Corporate Governance so we will also take the help of Corporate Governance in this context. Corporate governance is generally assumed to influence corporate performance, and spectacular business successes as well as bankruptcies are often related to good or bad leadership.  Non Executive Directors present in the Board, who with their voting rights effect the decisions of the firm can influence the performance as well. Corporate Governance has introduced the concept of external part time directors in the Board for companies who can play the role of a watchdog to the board not only for securing the interests of the stakeholders but to see whether their contribution also improves performance or not.  A Non-Executive Director (NED) is a member of the Board of Directors without executive responsibilities in the company. Non-Executive Directors are able to bring judgment and experience to the deliberations of the Board that the executive directors on their own would lack. An NED therefore attends Board meetings and contributes to the discussions and the decision making process. Our choice of choosing  NED is in line with Fama (1980) who indicated that it must have a beneficial influence on performance, in particular in the managerial firms.  The study is organized as follows;  Section one introduces the topic. Section two includes Literature review. In section three we described our sample and methodology. Our results are provided in chapter five, and chapter six concludes our research study.


Leadership Styles’ Specifics in Large Croatian Companies

Danica Bakotić, University of Split, Croatia



Leadership could be observed through different leadership styles which influence on work efficiency and business success (Skansi, 2000, p. 54). Leadership style is the manner and approach of providing direction, implementing plans, and motivating people. There are a number of different approaches, or 'styles' to leadership and management that are based on different assumptions and theories. The style that individuals use will be based on a combination of their beliefs, values and preferences, as well as the organizational culture and norms which will encourage some styles and discourage others. So it could be stated that there are as many leadership styles as there are leaders. Many authors deal with this issue, so there are many different leadership styles classifications. For the empirical research in this paper, the Likert classification is used. Considering the decisions and the degree to which subordinates are involved in the decision making process, Likert define one of the most used leadership style classification. According to it the leadership style could be job based or employee based. Job based leadership styles are Exploitive-authoritative type or Benevolent-authoritative leadership style. Employee based leadership styles are Consultative leadership style or Participative group style. The purpose of this paper is to identify the dominant leadership style in large Croatian companies as well as to find out some specifics of large Croatian companies concerning the different leadership styles applied by managers in those companies, and to identify the correlation between manager’s personal characteristics and organizational characteristics and leadership styles.  The research hypotheses are as follows: H1: In the large Croatian companies the dominant leadership style is consultative one. H2: There are differences in leadership styles between men and women. H3: In the large Croatian companies, managers' attitudes toward politics influence their leadership style. H4: There are differences in leadership styles according to the organizational' characteristics such as the year of the company's establishment, an activity and the headquarter. The empirical research is conducted on 186 managers who are employed on different organizational levels.        This paper is the part of the huge research of leadership styles and organizational culture conducted in Croatia in 2006. The purpose of this paper is to identify the dominant leadership style in the large Croatian companies as well as to find out some specifics of large Croatian companies concerning the different leadership styles applied by managers in those companies. The leadership style analysis in large companies is chosen because in Croatia the large companies have some importance. They employ 35.3 percent of total work force, they generate 47.2 of total revenue and 58.3 percent of net income (FINA, 2006).  In order to achieve the purpose of this paper, the brief theoretical background about leadership styles is provided. The empirical research is conducted on 186 managers who are employed on different level of managerial pyramids.  To identify different leadership styles Likert’s classification is applied. This classification is commonly used and it satisfies the purpose of this research. According to Likert leadership style is identified by six leadership variables: leadership, motivation, communication, decision making, objectives and control, and it could be oriented on tasks (job based) or it could be oriented to people (employee based).  Some researches are confirmed that the leadership style is influenced by leaders' personal characteristics, employees' personal characteristics and organizational features (Tannenbaum and Schmidt, 1958; Yukl, 1994; Maheshwari, 1980), so the aim of this paper, besides identification of dominant leadership style in large Croatian companies, is to identify the correlation between managers' personal characteristics and organizational characteristics and leadership styles, and by that, to find out some specifics of large Croatian companies concerning this issue. In theory as well as in practice many authors and managers give a great consideration to leadership as one of the most important issue in theory of management and also in management as business function. So there are many definitions of leadership. Daft and Marcic (2001) stated that leadership is used to motivate employees to adopt new behaviours and, for some strategies, to infuse new values and attitudes (Daft and Marcic, 2001, p. 168). House et al. (2004) consider leadership as the ability of an individual to influence, motivate, and enable others (its followers) to contribute toward the effectiveness and success of the organizations of which they are members (House et al, 2004, p. 15).  Leadership could be observed through different leadership styles which influence on work efficiency and business success (Skansi, 2000, p. 54). Leadership style is the manner and approach of providing direction, implementing plans, and motivating people. There are a number of different approaches, or 'styles' to leadership and management that are based on different assumptions and theories. The style that individuals use will be based on a combination of their beliefs, values and preferences, as well as the organizational culture and norms which will encourage some styles and discourage others. So it could be stated that there are as many leadership styles as there are leaders.  Many authors deal with this issue, so there are many different leadership styles classifications. Kurt Lewin and colleagues did leadership decision experiments in 1939 and identified three different styles of leadership, in particular around decision-making. These styles are Autocratic, Democratic and Laissez-Faire.  Blake and Mouton in the early 1960s developed The Managerial Grid where they try to answer on the question how much attention do leaders pay to the people or on the work which have to be done.  Likert (1967) identified four leadership styles: Exploitive-authoritative; Benevolent-authoritative; Consultative leadership style and Participative. In US army three leadership styles are observed: Authoritarian or Autocratic; Participative or Democratic and Delegative or Free Reign. A good leader uses all three styles, depending on what forces are involved between the followers, the leader, and the situation (U.S. Army Handbook, 1973).


An AHP-based Mutual Fund Portfolio Selection Model

Dr. Susila Munisamy, University of Malaya, Malaysia

Lee Kee Huat, University of Malaya, Malaysia



One of the important areas of research in finance is mutual fund portfolio selection. In this paper we present a model which can be used to help decision makers select a suitable mutual fund portfolio based on Analytic Hierarchy Process (AHP) that allows both the investors unique preference structure and their options to be taken into account.  The model is set up according to the specialty of the Malaysian mutual fund market which includes attributes unique to a Malaysian investor such as preference in Islamic funds and the option to use the Employees Provident Fund savings as an additional source of investment. The model presented here recommends asset allocation and identifies the most suitable mutual funds within an asset class, consistent with the needs of the investors. This model is utilized to conduct an empirical analysis to select mutual funds offered by Public Mutual Ltd. for five prospective investors. The results indicate that investors should hold diversified portfolios of asset classes with the weights for each asset class adjusted to reflect one’s attributes and preferences. The model can help financial advisor to serve prospective investors better and will significantly improve the professionalism in the mutual fund industry. Portfolio investment in mutual fund has become a very common investment instrument and has grown tremendously in the world economies over the last decade. According to statistics from the International Investment Funds Association (IIFA), there were well over 54,000 funds being registered for sale worldwide at the end of 2004, with total assets under management in excess of USD 16 trillion (approximately RM59.2 trillion) (Koh, 2005). In fact, mutual funds are said to be the fastest growing sector of the U.S. financial services industry and the U.S was the largest mutual fund market in the world with assets of USD 7.6 trillion (RM28.12 trillion) as at the end of 2004. Asian countries have also seen an impressive growth of their domestic savings into investment funds across the developing economies.  In Malaysia, by the 1990’s, the mutual fund industry had developed to become the largest source of pooled retail funds in the country (Zuraidah, 2005). 1993 saw the setting up the Federation of Malaysian Unit Trust Managers and the Securities Commission to regulate the mutual fund industry. In 1995, Employee’ Provident Fund (EPF) contributors were allowed to withdraw a certain percentage of their retirement fund for investments in approved mutual fund management companies. The introduction of Islamic Funds, in 1998, provided Muslims in particular, with an investment option based on Islamic principles where investors are able to invest in a portfolio of "halal" (allowable) stocks that comply with the principles of Syariah (Muslim tenets). These features have helped propel the popularity of mutual funds and its growth rapidly in the recent years (Zuraidah, 2005). As at Dec. 2005, the net asset value of the mutual funds in Malaysia stand at RM43.79 billion. Today, with the rapid growth of the mutual fund industry and the large number of mutual funds available, choosing the right funds has become a challenge to many investors. Analytical Hierarchy Process (AHP) (Saaty, 1980) has provided a proven, effective means to assist in the decision-making process of asset allocation and mutual fund selection (see Saraoglu, 2002 & Steuer & Na, 2003).  The objectives of this paper, firstly is to develop a AHP model that can be utilized to assist in selecting mutual funds that allows both the investors unique preference structure and their options to be taken into account. The model is set up according to the specialty of the Malaysian mutual fund market which includes attributes unique to a Malaysian investor such as preference in Islamic funds and the option to use the Employees Provident Fund (EPF) savings as an additional source of investment. The second objective is to apply the built model in conducting an empirical study to make a selection of suitable funds offered by Public Mutual Ltd. for five prospective investors. We focus on the Public Mutual Ltd. as it is the largest private mutual fund management company in Malaysia.  The analytic hierarchy process (AHP), developed by Thomas Saaty (1988), is a multi-criteria decision making tool for solving complex and unstructured decision problems in which qualitative factors are of prime importance. The problem is structured from the overall goal to the sub-goals and criteria, forming a hierarchical structure. The alternatives to be ranked are based on a set of criteria. AHP requires the decision maker to provide judgments about the relative importance of each criterion using pairwise comparisons and then specify a preference for each decision alternative using each criterion. This results in  a prioritized ranking of the decision alternatives based on the overall preferences expressed by the decision maker. Since its inception in 1988, the AHP technique has been widely studied (see Zahedi, (1986), Saaty and Katz (1994) and Steuer & Na (2003) for surveys and bibliography study). It has been applied to a host of complex decisions in finance including corporate-credit-granting problem (Srinivan & Kim, 1987), determination of an optimal portfolio mix (Khaksari et. al, 1989), assignment of sovereign debt ratings (Johnson et. al, 1990), determination of investor suitability (Bolster et. al, 1995) and the selection of life insurance contract (Puelz, 1991) among other business problems. In this paper we focus on the portfolio selection of mutual funds offered by Public Mutual Fund Ltd., Malaysia. In developing the AHP model for selecting a suitable mutual fund for a Malaysian investor, we extended the previous AHP models (Saraoglu, 2002 and Bolster, 1995) by including additional selection criteria unique to a Malaysian investor such as preference in Islamic funds and the option to use Employees Provident Fund (EPF) savings as an additional source of investment. The AHP methodology consists of the following four major steps:


Would its Past Reflect its Future Performance: Indian Banks?

Gurcharan S. Pritam Singh, University of Malaya

Dr. Susila Munisamy, University of Malaya



This paper investigates the technical efficiency and productivity of the Indian banking sector over the period spanning 2002 to 2006 using data envelopment analysis (DEA). The empirical findings indicate a wide diversity of efficiency and productivity exists among Indian banks. Our productivity estimates show an overall productivity growth of 7.7% over the span of 5 years. The productivity trend was largely led by technological trends rather than technical efficiency. The foreign banking group is found to be more productive as compared with nationalized and private banking groups. Over the last two decades, banking industries have witnessed widespread regulatory reform around the world (Zahid, 1995; Fanelli and Medhora, 1998). This involved a range of policies for the liberalization of interest rates, the removal of controls on lending and lending diversification, the lifting of barriers to competition, the privatization of the public financial institution and the introduction of market based securities (Hardy and Patti, 2001). Regulatory reforms are widely recognised to be an important tool for enhancing efficiency, productivity and quality in the provision of financial services to all sectors of the economy. India’s banking sector underwent a period of major regulatory reforms during the early and late 1990s. The major thrust of the financial reforms was to promote better use of resources by banks management which will bring about productivity enhancement. The regulatory reforms, as well as the rapid evolution of information technology and the increasing number of non-bank financial institutions that offer financial services has made the banking sector more competitive. Such increased competitive pressures would indirectly force the banks to adapt and operate efficiently in the new business environment. Therefore there is a need to assess whether these banks operate efficiently. This is important because banks play a dominant role in a country’s financial sector which influences other sectors in the economy. Without a sound banking system there will not be a healthy economy. Although there is an abundance of studies conducted in the banking sector of developed economies, very few studies have dealt with developing countries. Thus this paper attempts to provide more evidence on developing countries’ banking performance. This paper investigates the efficiency and productivity growth of the Indian banking sector over the period spanning 2002 to 2006 using data envelopment analysis (DEA) based Malmquist Productivity Index. The rest of the paper is organized as follows. The next section describes the structure of the Indian banking sector. This is followed by a review of the existing literature on the efficiency and productivity of Indian banks. The measurement of productivity using the Malmquist Productivity Index is the subject of the subsequent section. After which, the data used, the variables selected and the empirical results are presented. The final section concludes.  In the early days, banks in India started off as private stakeholder’s bank. After independence in 1947, the Indian government took major steps to reform its banking sector which was experiencing slow growth and periodic failures.  It began a spade of nationalisation: in 1955 the Reserve Bank was nationalised and given greater powers, it subsequently took over 7 private banks; in 1969, 14 major commercial banks in the country were nationalised. The second phase of nationalisation was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. Nationalisation of banks through banking regulation was to make them play the role of catalytic agents for economic growth.  After the nationalisation of banks in India, the branches of the public sector banks rose to approximately 800% in deposits and advances also took a huge jump by 11,000%. The Indian financial system has been regulated for most of its existence. In 1991, leading from the Narasimha Committee Report, government embarked on a policy of liberalization and restrictions were relaxed. This kick started the banking sector which saw a rapid growth. The country was then flooded with foreign banks, phone banking and even net banking were introduced and the level of customer service was enhanced.  Currently, India has a well developed banking system which can be broadly classified into nationalized banks/ public sector banks, private banks and foreign banks. It has 88 Scheduled Commercial Banks which consist of 28 Public Sector Banks (banks with the Government of India holding a stake), 29 Private Banks (banks without government stake, which could either be publicly listed and traded on stock exchanges) and 31 foreign banks. These banks have a combined network of over 53,000 branches and 17,000 ATMs. The public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.  The banking sector did witnessed accelerated growth during 2006-07 which was mainly contributed by the sharp increase in term deposits, however, the loans and advances and the operating profits of these banks as a percentage of total assets seem to be deteriorating (see Table 1). This later resulted in the consolidation of the three old private sector banks, bringing down the total number of scheduled financial banks to 85 from 88 at end-March 2006. With the growth of Indian economy expected to be strong in future, the demand of banking services are expected to escalate. As a consequence it would be worth while to observe the direction that these three banking groups (i.e. Foreign Banks, Nationalized and Other Scheduled Commercial Banks) are heading from their past results. So this paper intent to analyse the past performance of the Indian banks and observe if it reflects an uptrend move utilizing the DEA based Malmquist Productivity Index.


Consumer Brand Choice Behavior When Selecting a Specialty Good as a Gift: An Extensive Field Study on Mobile Telephones in Eskisehir, Turkey

Dr. N. Figen Ersoy, Anadolu University, Eskisehir, Turkey

Dr. Nuri Calýk, Anadolu University, Eskisehir, Turkey



Social and psychological factors are regarded as more important than economical ones in determining the consumer’s brand choice behavior in the gift-giving process of a specialty good such as an expensive mobile telephone to their family members, close friends and colleagues. The purpose of this paper is to find out the major determinants of consumer gift-giving behavior and whether demographic differences of consumers play a significant role in brand choice behavior. The paper consists of three main parts. The first part deals with theoretical background and prior research. The second part explains the essentials of the research model and formulated hypotheses. Finally the third part comprises analyses and conclusions. Consumer brand choice behavior in the gift-giving process of specialty goods like mobile telephones has recently evolved from the traditional approaches in this subject matter wherein price or value have the priority for analytical purposes. Now, social norms and high involvement with the product is the main concern and the starting point, as seen in recent research. High degree of involvement with the goods purchased as gifts for family members—along with some social benefits and some psychological impacts like brand loyalty and brand trust—regulate brand choice and brand purchase behavior on the part of the consumers. In short, brand relationship norms are the starting point, and they are major determinants of brand purchase behavior of consumers in the gift-giving process of specialty goods with respect to their close environment.  Brand relationship norms are conceived as the guides for consumers in their perception and assessment of the brands. The difference between consumers does not only arise from how they perceive the brands but also how they relate to them (Fornier 1998).  Relationship with the brands is similar to the relationship with other people. In extreme cases, this relationship takes the form of a passionate adherence; some consumers think of some goods as if they were a living being with a soul—as in the case of VW Beetle cars. Consequently, some norms of behavior are attached to social relationships. This leads to consumer evaluations about other people, or as in this case, about some brands in an affectionate manner.  Relationships between people have two dimensions: exchange relationships and communal relationships. The first set of relationships involves monetary payment in exchange for providing help or assistance. In the latter set, the needs of others are more recognized and benefits are given in accordance with these needs. According to Aggarwal (2004) people (in fact consumers) are segregated into two main groups: those who do not care much about communal relationships and concern themselves more with exchange benefits; and those who give more weight to communal benefits.  Three experiments carried out in this context reveals three different outcomes. The first experiment proves that if a fee is charged in return for a service rendered, communal relationship norms are said to be violated, whereas exchange relationship norms are sustained.  Consequently, the communal relationship consumer evaluated the brands as inferior to exchange relationship consumers.  The outcome of the second experiment shows via surveys that giving inexpensive presents is considered a violation of relationship norms by respondents who care for exchange benefits—but not by communal participants. The last experiment, on the other hand, points out that those who are in the exchange relationship category are apt to violate the relationship norms. If help is requested from them by a brand some time after they sought help from the brand, they tend to evaluate the brand lower than do those communal relationship respondents  (Aggarwal, 2004).  The influence of exchange and communal relationships on brand evaluation is shown below (Aggarwal, 2004: p. 90). Perhaps the best way of explaining the consumer-brand relationship can be achieved using the ‘brand loyalty’ concept. However there is not a unique definition and understanding of brand loyalty. The unanimity  in this context is that the loyalty concept is used interchangeably with respect to its operational and measurement utilization. The main concepts underlying brand loyalty is listed as follows (Rundle-Thiere and Mackay,2001: p. 531):Repeat purchase.Preference.Commitment.Retention.Allegiance. There is no consensus among the market researchers as far as the loyalty concept is concerned, albeit it has wide usage in a market-specific context such as service, store, vendor loyalty, customer and brand loyalty. Brand loyalty measures have two dimensions, behavioral and attitudinal, and are positively correlated to each other (Rundle-Thiere and Mackay, 2001: p. 532): Behavioral loyalty measures are those measures which explain brand loyalty by means of actual purchases which occur in a given period. Attitudinal loyalty measures are defined in terms of stated preferences, commitments or purchase intention. They frequently appear in surveys. Consumer drivers, brand drivers and social drivers are the three main categories of drivers that affect the type of brand loyalty, which consequently leads to some actions on the part of the consumers. In this respect, four types of brand loyalty appear as follows (Gounaris and Stathakopoulos, 2004: p.287): No loyalty. Covetous loyalty. Inertia loyalty. Premium loyalty. ‘No loyalty’ implies no attachment to any brands on the part of the consumers, and in fact there is no purchase at all.  Similarly, no-purchase ‘covetous loyalty’ also implies no purchase. Yet, quite contradictorily, the consumer exhibits a strong positive predisposition toward a particular brand. In ‘inertia loyalty’ the consumer purchases a brand habitually or for some other convenience but develops a poor emotional attachment toward that brand. Finally, ‘premium loyalty’ implies a high degree of adherence to a brand, and a consumer will perform repeat purchases of that brand. The relationship between drivers, loyalty types and consumer actions are summarized in the figure given below (Gounaris and Stathakopoulos, 2004: p.288):


Have Earnings Lost Value-Relevance? Revisiting Latest Evidence on EVA

Annette Holler, European School of Business (EBS), International University

Schloss Reichartshausen, Germany



Value-based management, aiming at the maximization of shareholder wealth, gained global recognition. Whereby, Economic Value Added (EVA) has become the central metric for executives to evaluate, remunerate and communicate corporate performance and for investment managers to supervise portfolio performance. Research of Stern Stewart & Co. initially manifested EVA’s usefulness via superior associations with stock prices. However, numerous studies by academicians refuted those claims. While few recent studies suggest that EVA ultimately gained superiority over earnings, changes in market recognition without analogous changes in financial reporting give rise to serious doubts. Further, ambiguous results reopen the financial management debate on EVA’s utility. Thus, this study revisits the value-relevance of EVA, residual Income (RI), earnings and operating cash flows.  After reducing survivorship bias and estimating independent firm-specific EVA data, 2,147 annual observations from U.S. firms over the period 1995-2006 serve to assess the capability of competing performance measures to explain the firm’s market value and stock returns. Relative tests show earnings’ and RI’s dominance over EVA; further, incremental tests find that solely earnings’ accruals provide considerable and significant additional information, while EVA’s accounting adjustments imply just marginal incremental information. To conclude, findings do not support suppositions on today’s superiority of EVA but prove earnings’ enduring predominance over the last decade. Nevertheless, results advocate adoption of RI for management compensation, external communication and security analysis and disclosure of EVA and RI in financial reporting, to align management objectives with shareholders’ interests and facilitate value-based performance monitoring. Ever since the 18th century, residual income (RI) defines the firm’s value creation as net earnings less cost of debt and equity (Hamilton, 1777; Marshall, 1890; Preinreich, 1938). Management accounting literature extensively discussed characteristics of RI (Amey, 1969; Bromwich, 1973; Edwards & Bell, 1961; Flower, 1971; Solomons, 1965), and, lately, Ohlson (1995) elaborated on the valuation relationship, setting the firm’s market value equal to the sum of book value and discounted future RIs. Alternatively, Stern Stewart & Co. introduced Economic Value Added (EVA), a residual income measure adjusted for US-GAAP related distortions, as key measure of a financial management system for alignment of operating, financing and investment decisions with shareholders’ interests (Stewart, 1991, pp. 118-178). Prevalence of EVA in practice is primarily attributable to Stern Stewart & Co.’s claims of its superiority in explaining market value (O'Byrne, 1996; Stewart, 1991, pp. 215-218), prominent publications of EVA performance rankings (Teitelbaum, 1997; Tully, 1993), its adoption by financial management firms such as Oppenheimer Capital (Tully, 1993, p. 143), and corporate sponsors such as AT&T and Coca-Cola (Tully, 1993; Walbert, 1993).  Responding to claims of Stern Stewart & Co., academics extended accounting research on the usefulness of earnings and cash flows to encompass RI and EVA. (1) Based on performance data of the 1980s and early 1990s, numerous studies refuted Stewart’s claim of EVA’s dominance over earnings (see Biddle, Bowen, & Wallace, 1997; Chen & Clinton, 1998; Chen & Dodd, 2001). However, recent studies suggesting that EVA outperforms earnings pose doubt on the stability of prior results (Feltham, Isaac, Mbagwu, & Vaidyanathan, 2004; West & Worthington, 2004). E.g., Feltham et al. (2004) show that earnings’ value-relevance decreased from 9% to 3% (adj. R2), while EVA gained relative information advantage over earnings and RI significantly outperforms earnings.  This study reexamines the information content of value-based measures RI and EVA, and two standard measures of investment analysis, earnings and cash flow from operations to address the following empirical question: Have value-based measures recently gained superiority to traditional measures in explaining contemporaneous stock returns or firm value?  So far, evidence on U.S. firms consistently applied data provided by Stern Stewart & Company that implies to some extent survivorship bias, supposedly distorting statements on value-relevance, and EVA measurement errors,  understating the value of custom EVA accounting adjustments; whereby, the latter represents “perhaps the biggest limitation in the preceding studies” (Ittner & Larcker, 2001, pp. 360-361). This study applies a sample of 2,147 firm-year observations from 201 U.S. firms over the period 1995-2006, reducing errors from survivorship bias and standardized EVA data. Relative results show greatest value-relevance for earnings and RI. Incremental results reveal that only earnings’ accruals provide considerable and highly significant additional information. To conclude, evidence does not support the supposition that, by now, EVA outperforms earnings; rather, findings confirm the enduring validity of prior evidence on the predominance of earnings. (2) Financial theory relates accounting measures to firm value. First, the discounted cash flow model estimates year-end market value, MV, by discounting future free cash flows, FCF, by the cost of capital, r; alternatively, the dividend discount model applies dividends as a measure of future cash flows to be generated by the firm, defining market value as infinitive sum of future dividends, D, discounted by the cost of capital (Brealey & Myers, 2000, pp. 66, 77-78). However, annual dividend payments reflect management’s decision to return free cash to shareholders rather than to invest in additional projects or to reinvest in existing operations. In the view of value-based management, RI, defined as net income, NI, less beginning book value of capital, BV, multiplied by the cost of capital (RI = NI – r ∙ BV), is a more valid measure of value creation. Assuming that the clean surplus relationship holds, the Edwards-Bell-Ohlson valuation model defines the firm’s market value as sum of the firm’s beginning book value and an infinite sum of discounted future RIs (Bernard, 1994; Edwards & Bell, 1961; Fairfield, 1994; Ohlson, 1990, 1995; Preinreich, 1938). (3)


The Personal Income Tax applied in the Member States of European Union: The Case of Spain

Dr. Maria Luisa Fernández de Soto Blass, University CEU San Pablo, Madrid, Spain

Dr. Santiago Alvarez García, University of Oviedo, Oviedo, Spain



In the Communication on "Tax policy in the European Union - Priorities for the years ahead" (COM/2001/260 of 23 May 2001), the Commission reiterated its belief that there is no need for an across the board harmonisation of Member States' direct tax systems. For tax policy, the Communication established, as a main priority, the need to address the concerns of individuals and businesses operating within the Internal Market by focusing on the elimination of tax obstacles to all forms of cross-border economic activity, in addition to continuing the fight against harmful tax competition. This approach was confirmed in the Communication "The contribution of taxation and customs policies to the Lisbon strategy" (COM/2005/532 of 25 October 2005) (European Commission, 2006) As far as direct taxes are concerned, Article 94 provides for the Council, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee, to adopt provisions for the approximation of such laws, regulations or administrative provisions of the Member States that directly affect the establishment or functioning of the common market. Some recommendations and legislation have been adopted in the personal tax, company tax and capital duty areas. The present paper introduces new figures and formulas never seen before at book of taxes, makes a brief approach to the harmonisation in the European Union, analyses the concept of the Spanish Personal Income Tax, studies the elements of this tax as the beneficiary, taxable person, territoriality, basis of assessment, exemptions, explains the basic mechanism of the tax, deductions, the taxable base, the tax rates, collections and examples. This paper is the result of three researches that the authors are carrying out at The Institute for Fiscal Studies, Ministry of Economy and Finance, University of CEU San Pablo, Madrid and University of Oviedo Spain from 2006 to 2008. In the Communication on "Tax policy in the European Union - Priorities for the years ahead" (COM/2001/260 of 23 May 2001), the Commission reiterated its belief that there is no need for an across the board harmonisation of Member States' direct tax systems. For tax policy, the Communication established, as a main priority, the need to address the concerns of individuals and businesses operating within the Internal Market by focusing on the elimination of tax obstacles to all forms of cross-border economic activity, in addition to continuing the fight against harmful tax competition. This approach was confirmed in the Communication "The contribution of taxation and customs policies to the Lisbon strategy" (COM/2005/532 of 25 October 2005) (European Commission, 2006) As far as direct taxes are concerned, Article 94 provides for the Council, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee, to adopt provisions for the approximation of such laws, regulations or administrative provisions of the Member States that directly affect the establishment or functioning of the common market. Some recommendations and legislation have been adopted in the personal tax, company tax and capital duty areas.  As a general principle, the European Commission believes that taxes on personal income are a matter for the Member States to determine. At the same time, in some cases, the Commission acknowledges that co-ordination at EU level is necessary to safeguard the application of the Treaty freedoms and to eliminate tax obstacles to crossborder activities. There is also a need to co-ordinate personal income taxes to prevent double taxation, or unintentional non-taxation in cross-border situations, or to tackle cross-border tax evasion. The European Court of Justice has consistently held that, in the absence of harmonisation, taxes on personal income fall within the competence of the Member States but they must respect the fundamental EC Treaty principles on the four freedoms (free movement of workers, services and capital, and the freedom of establishment). In particular, there must be no discrimination on the basis of nationality. The Communication on the taxation of pensions of April 2001 (COM/2001/214) is one of the first examples of the Commission's new approach of achieving a co-ordinated response from Member States to important case-law of the European Court of Justice and eliminating tax obstacles to the Internal Market. The Communication stresses that Member States are free to choose their pension systems as long as they respect the four freedoms of the EC Treaty. Respect for the Treaty freedoms is equally important in the area of migrant and cross-border workers, where the European Court of Justice has already given a number of rulings on the taxation of persons earning income in Member States other than where they live. Double taxation agreements form an integral part of Member States' tax rules, and the personal tax rules included in these agreements must remain within the boundaries set by the EC Treaty, just like any other national laws.  Finally, the need to avoid distortions to the movement of capital and the need to ensure effective taxation of interest payments received by individuals in Member States other than the Member State of residence have led to the adoption of a Directive on the taxation of savings income in the form of interest payments. This Directive enables such interest payments to be made subject to effective taxation in accordance with the laws of the Member State of residence. On 1 July 2005, the provisions of the Directive started to be applied by all 25 Member States. The same measures in the Directive have also been applied, from the same date, in 10 dependent or associated territories through the implementation of bilateral agreements signed by each of the Member States with these jurisdictions; and equivalent measures are applied in five European third countries, including Switzerland. Spanish action in the area of Personal Income Tax has its legal basis in Law No 35/2006, 28 th  November of Personal Income Tax, and the modification of Wealth Tax and Corporation Tax and the Royal Decree No 439/2007, 30th  March, approving the Regulation on Personal Income Tax


Online Shopping Behavior and Characteristics of Consumers in Eskisehir, Turkey: Who, What, How Much and How Often?

Dr. Nuri Calýk, Anadolu University, Eskisehir, Turkey

Dr. N. Figen Ersoy, Anadolu University, Eskisehir, Turkey



This paper tries to bring about a better understanding of the online shopping behavior of consumers who reside in Turkey. It attempts to draw a profile of them with respect to their demographic traits. The study consists of three parts. The first part deals with the theoretical background based on literature review and summarizes past research  dealing with this phenomenon. Consumer online shopping behavior, perceived quality of the services rendered by the establishments, risks attached to online shopping, mall and user characteristics, and the typology of online shoppers are discussed in this section. The second part mainly discusses the survey of online shoppers, the research model and the basic premises of the model, and the hypotheses formulated. The third part discusses the outcomes of the analyses in terms of bivariate and multivariate tests and evaluates the relative attitudes of the consumers with respect to their demographic traits. With these results, we try to bring forth the typology of such consumers.  Internet shopping in Turkey first started almost two decades ago with banking transactions. The ease and comfort provided by the services rendered in these transactions attracted many consumers to Internet usage for shopping purposes. A rapid growth is observed, in recent years, in the number of shoppers and malls where consumers have started to satisfy most of their needs—from foodstuffs to durable goods and especially sophisticated electronic equipment. Of course considerable risks are also taken with the widespread use of the Internet for shopping purposes. But the majority of these risks are addressed by adding more security precautions (passwords, digipasses, e-cards, firewalls, private information interrogations etc.). The major advantages of  Internet shopping for the consumers appear to be: price comparisons and lower prices, brand comparisons and extended product lines, online communication facilities, prompt delivery and extended search capability. The customer online search process, via Web directories, catalogues, databases and search engines, has become a common practice within the last two decades. Kumar et al. (2005) tried to find out the liaisons between the technological and behavioral aspects of consumer search performance where minimization of search costs is targeted. Obtaining product information at a reduced cost provides the consumers more chances to judge price and quality (product features, perceived qualities, performance, etc.) on a broader basis. Kumar et al. propose four basic Web search types that consumers adopt. They are as follows (ibid, p.91): Undirected viewing. Internet users do not start search with a pre-determined need.  Conditional viewing. User’s attention is directed specifically on a certain type of information, i.e. the information is directly related to a pre-selected topic. Informal search. Information is sought by the consumers to obtain a broader understanding and knowledge of a specific topic. Formal Search. A specified and well-defined topic is targeted by the consumer to obtain specific information. The research model developed by Kumar et al. simply relates dependent and independent variables in the search process. User ability, search engine capability and search task appear as independent variables; and search performance is identified by two different factors as search cost and user satisfaction stands out as a dependent variable. In between, the search heuristic plays the role of moderating variable. These relationships can be visualized more clearly in the diagram below (ibid, p.94): Electronic commerce, or e-commerce, is the concept that considers the subject matter from businesses’ point of view. The success of the companies who sell their products to a large extent on the Web is measured by how the quality of these services is perceived and appraised by the consumers. Service quality is an abstract concept. It is difficult to measure since it mostly mixed up with perception and varies with respect to the psychographic constructs of consumers. The service quality is measured on a scale of a computer model developed by Parasuraman, which yields satisfactory results on the measurement of e-service quality (Parasuraman et al., 1988). E-service quality can be defined as “overall customer evaluations and judgments regarding the excellence and quality of e-service in the virtual market place” (Santos, 2003). E-service quality dimensions, defined in a survey carried out by Lee and Lin in 2005, are: website design, reliability, responsiveness, trust and responsibility. They are related to overall service quality and customer satisfaction, which in turn leads to purchase intensions as depicted in the following diagram (Lee and Lin, p.164):


Conceptual Model on Leadership Process in Chinese Knowledge-Based Companies

Dr. Li Zhang, Harbin Institute of Technology, Harbin, China

Qiong Jia, Harbin Institute of Technology, Harbin, China

Baowei Liu, Harbin Institute of Technology, Harbin, China



This paper constructs a conceptual model on leadership process in knowledge-based companies under the Chinese cultural context. Based on the difference between traditional leadership style and knowledge leadership style, this paper describes the leadership characteristics in knowledge-based companies. According to the research of KM (KM) implement stages and knowledge leadership characteristics, this paper presents the leadership process model, finally delineates the different characteristics in different KM stages. The results show that there is a correlation between leadership characteristics and KM; leadership characteristics play different roles in the process of KM development. A transformation is occurring from the Old Economy to the New Economy, from an emphasis on the main factors of production, namely capital, land and labor, to an emphasis on information, knowledge and technology [1]. Knowledge is the main factor of competitive advantage, which has been the most essential flowing resource in the knowledge-based companies. But how can the knowledge resource be managed effectively in the organization? The answer is leadership. In the knowledge-based companies, without leadership, the knowledge can’t be well utilized. Leadership in the knowledge-based companies has new characteristics in the globalization and digital times. The performance is up to what degree the leaders melt knowledge into organizational culture, and how they transform these invisible resources to the concrete actions for the enterprise to get more value in the intense market competition [2,3]. While business leadership styles in China have been changing with the open-economy development. The particular demands of the knowledge economy place more pressure on business leaders to adapt to the new reality to be successful in the knowledge-based companies. If the knowledge-based enterprises want to obtain the lasting success, they must pay attention to the leadership. So what type of leadership is guiding China's knowledge enterprises? What differences are there between the traditional leadership and the knowledge enterprise's leadership? How does the knowledge leadership motive the KM? This paper will conduct the exploring research on the above questions and try to construct a conceptual model on the leadership process in Chinese knowledge-based companies. Though many scholars have made scientific researches on the KM and the leadership, they are studied separately. And the literatures on the leadership in the knowledge-based company are limited. We can divide them into three kinds: the research on knowledge leadership characters, knowledge leadership behaviors, and the research combined both of the above two aspects. Firstly, about the knowledge leadership characteristics, Kuivalainen et al have analyzed how the environmental variation and the leadership characteristics influence the enterprise internationalization performance. Comparing the knowledge enterprise with the traditional enterprise in the internationalization process, they have pointed out that the leaders of the knowledge enterprise should pay more attention to the internationalization than the traditional enterprise, and they are more adaptable to the circumstance change [4]. The leaders’ learning capability is one of the persistent development targets in the knowledge enterprise [5]. By analyzing the staff in the knowledge enterprise in China, Weiku Wu has pointed out that successful knowledge enterprise leaders can pour into the core values into the enterprise, and they can lead based on value [6]. The knowledge enterprise's leadership has the general characteristics of the leadership, and it also needs to consider cooperation among leaders to display the function of leadership at different levels [3]. Secondly, about the knowledge leadership behaviors, Gehani has analyzed the competitive model in the high level superintendents and point out that the high level superintendents in the knowledge enterprise should integrate the new technology with enhancing the adaptive ability to promote the global competition strength [7]. Finally, Cavaleri and Seivert conduct a detailed knowledge leadership research from six parts in their book: Knowledge Leadership-The Art and Science of the Knowledge-based Organization. Both the knowledge leadership behaviors and the characters are referred. They argue that all leaders must address their ability to contribute knowledgeably through the benefits that can emerge when leaders learn to become more knowledge-focused and help their employees to do the same [8].  Moreover, the literature on KM has essentially described a new context in which modern leaders operate. It clarifies organization-level targets, describes the strategically important processes leaders should currently be involved in and the critical resources they should be used [9].  In this paper, it is a new angle of the knowledge leadership process view to analyze the knowledge-based enterprise basing on the integration of the leadership theory with KM theory. Contrasting the traditional leadership style with knowledge leadership style, this paper describes the leadership characteristics in knowledge-based companies. According to the research of KM implement stages and knowledge leadership characteristics, this paper presents the leadership process model, and delineates the different characteristics in different KM stages.


Monetary Tightening and Bank Financing of SME and Large Companies in Croatia

Damir Baran, University of Split, Croatia

Ana Rimac Smiljanić, University of Split, Croatia



This paper presents and analyses the results of the survey of Croatian banks carried out by researchers of Faculty of Economics in the autumn of 2007. The empirical survey has been conducted as a part of the research project - Financial Policy and Financial and Economic Framework of SME Support in Croatia. The main objective of the research presented in this paper is to arrive at a better understanding how recent monetary tightening of Croatian National Bank influences credit policy of commercial banks towards SME and large companies. Our basic conclusion is that new monetary tightening will significantly influence corporate asses to bank credit. The influence on the SME should be more significant than on the large companies. Nevertheless, according to our results, the volume of the corporate lending should be at the levels achieved in 2006.  Prompted by high bank loan growth rates, at the end of 2006 Croatian National Bank adopted a decision of the mandatory inscription of treasury bills. With this decision, that has started to implement at the beginning of the year 2007, Croatian National bank intends to restrict the growth of bank loans to 1% per month, i.e. to 12% per year. Indirectly, the intention of the Croatian National Bank is to restrict commercial banks in their routine to take loans abroad, which threatens to cause the acceleration of the external debt. If a certain commercial bank, in selected period of one month, places loans at the rate higher than 1% (when compared to the loans placed in the same month of the previous year) it becomes mandatory for that bank to purchase treasury bills with the maturity of 365 days, at the rate of 50%. One could expect this restrictive measure of the monetary authority, which is in banking society perceived as loan growth taxing, will affect the availability of resources for the population and economy. Although the measure primarily intends to restrict the growth of the domestic consumption, in order to keep it at he the level sufficient for the sustainable economic development, at the same time it raises a question whether and how the given measure will affect the structure of the bank loans. There is a possible threat that the estimated restriction of the bank loans growth could cause a redistribution of the loans structure, in order that the share of loans placed to the firms could shrink when compared to the share of loans placed to the population. The leading people of the monetary authority, in their public appearances, estimate that there is no threat of the loan structure redistribution, primarily because of the private sector' high indebtedness and its inability to engage in new credit arrangements with the given incomes. As far as the loan availability to the firms is concerned, monetary authority believes that the loan growth within anticipated margins is sufficient enough to accomplish satisfactory level of the economic growth. As an alternative to bank loans, in certain cases, there is a possibility of direct loans that firms could take abroad as well as a possibility of raising funds on the domestic financial market. Given that the small and medium firms, in their access to external financing, are more dependent on bank loans than large companies, one could expect monetary tightening to have greater impact on these firms. Greater information asymmetry, could lead to "flight to quality" causing, in the atmosphere of restricted credit supply, more severe consequences for the SME than for large companies. In situation when monetary authority restricts volume of their loans, banks will reduce asses to less quality agents. Given that SME have smaller net worth then large companies they are considered more risky Hence, credit rationing is likely to affect smaller companies. The paper is organized as follows: In the next section we describe the way the survey is conducted as well as the sample structure. In the third section we present the results of the survey and the final section concludes the paper with summary and recommendations regarding monetary policy, financial institutions and corporate management.  The intention of this survey is to answer two main sets of the research questions. First, is there any difference between access to bank credit between SME and large companies? Second, how new restrictive measures of Croatian National Bank influence corporate loan strategies of banks operating in Croatia? In order to answer these questions, all banks operating in Croatia received a request to participate in the survey and the written questionnaire. Bankers were asked to answer ten questions, starting with general information (size of asset and bank ownership) and finishing with their evaluation of the influence of recent monetary tightening on lending policies and loan supply to SME and large companies. The questioners were addressed to managers of the Corporate and SME Banking sector. The survey results presented in this paper are based on the written answers of the fifteen banks, that agreed to participate, i.e. the sample presents 44,1% of the total target population. The small number of the responses precludes strong statistical conclusions. However coverage of the survey responses gives us a significant look at a broad range of banks in Croatia, from small to the largest. Non existence of any prior research in this field in Croatia gives importance to this survey.  The questions from the first part of the questionnaire allow sorting of the sample of participating banks on the characteristic of size of bank's asset and bank ownership. The sorting of this kind is very useful to verify whether patterns as observed for the Croatian banking sector as a whole apply for sub-samples. The banks were grouped to small, medium and large banks. This follows the classification of Croatian National Bank which groups banks in small banks if their asset is smaller then 1% of total asset of Croatian banks. Banks with asset smaller than 5% and larger then 1% form the group of medium and banks with asset larger then 5% of total asset of Croatian banks constitute the group of large banks. As to grouping of banks to ownership, they are divided in domestic private, domestic state and foreign owned. The main characteristics of the sample of banks, which agreed to participate in survey, can be summarised as follows. First, small banks represent 53% of the sample, large banks 27% and medium sized banks represent 20% of the sample. (see Figure 1). (1) Second, as Figure 2 shows, about 53% of the responding banks are in foreign, 40% domestic private and 6,7% in domestic state ownership. (2) The statistics, clearly indicating that the distribution of the sample by size of bank asset and the bank ownership is very similar to the distribution in the Croatian banking market, gives additional weight to this survey.


Monday Effect and Stock Return Seasonality:Further Empirical Evidence

Dr. Rengasamy Elango, Majan College (University College), Oman

Nabila Al Macki, Majan College (University College), Oman



This study investigates whether the anomalous ‘weekend effect’ found in many developed and developing markets around the world is also present in the rapidly emerging Indian equity market. We use the real-time data of three of the major indices of the National Stock Exchange of India (NSE) for 1999-2007 period. Standardizing the data, we apply a set of descriptive and inferential statistics on the above three indices. Our analysis produced mixed results indicating that the Monday returns are negative and low in the case of two out of three indices.  The K-W test, which is a non-parametric test applied to examine whether the ranks of mean returns for each day of the week are equal, shows evidence of a statistically significant difference in the case of one sample index,  CNX S&P Nifty Junior.  The implication is that the weekend effect is present in small stocks.  Dummy variable regression, which again examines the weekend effect shows that Monday returns are negative in one of the bench-mark indices, the NSE S&P Nifty confirming that the Indian Market is inefficient and could be exploited to maximize returns.  Surprisingly, Wednesdays have yielded the highest mean returns across indices. However, volatility is also higher in these stocks. These findings offer interesting opportunities for individual investors and portfolio managers to place bid/ask orders in order to maximize their returns. However, due caution needs to be exercised while making the above decisions. The efficient market theory states that an informationally efficient market is one where the market price is an unbiased estimate of the true value of the investment.  It further states that the current market price of a security fully reflects all available information and the current price is the fair price as the security has traded in that price (Fama, 1969).  In the words of Fama, “the informational efficiency of financial markets requires that the market prices and rates of return at any given time reflect all the information available to the participants” (Fama, 1965)  Academics and practitioners have documented many research works on the seasonality and associated behavior of securities markets. Among others, the most widely mentioned seasonal effects and market anomalies are January effect, Monday effect or Week-end effect, Holiday effect and Small firm-effect, to mention a few.  Among these, one of the widely discussed anomalies is the negative average Monday stock return.  Kenneth French (1980) in his paper titled, ‘Stock returns  and the week-end effect’ analyzed whether daily stock returns were generated by a trading or calendar time hypothesis. He provided convincing evidence of unusually lower returns on Mondays compared to the other trading days during the week. Afterwards, a few other studies have also confirmed the negative returns on Mondays using different time periods, stocks and indices.  This anomaly not only exists in the more developed US markets but in other developing markets as well.  Research studies in developed markets such as USA, UK & Canada and emerging markets such as Malaysia and Hongkong have also shown evidence of negative Monday returns.  However, markets such as Japan, France, Australia and Singapore show negative returns on Tuesdays. Following the findings of Fama, researchers have made attempts to rationalize as to why the Mondays register negative returns. Literature has documented two important theories on the above phenomenon. A brief discussion of the same is presented below. This theory states that the return generating process is a continuous activity meaning that Monday’s mean return would be different than the other days’ mean returns.  The rationale is that Monday’s mean return is estimated from the closing price on Friday until the closing price on Monday which has a time span of three days. So, Monday’s mean return will be three times higher than the mean returns of the other week days. This hypothesis states that returns of stock are generated as a result of a transaction meaning that the average returns of shares will be the same for all the week days as each day’s return represents one day’s investment.  A few more arguments have also been advocated in an attempt to justify negative mean returns on Mondays.  The rest of the paper is organized as follows. Section II reviews the literature pertaining to the day-of-the-week effect and attempts to rationalize the Monday effect as quoted in the literature.  Section III presents an overview of the Indian bourses and the National Stock Exchange of India. Section IV explains the data and methodology of the study.  Section V examines the Monday effect on the three sample indices drawn from the National Stock Exchange of India. Applying different statistical parameters, it discusses the implications and the trading rule that an individual investor and fund managers might apply in stock-picking. The paper is concluded in section VI. To put it in simple terms, the findings on Monday effect is that the mean returns for Monday have been significantly lower than the returns for the other days of the week.  Starting from Fama (1965) this finding has been well-documented by the researchers.  However, a close scrutiny of the literature on Monday or Week-end-effect reveals that receiving lower returns does not happen only on Mondays.  Lower returns have been registered even on Tuesdays as well. Another interesting dimension to the week-end effect is that a few studies have shown evidence of positive returns on Mondays while quite a few studies do not support day-of-the week effect theory.  This section is organized into four sub-sections. A brief review of the previous studies on Monday effect or Week-end-effect has been presented in the following paragraphs. Flannery and Protopadakis (1988) have found anomalous Monday return across different types of securities which include common stocks as well.  Studies conducted across advanced markets such as USA, UK and Canada have concluded that Monday’s mean returns are negative and Friday’s are positive.  See, for example, (Cross, 1973; Gibbons & Hess, 1981; Keim & Stambaugh, 1984; Theobald and Price; 1984; Jaffe and Westerfield, 1985; Harris, 1986, Smirlock & Starts, 1986; Board and Suctliffe, 1988; Cohers & Cohers, 1995, Tang and Kwok, 1997) for six indices, Dow Jones Industrial Average Index US), Financial Times Index (UK), Nikkei Average Index (Japan), Hangseng Index (Hongkong), FA2 General Index (Germany) and All Oridnary Index (Australia).  Another interesting finding related to the Monday returns, according to Ko Wang, etal (1997), is that Monday effect occurs primarily in the last two weeks of the month.


Destination Attractiveness: Are There Relationships with Destination Attributes

Dr. Sebastian Vengesayi, University of Tasmania, Hobart, Tasmania Australia



This paper investigates the effects of Destination Attractions (DA) and Destination Support Services (DSS) on Destination Attractiveness (DAtt).  The aim is to highlight how destination supporting services influence destination attractiveness. Researchers have highlighted the importance of various destination attributes as determinants of destination attractiveness, but rarely has the relationship been empirically tested to examine the influence of these attribute on destination attractiveness. This study uses Structural Equation Modeling to empirically examine this relationship. A study of 275 tourists reveal that not all destination attractions have direct influence on destination attractiveness. On the other hand destination support services have both direct and indirect influence on destination attractiveness. This study focuses on the research stream that has been well developed over the years on tourism destination attractiveness. Research studies, both conceptual and empirical, have examined the determinants of destination attractiveness. Various destination attributes have been identified as determining the attractiveness of tourism destinations. These attributes have then been used to assess the level of attractiveness of destinations but there appears to be no s attempt to empirically measure the significant effects of these indicators/attributes on destination attractiveness. What is lacking are studies that investigate the direct and indirect influence or destination attractions and destination supporting services on destination attractiveness. This study aims to fill this gap and reveal the direct and indirect influence that these attributes have on destination attractiveness (Crouch & Ritchie, 1999). This study is the first attempt known by the author, to examine the significance these attributes on destination attractiveness. Literature argues that destination attractions are the primary influence of destination attractiveness. Attractions should therefore have direct influence on destination attractiveness. According to tourism literature destination supporting services play a secondary or supplementary role to attractions in influencing destination attractiveness. Supporting services therefore should have an indirect influence of destination attractiveness. The “Think Tank” of the World Tourism Organization defines a destination as “a physical space…that includes tourism products such as support services and attractions, and tourism resources…..It has physical and administrative boundaries defining its management, and images and perceptions defining its market competitiveness. Local destinations incorporate various stakeholders, often including a host community, and can nest and network to form larger destinations” (World Tourism Organisation, 2003b). The above definition suggests that tourism destinations appear at various levels, from local regions to large geographical areas made up of different types of products, in different countries.  The attractiveness of a tourism destination is often referred to as the opinions of visitors about the destination’s perceived ability to satisfy their needs. Research has shown that attractiveness studies are necessary for understanding the elements that encourage people to travel (Formica, 2002). The more a destination is able to meet the needs of tourists, the more the destination is perceived to be attractive and the more the destination is likely to be chosen in preference to competing destinations. Thus, the major value of destination attractiveness is the pulling effect attractiveness has on tourists (Kim & Lee, 2002).  Mayo and Jarvis (Becker)1981) define destination attractiveness as, “the relative importance of individual benefits and the perceived ability of the destination to deliver these individual benefits” (p.201). This ability is enhanced by the specific attributes of a destination that makeup the destination. A tourism destination is therefore a combination of destination attributes, mostly including tourist facilities and services (Hu & Ritchie, 1993). In an assessment of the attractiveness of a destination tourists evaluate the perceived ability of the destination attributes to meet their needs (Mayo & Jarvis, 1981). The attractiveness of a destination diminishes in the absence of these attributes. Moreover, in the absence of destination attractiveness tourism would not exist and there could be little or no need for tourist facilities and services (Kim & Lee, 2002). Facilities and services are developed and offered only when people are attracted to a destination (Ferrario, 1979). A number of studies identify the attributes that tourists consider as important in evaluating the attractiveness of a destination (Gearing, Swart, & Var, 1974; H.-b. Kim, 1998; Meinung, 1995). For example, Middleton (Ashforth & Mael) examines three attributes of destination attractiveness: facilities, prices of venues and transport networks. However, these attributes explain only a small proportion of destination attractiveness. Gartner (1989) identifies several other attributes of destination attractiveness, including historic and cultural sites, nightlife, liquor, outdoor life, natural environment and receptiveness among others. Meinung (1995) argues that scenery is one of the most important attributes in attracting tourists, while cultural attributes are growing in importance in the global demand for tourism. In a study of Korean destinations, Kim (1998) lists several other factors affecting the attractiveness of a destination. These are clean and peaceful environment, quality of accommodation facilities, family-oriented amenities, safety, accessibility, reputation, entertainment and recreational opportunities. According to Hu and Ritchie e, the attractiveness of tourism destinations depends on the context of the vacation experience and, in particular, educational and recreational travel context. An important finding from their study is that “…certain potentially negative attributes of destination are more acceptable for certain types of vacation (educational) than others (recreational)” (p.34). Attempts are also made to measure  attributes of tourism destinations (Gartner, 1989; Haahti, 1986).  In reality every destination attribute has been identified as a determinant of its attractiveness. Researchers should therefore move from the level of identifying destination attribute and comparing destination attractiveness to measuring the effects these attributes have on the attractiveness of tourism destinations. One way of measuring these effects is to use Structural Equation Modeling (SEM) through Path Modeling. Path modeling allows one to explore complex relationships by taking into account both direct and indirect effects. SEM has the advantage of allowing all the destination attributes to be examined together by capturing the direct, indirect and total effects of each variable on destination attractiveness.


Policy Driven Networks: A Case Study of Malaysian Multimedia Super Corridor (MSC) Smart Card Flagship Initiative

Kamarulzaman Ab. Aziz and Mohammad Poorsartep, Multimedia University, Malaysia



Tremendous changes in technology, political and social frameworks as well as the impacts of globalization have put pressure on countries to become competitive.  One strategy for creating an engine of economic growth is the creation of networks designed to jumpstart identified key sectors.  These networks be they naturally or artificially conceived hold the promise of becoming the economic weapons of a country.  Unfortunately, just like the usual business entities, some networks succeed, while others fail.  Many studies have been done to understand the factors behind the success and failures of networks. This paper aims to provide further insights on policy driven networks through the case study of the Malaysian example – the MSC Malaysia Smart Card Flagship initiative.  Wave of globalization is washing away geographical boundaries and sway resources which have made developing nations to experience demanding challenges to survive and thrive. Malaysia in its efforts to become a developed nation, focus on initiatives designed to increase its innovative capacity so that it can develop sustainable growth engines and a prosperous economy. Information and Communication Technology (ICT) was identified as the enabler to realize that vision. Hence, the Multimedia Super Corridor (MSC) Malaysia was conceptualized. It’s a policy-driven cluster-oriented initiative launched in 1996, aimed to help the country on its transition effort from an industrial society to a post industrial one. Multimedia Development Corporation (MDeC) based in Cyberjaya, is the organization mandated by the government to oversee the development of the MSC Malaysia project. Initially a government-owned corporation but now incorporated under the Companies Act, MDeC facilitates applications by multinational and local companies to re-locate to MSC Malaysia, to gain the MSC status and thus the set of incentives or benefits. MDeC globally markets the MSC Malaysia, shapes MSC Malaysia-specific laws, policies and practices by advising Malaysian Government and standardizes MSC Malaysia’s information infrastructure as well as the urban development. To accelerate the realization of Vision 2020 (to transform Malaysia into knowledge based society) via the MSC, a path was defined through six innovative Flagship Applications. These applications were engineered to jump start the MSC Malaysia initiative and create a hub for innovative producers and users of multimedia technology.  This paper focuses on one of the flagship applications, namely, the MSC Smart Card Flagship. The developmental flagships such as the Smart Card flagship, are designed as networks of organisations playing roles of technology developers, users and facillitators. In other words, the Smart Card Flagship is a policy driven network. Thus the aim for this study is to look at how the Smart Card network was implemented and highlight the challenges or issues faced, which impacts on the performance of the network. This paper will first review selected literature that forms the basis of the research framework used. This will then be followed by a discussion of the methodology used for developing the case study. The paper will then ends with the case study on the MSC Malaysia Smart Card flagship. Several studies have revealed a close relationship between innovation and information/knowledge (Arrow, 1971; Dosi, 1988; Cohen and Levinthai, 1990). Therefore, it can be argued organizations with a better access to information/knowledge are expected to be more innovative. According to Galaskiewicz and Wasserrnan's (1989) networks are a source of information and new ideas for organizational decision-makers. Madhavan et al. (1998) also mentioned that the overall structure of inter-firm relationships influences the strategic conduct of firms; hence network structure provides the context for competitive advantage. The landscape of competition has changed especially for those sectors with complex DNA of advanced technology. The technological content per product has increased and more definitely the science within each technology also has increased. It is recognized that not all organizations can afford to have in-house expertise covering the whole scientific spectrum needed; the costs of R&D have also increased that a single firm may not be able to shoulder the financial burden on its own; and the risks involved when developing a new product/process/service at times are not manageable by a lone firm. Globalization has pushed the competition among firms to be fiercer, thus the pressure has increased on R&D to be more innovative and be able to quickly capture opportunities or address key market trends. Innovativeness, speed and flexibility have become critical factors for firms to develop and sustain competitive advantages. These truths not only affect businesses but also regions and nations that want to grow and develop towards becoming more successful/competitive. According to studies on resource-based theory by experts like Sanchez & Heene (1996), Galunic & Rodan (1998), Wernerfelt (1984) and Claude-Gaudillat (2000), organizations may cultivate their competitive advantages via exploiting their competencies. Sadler-Smith et al (2000) and Awuah (2001) recognized that competencies can be derived via other organizations one is linked to – networks. In view of this, organizations often decide to reach out to other organizations – collaboration, joint venture, partnership, strategic alliance, network, etc – in order to gain access to resources that they do not posses, to develop new capabilities, to expand their market reach, to reduce costs or risks, and ultimately to be more competitive. (Powell et al, 1996) Eisenhardt and Schoonhoven (1996) echoed similar view, they suggested that alliances arise when a firm needs additional resources that cannot be purchased via market transaction and cannot be built internally with acceptable cost (risk) or within an acceptable amount of time. Consequently, alliance enables firms having access to necessary resources so they can still stay and compete in the market. Gomes-Casseres (1996) discussed that inter-firm collaborations, such as strategic alliances and joint ventures, have become important business management instruments to improve the competitiveness of companies which has been deployed especially in complex markets that are characterized by rapid development, short life cycles and radical innovations (i.e., ICT, biotech). The transaction–cost theory recommends choosing the organizational mode that minimizes the sum of fixed and continual transaction costs. (Coase , 1937) So as it is discussed by Williamson (1991), in the case of medium-asset specificity, networks or alliances are considered the most transaction-cost-efficient organizational form. Grant and Baden-Fuller (1995) identified an emerging perspective, the knowledge-based theory of inter-organizational collaboration. The theory suggests alliances provide the best platform for creating value by sharing or combining dispersed knowledge. Alliances enable organizations to enhance and accelerate organizational learning, reshape their environment and reduce strategic uncertainty. Forming a network is the first step but ensuring of its effectives and performance is the main challenge. It is important to remember that the networks are not the main goals, it’s the potentials identified earlier are the main lure of networks. Numerous studies are done by academicians and scholars such as Tidd et al., 1997; Bruce et al., 1995; Hoffmann and Schlosser, 2001 - to name a few -  in order to find out critical success factors (CSFs) of networks. It was found that there are a set of common themes that recur in the body of literature on strategic alliances or networks;


A Study of Social Responsibility of Sri Lankan Immigrant Entrepreneurs in Australia

Dr. Fara Azmat, Deakin University, Melbourne, Australia

Dr. Ambika Zutshi, Deakin University, Melbourne, Australia



Increasing globalisation, technological advancement and migration waves in the last few decades have changed the look of many advanced countries to be more cosmopolitan and Australia is no exception. The number of South Asian migrants in Australia is steadily increasing. Among the South Asians, there are 31,482 Sri Lankans in the state of Victoria and the majority of them are entrepreneurs. Social responsibility perceptions and practices of these entrepreneurs have not been researched. The study aims to fill this gap by undertaking a triangulation method to investigate the social responsibility perceptions and practices of these entrepreneurs and identify whether or not they are influenced by home country contextual factors, specifically national culture, and business environment. The study is a work in progress and the survey will be undertaken in the second quarter of the year. Socially responsible businesses have the potential to promote an overall approach to quality and sustainable development as they can have positive impacts not only on their own businesses but also on the community and the environment in which they operate. This study is thus significant as it will deliver economic, social and environmental benefits to Australia.  The aim of this study is to investigate the social responsibility perceptions and practices of Sri Lankan immigrant business entrepreneurs in the state of Victoria (Australia) to identify whether or not they are influenced by their home country contextual factors, specifically national culture, and business environment. Immigrant entrepreneurship creates both opportunities and challenges that have important implications for an economy. The opportunities created include employment, development of a social capital, scope of better integration with the society, broad range of goods and services, expanding consumer choices and growth of certain sectors (Rath et al, 2002). Conversely, the challenges are relatively few but important. One of the main challenges for immigrant entrepreneurs’ comes from their strongly differentiated social and cultural orientations and exposure to a very different regulatory and socio-economic environment. Although among the South Asian countries, Sri Lanka has the highest rate of literacy (92%), the differential contextual factors, such as culture and business environment, are likely to be important challenges for these entrepreneurs as they are generally used to operating in an environment where there are lower standards for Corporate social responsibility (CSR), lower public pressure and compliance with voluntary standards, codes of conduct and enforcement of regulations.  CSR has become a buzzword in the last few decades and organisations (public and private) are under increasing pressure to demonstrate their commitment towards helping the community (including ecological environment), be transparent in their actions whilst having a profitable bottom-line. Global Reporting Initiative (GRI) framework has recommended that organisations embrace the three dimensions: economic, social and environmental, when reporting their performance in the respective areas to demonstrate their commitment to their stakeholders. However, economic, legal, ethical, and discretionary (philanthropic) labels have been used by Carroll and Buchholtz (2006) to discuss the CSR actions of an organisation. As the debate continues amongst the businesses about the feasibility and practice of stakeholder versus stockholder models, there is no denying that the public has generally lost trust in the ‘words’ of multinationals and want as far as practical to see concrete ‘actions’. Managers (intrapreneurs, ie., those working for an organisation) and entrepreneurs (ie., working for themselves) are caught in the middle of meeting the needs (sometimes conflicting) of stakeholders and shareholders whilst balancing their own values, morals, past experiences and cultural upbringings.  For the purpose of this study we use the definition of social responsibility as proposed by Campbell (2007) that has two main components. First, the businesses must not knowingly harm their stakeholders such as investors, employees, customers, suppliers or the local community. Second, if they cause harm to their stakeholders, they must then rectify it whenever the harm is brought to their attention either voluntarily or in response to normative pressure, legal requirements or some sort of encouragement. Socially responsible businesses therefore contribute to sustainable development as they take into account the economic, social and environmental impact of their activities on the community in which they operate. Socially responsible businesses are now increasingly adopting the globally recognised GRI framework to report their economic, environmental and social performance. In this study we will use the indicators of GRI framework in the questionnaire surveys and interviews to investigate the perception and practices of social responsibility of Victorian Sri Lankan entrepreneurs.  The concept of Entrepreneurship is not recent and its usage can be seen the economics and sociology studies during the early eighteen century (Becker and Knudsen 2004). There is extensive literature in the area of entrepreneurship and accordingly diverse definitions. Thompson and Randall (2001: 290) for instance, describe entrepreneurs are those individuals who “sense opportunities and take risks in the face of uncertainty to open new markets, design and develop new and improved products and processes” (see also Legge and Hindle 1997). A successful entrepreneur possess attributes such as being visionary, opportunity-seeker, leadership and management skills (see Kearnis et al, 2004; Waddell, Singh & Musa, 2006; Tams, 2002; Cherwitz and Sullivan, 2002; Jablecka 2001). An entrepreneur thinks creatively and uses information to generate innovation. For long term sustainability of their business, entrepreneurs tend to (and should) embrace opportunities for control over resources, and intuitively understand the transformational effect of the emerging technologies.  In this study we define entrepreneurs, both ethnic and non ethnic as owners and operators, including self-employed persons who employ both family and outside labour and combine novel ways to create something of value (Aldrich and Waldinger, 1990). A number of studies have addressed the link between immigration and entrepreneurship. Light and Bhachu (1993) for example, discuss the important influence of entrepreneurship on the economic and social integration of immigrants (see also Serrie, 1998). In reality small business ownership has been an important strategy in immigrants’ adaptation to advanced societies (Evans, 1989). Australia represents over 200 cultural communities and approximately 30% of its small businesses owned and operated by migrants (Press Release, 2007).


Globalization Aspects of the World Pharmaceutical Industry

Dr. Dragan Kesic, University of Primorska, Slovenia



World pharmaceutical industry is one of the most innovative, so called »high-tech« world industries, however it has been changing profoundly in the last decade. Intensive globalization processes, increased competitiveness, fast changing structure of competitors, a complex strategic positioning and a fight for global market shares, create new challenges for the world pharmaceutical companies. In our research work we found out that fast globalization processes definitively reinforce the consolidation of the world pharmaceutical industry. Alliancing in forms of mergers and acquisitions prevail more and more as a strategic orientation for numerous world pharmaceutical companies. We may forecast that intensive alliancing processes in the world pharmaceutical industry are to continue to form even bigger pharmaceutical concerns and to speed up the oligopolization of the global pharmaceutical industry. We may point out that fast consolidation of the world pharmaceutical industry is a strategic and market driven process and conditioned by typical strategic management issues, like a lack of brand new products, an intensive and even more and more increasing competitiveness, a fast globalization processes, an increased global marketing and sales activities, a fast changing structure of global competitors, and a furious fight for global market shares and customers' loyalty.  We may define the main characteristics of the world pharmaceutical industry as follows:  increased globalization, changing structure of competition and increased competitiveness, lack of brand new products, despite increased investments into R&D (Research&Development) activities, increased importance of regulatory issues (registrations, intellectual property rights, litigations), fast consolidation and concentration of the world pharmaceutical industry, increased importance of marketing management, development of new therapeutic fields and technologies (biotechnology, pharmacogenomics), fast development of world generic markets. World pharmaceutical market has undergone fast, unprecedented, tremendous and complex changes in the last several years. We may say that pharmaceutical industry has been adapting itself more to the market trends and market demands. Further strategic development of world pharmaceutical industry shows relatively clearly its significant consolidation and concentration and strong market orientation. Development of a brand new drug (NAS –New Active Substance) is today estimated to need investment over 1.2 billion $ and takes over 12 years to bring it as a finished, legally registered and approved product to a market place (Pharma Strategy Group, 2006).  This is at the same time a very complex, comprehensive and highly risky job with no final guarantee that a potential new product might succeed onto the market and bring revenues back. If a pharmaceutical company wants to achieve with a brand new product the market success, it needs to invest heavily into marketing and sales activities. Thus is by no surprise, we may conclude that basic research and development activities (R&D) together with marketing and sales  activities, are two the most important operative and even more strategic activities of the world pharmaceutical industry. Here the biggest investments of the pharmaceutical industry are poured by no means. Having analyzed these figures, we have found that the biggest, innventive world pharmaceutical companies invest on average around 16% of their sales into R&D and even more, around 25% or more into marketing and sales activities. However, these ratios, especially the one for R&D investment, are even higher with specialists, like biotechnology and pharmacogenomic pharmaceutical companies, and much lower with generic pharmaceutical companies, (Kesic, 2006).  As mentioned, world pharmaceutical industry is structurally not unique, as pharmaceutical companies differ according to their basic performance, vision and strategic development.  We may define three different groups of the world pharmaceutical companies: pharmaceutical companies which primarily work on basic research, development and marketing and sales of brand new, innventive, original pharmaceutical products (so called originators), pharmaceutical companies which primarily work on development and sales of generic products (so  called generic or copycat producers), pharmaceutical companies which primarily work on basic research and development of biotechnology and pharmacogenomic products and technologies of new delivery systems (so called specialists). The world pharmaceutical market has been growing steadily in the last years. In the year 2006, world pharmaceutical market posted total sales of 643 billion $ and growth rate of 7 %. The fastest growing world markets and regions are the markets of China, Central East Europe region (Hungary, Czech and Slovak Republic, Russia, Poland, Romania) and certain markets of Latin America (Brazil, Mexico, Chile). Nevertheless, it is estimated that the world pharmaceutical market will grow by an average 7% CAGR (Compounded Annual Growth Rate) till the year 2010. However, it is estimated that due to several factors – the expiration of patent protection of some of the best sold pharmaceutical products in the most developed world markets (major impact is in the USA), the worldwide healthcare cost reduction and restructuring, ageing of population and price pressures – the world generic markets tend to grow even faster by an average 12% CAGR till the year 2010 (World Review, 2007, Pharma Strategy Group, 2006). 


Entry Modes Employed by Multinational Manufacturing Enterprises and Review of Factors that Affect Entry Mode Choices in Russia

Alex Kouznetsov, Melbourne Institute of Technology, Australia



Through analysis of secondary data available on foreign enterprises in Russia and from the academic literature, this study attempted to summarize what were the most popular entry modes into the Russian market employed by multinational manufacturing enterprises, in order to serve as the theoretical and factual platform for further research on country conditions in Russia and their effect on entry modes which is not available in the literature yet. The study was limited to exporting and investment modes as these entail greater risk than other modes and require greater resource commitment. The study found that the most preferred mode of entry into Russia was exporting followed by modes such as joint venture and wholly owned subsidiary. However, an overwhelming number of exporting firms entered this market in the mid 1990s, through setting up representative offices in Moscow which required substantial funding thus indicating that this market, although risky, was still very attractive for direct investors. Based on this and on the fact that majority of foreign manufacturing firms in Russia were big multinational enterprises with readily available resources and international business expertise, it would be quite logical to assume that most manufacturing multinationals there adopted the contingency prospective by taking up a greater than in the case of mere exporting risk. Therefore, this study led to the recommendation that further empirical research should be conducted in the area of country conditions and their impact on choice of the representative office entry mode made by foreign manufacturers serving Russian market. With the globalization, growing global competition, and political changes in the world, companies entering new foreign markets are facing new challenges. Changes are often accompanied by opportunities, however firms should search, to recognize and use them. Firms considering entering foreign locations will have to work on future entry strategies which enable them to optimize the business processes to minimize risks and lower costs. However, these sorts of optimized business models have a limited attraction. One strategic alternative is to look for new country markets. As China has become the world workshop and a huge market for western products with India becoming the main destination for outsourcing firms, the growing and extremely lucrative for foreign investors emerging markets of the former Soviet Union and Russia in particular are generally overlooked by scholars studying entry strategy who have focused much of their attention on the former two. One of most important component of entry strategy for a firm in terms of risks and opportunities is the entry mode. This component, despite the fact that it is well researched and analysed in the literature, has attracted very little interest from scholars researching foreign firms’ operations in the emerging market of Russia. In fact, the existing literature does not identify predominant entry modes and their variations used by foreign manufacturers to enter Russia. Furthermore, identifying the most popular entry modes used to enter Russia would enable to narrow down further research in the area of country conditions in Russia and their impact on entry modes which are scant and inconsistent in the current literature. Hence, the current study should serve as the platform for further research on country conditions in Russia, and their affect on entry mode decisions made by foreign manufacturing firms by providing greater insight into predominant entry mode choices made by these firms along with reviewing which conditions could have an impact on these choices. The following sections begin with a literature review and follow up with methodology. Implications of the findings of this study and the area of further research based on the results of the current study are identified and broad research questions are raised in the conclusion. International entry modes can be categorized as export entry modes; contractual entry modes (licensing, franchising, technical agreement and other types of contractual agreement); and investment entry modes. They are well researched and described in the literature (Boyd and Walker 1990;Terpstra and Sarathy 1994; Parks and Flores 2000; Luo 2002; Kuo and Li 2003), to mention just a few. Firms select entry modes on the basis of a variety of factors, with country conditions alone being perhaps the most important group of factors (Beamish and Banks 1987; Hill and Kim 1988; Agarwal and Ramaswami 1992; Kwon and Hu 1995; Camino and Cazorla 1998). However exporting and foreign direct investment (FDI) modes present far greater risk than contractual modes to firms employing them in developing markets (Lei and Slocum 1991; Kumar and Subramaniam 1997; Parks and Flores 2000).  Each entry mode has advantages and disadvantages with respect to cost, control, and risk. According to Camino and Cazorla (1998) a high resource commitment entry mode such as production abroad required more investment and therefore entailed greater risk exposure than a low resource-commitment entry mode such as exporting. High resource-commitment entry modes however, provided relatively greater control of the market and therefore provided an expectation of a relatively higher rate of return than a low resource-commitment entry mode (Kwon and Konopa 1993). Generally speaking, the literature on international market entry modes may be characterized by two opposing views: a gradual involvement perspective and a contingency perspective. The gradual involvement perspective was based on a firm’s desire to minimize risk due to such factors as cultural differences, foreign currency restrictions, political instability, and other host country conditions further discussed in this review. Hence a firm was likely to enter a particular foreign location initially by a low source commitment entry mode (exporting) to minimize the risk of foreign market involvement. When the firm gained experience and knowledge about this foreign market, it tended to shift to a high resource commitment entry mode with an expectation of a higher rate of return ( Buckley and Mathew 1978; Kwon and Konopa 1993; Kwon and Hu 1995).  Millington and Bayliss (1990), however, and Sullivan and Bauerschmidt (1991) rejected the incremental view prescribed by the internationalization process with Minor, Wu and Choi (1991) and Okoroafo (1997) arguing that entry mode decisions could also be influenced by the conditions of industry being entered along with other external and internal to the firm factors. In addition, Camino and Cazorla (1998) disputed the gradual model arguing that it did not offer a valid explanation of the way and the timing in which the shift was being made from one phase to the next one. Moreover, some scholars also argued that it could be more economical for the firm to establish a wholly owned subsidiary rather than entering into arm-length transactions if the foreign market, it was entering, was characterized by significant imperfections (Beamish and Banks 1987; Hitt and Hoskinsson 1987, and Hill and Kim 1988), or when the firm was facing increasing foreign or local competition (Etemad and Wright 2003). In addition, these scholars found that despite the assumption in most business literature that firms internalized gradually, in an incremental manner, there was some inconsistency between the stage theory and the empirical reality of rapidly growing number of firms that adopted a global approach right from their conception. These new firms lacked a period of gradual internationalisation. Therefore, empirical research thus far has provided conflicting evidence on the issue. Furthermore, the firms interviewed by the latter researchers were operating in developed countries where the level of almost all risks was substantially lower than in developing countries (Dyker 1999) which most definitely affected firms’ decision towards adopting the riskiest modes in these developed markets.


Social Interaction and Knowledge Sharing Behaviors in Multinational Corporations

Dr. Chaiporn Vithessonthi, Mahasarakham University, Thailand



The transfer and exploitation of knowledge and capabilities across national boundaries has been viewed as a critical element of creating sustained competitive advantages of multinational corporations (MNCs). Consequently, knowledge transfer became the focus of academic research by strategy and international business scholars. The objective of this study is to identify and discuss factors that have considerable influence over the transfer of knowledge between organizational subunits. To advance this research agenda, I propose that interpersonal trust, interpersonal commitment, and perceived interpersonal support exert influence over the formation of an employee’s attitude toward knowledge sharing that, in turn, influences his or her knowledge sharing behaviors. For management, this agenda raises the question: to what extent should social interaction between members of the organization be promoted so as to enhance the firm’s knowledge transfer capability? As global competition has greatly intensified in recent years, scholars from many fields have sought to identify explanations for the conditions under which multinational firms might outperform competitors. The literature on international business suggests that the extent to which multinational corporations (MNCs) create and transfer knowledge and capabilities across national boundaries matters to the ability of the MNCs to compete effectively in multiple markets (Jensen and Szulanski, 2004; Kogut and Zander, 1993; Teece, Pisano, and Shuen, 1997; Zaheer, 1995). Knowledge assets that tend to be difficult for rival firms to imitate are key sources of competitive advantage in a global market; however, such knowledge assets may also be difficult internal imitation across organizational subunits. Therefore, the ability of the MNC to identify and share knowledge within its foreign operations improves the firm’s competitive position (Zander and Kogut, 1995).  It is often argued that firms must adapt in order to ensure fit with the local environment due to differences among local environments along a number of dimensions (Bartlett and Ghoshal, 1989; Griffith, M.Y., and Ryans, 2000). The acquisition and transfer of knowledge within an MNC across national boundaries is subject to tensions between preserving what is valuable in resources and capabilities in local subsidiary, thereby providing greater degrees of local responsiveness, and implementing change in local subsidiaries so as to integrate certain aspects of the firms, thereby obtaining beneficial effects of global integration. A key question guiding this paper is: How social interaction within the organization promotes or inhibits the transfer of knowledge between members of the organization across national boundaries? Management scholars have argued that organizational commitment can be a key development of individual and organizational outcomes (e.g, Parker et al., 2003). Other studies have shown a positive relationship between perceived organizational support and job satisfaction (e.g., Allen, Shore, and Griffeth, 2003) and organizational commitment (e.g, Lee and Peccei, 2007). While previous research has linked the perceptions of employees with individual and organizational outcomes (e.g., Allen et al., 2003; Kiffin-Petersen and Cordery, 2003), this paper further advance the research by theoretically examining the roles of employees’ perceptions of colleagues and their attitude toward knowledge sharing. As a further contribution, this paper proposes a theoretical model of factors influencing knowledge sharing behaviors in MNCs. The objectives of this study are twofold: First, this paper presents a review of prior research on strategy and international business with particular emphasis on knowledge management in order to explain the perspectives on knowledge transfer across national boundaries. Second, this paper presents a framework to characterize factors that may have considerable influence over knowledge sharing of individuals within the organization. In particular, the paper examines the roles of trust, commitment, and perceived support in the governance of the relationship between an employee and his or her exchange partner within the organization in sharing knowledge. Two main research questions are addressed:  Does attitude toward knowledge sharing exert influence over knowledge sharing behaviors? In shedding light on this issue, I discuss the direct effect of attitude toward knowledge sharing on knowledge sharing behaviors. Is an employee’ attitude toward knowledge sharing affected by (a) interpersonal trust, (b) interpersonal commitment, and (c) perceived interpersonal support? In dealing with these issues, I discuss the indirect effects of such factors on knowledge sharing behaviors through changes in attitude toward knowledge sharing. By addressing these research questions, this study intends to contribute to the understanding of governance structures in knowledge sharing behaviors at the individual level in the context of multinational corporations. The study of intra-organizational knowledge transfer is incomplete without considering relationships between organizational members who operate in different environments. It is critical that managers understand the uniqueness of relationship building in the intra-organizational context in order to acquire competence in managing social interaction across foreign subunits so as to enhance the ability to acquire, assimilate and exploit knowledge assets across subunits within the organization. It has been argued that firms should adapt their practices as quickly as possible to align with local environmental conditions (e.g., Bartlett and Ghoshal, 1989; Prahalad and Lieberthal, 1998), which, in turn, requires significant changes to several aspects of the practices. The assimilation process of a firm is influenced by tacit, firm-specific knowledge with respect to its established systems for processing knowledge (Cohen and Levinthal, 1990). It is uncertain that adopting a practice or technique will result in the similar performance advantages that others who have previously done so appear to have achieved (Lippman and Rumelt, 1982). Because of the complexity and causal ambiguity (Rivkin, 2000) and ex ante uncertainty as to the relevant environment (Szulanski and Jensen, 2006), the need to preserve local resources and practices may limit the degree to which adaptation should proceed in an organization (Szulanski and Jensen, 2006). In addition, Heide and Miner argue that information sharing captures ‘the degree to which each party disclose information that may facilitate the other party’s activities’ (Heide and Miner, 1992: 285).


The Main Principles of Performance Related Pay.  To What Extent Is It Applicable in Public Sector Organizations

Hsien-Mi Lin, Cardinal Tien Hospital, Taiwan, R.O.C.



Performance related pay is one of the terms covering a performance-based approach to rewarding management, it is seen as a way to motivate directors and senior managers to perform better so as to achieve objectives of organization.  The versions of performance related pay have been discussed in the private sector organizations, and they have been extended to the public sector organizations.  Therefore, the public sector managers have to understand the lessons of the private sectors have leaned on the management of performance related pay, the setting of objectives as well as the motivational issues involved (Murlis, 1987).  This study will focus on the performance related pay, and is structured into two main sections.  In the first section, I shall clarify the main principles of performance related pay and explain how it works.  Then, in the second section, I will demonstrate what extent performance related pay is applicable in public sector organizations and give further summaries and recommendations.  Finally, a conclusion will be produced. Performance related pay is one of the terms covering a performance-based approach to rewarding management, and has been broadly adopted by private as well as public sector organizations, such as local government, the Civil Service, and the National Health Service.  It is seen as a way to motivate directors and senior managers to perform better so as to achieve objectives of organization.  Apart from this, there is more and more organizations have now adopted the philosophy of performance related pay which has extended to the shop floor as well as the office desk.  Therefore, on the basis of Swabe’s research (1989, p17), performance related pay can be seen as: “a system in which and individual’s increase in salary is solely or mainly dependent on his / her appraisal or merit rating”. In a similar way, Armstrong (1994, p570) tells us that, in his view, “performance related pay links financial rewards to individual, group or corporate performance, or any combination of these three.  They are most commonly applied to managerial, professional, technical and clerical staff, but they have been extended by some firms to the shop floor, either as part of a uniform pay system or as a separate scheme”.  That is also to say performance related pay is a method of payment that individual employee obtains increases in pay based on the assessment of their job performance.  The versions of performance related pay have been discussed in the private sector organizations in many different forms, such as traditional piecework and payment by result schemes, for manual employees and commission schemes for sales representative, in that they asses both the outputs of work and employee behaviour.  In many private sector organizations it is becoming part of salary practice for white collar employees.  Furthermore, it has been extend to the public sector organizations, thus the public sector managers have to understand the lessons of the private sectors have leaned on the management of performance related pay, the setting of objectives as well as the motivational issues involved (Murlis, 1987).  As Lundy and Cowling remind us (2000), “the primary argument for performance related pay schemes is of course that the opportunity to earn extra money should motivate individuals to work harder”.  They also mention that there is a familiar working class expression, that is, ‘equal pay for equal work’.  These two arguments can cause very strong emotions among employees, and furthermore it will influence their performance.  But what are the main principles of performance related pay?  How can we operate a performance related pay scheme that pays a higher salary or wages to the better performers, and is accepted as fair by the other employees at the same time?  In addition, is it difficult to measure performance in a fair and objective way, and which furthermore links pay to performance?  These will be discussed as follows. It is necessary to give a brief introduction to set the objectives of performance related pay at the first stage of conducting the main principles of performance related pay, because they are one of the most popular forms of measuring performance.  As Beardwell and Holden (1997) have reminded us, “Objectives (frequently termed targets or goals) are generally jointly agreed upon by the employee and manager and used to measure and assess employee performance.  Objectives setting is assumed to be an impartial process of evaluation”.  According to Armstrong (1991), the main objectives of performance related pay may be classified into a range of activities: To motivate all the employees to perform better on their job. To increase the commitment, cooperation, initiative and dependability of employees to the organizations. To strengthen existing cultures and values where these foster higher level of performance, and to help to change cultures where the adoption of other new key values should be rewarded. To differentiate the distribution of rewards to employees according to their contribution. To emphasize individual performance as well as teamwork as appropriate. To improve the recruitment and retention of high quality employees. Having made the point of objectives setting, the performance related pay can been seen as a motivator that will be further discussed.  As it has been mentioned above, the performance related pay schemes reward individual employee on the basis of their job performance.  ACAS reminds us (1996, p8) that, performance related pay is “a method of payment where an individual employee receives increases in pay based wholly or partly on the regular and systematic assessment of job performance”.  In other words, performance related pay is predicated upon money as a motivator that aims to motivate employees to perform better on their job.  Similarly, Armstrong suggests us (1993) that “it is fair to provide financial rewards to people as a means of paying them according to their contribution”.  Therefore, the performance related pay can be seen as a role of motivator that aims to improve the performance of employees thought both recognition of achievements and monetary reward.  Further benefits can be carried out in two dimensions: the employees can identify with the organizations’ goals; and furthermore this can improve employees’ productivity and encourage their quality, flexibility as well as teamwork (Armstrong and Murlis, 1994).  In addition, performance related pay can also aid the successful recruitment and retention of employees.


The Opportunity Model of Organizational Commitment

Elif Cicekli, Bogazici University, Istanbul, Turkey



This paper analyzes the under-researched concept of opportunity and ties together what have been separate streams of opportunity research.  It also highlights two antecedents of commitment that have been examined in very few studies: alternative opportunities in other organizations and the importance of opportunity for employees.  Based on a literature review in the areas of organizational commitment, opportunity, alternative opportunities, and importance of opportunity for employees, an opportunity model of organizational commitment is developed and related propositions are presented.  This is the first model to tie together three aspects of opportunity and their effects on organizational commitment.  Organizational commitment has been empirically shown to be related to many important work-related outcomes, such as turnover, withdrawal cognition, absenteeism, job performance, organizational citizenship behavior, stress and work-family conflict (Meyer et al., 2002), job satisfaction (Hunt et al., 1985), and financial performance (Rashid et al., 2003). To attain the positive work-related outcomes and to avoid the negative ones, it is important to investigate major factors that affect organizational commitment, one of which is perceived level of opportunity at work.  Organizational commitment is defined as the relative strength of an employee’s identification with and involvement in an organization (Porter et al., 1974).  Allen and Meyer (1990) developed a measure of organizational commitment with three major components and corresponding scales.  The affective component of commitment “refers to employees’ emotional attachment to, identification with, and involvement in, the organization,” the continuance component of commitment is “based on the costs that employees associate with leaving the organization,” and the normative component is related to “employees’ feelings of obligation to remain with the organization” (Allen and Meyer, 1990: 1). Antecedents of organizational commitment have been investigated in many empirical studies.  In their meta-analysis, Meyer et al. (2002) examined demographic variables (i.e., age, gender, education, organization tenure, position tenure, and marital status), individual differences (i.e., locus of control and self-efficacy), work experiences (i.e., organizational support, transformational leadership, role ambiguity, role conflict, and interactional/ distributive/procedural justice), and alternatives/investments (i.e., alternatives, investments, transferability of education, and transferability of skills) as possible antecedents of commitment.   Factors related to organizational culture have also been empirically identified as antecedents of commitment.  These include organizational culture in general (Chow et al., 2001; Lok and Crawford, 2001; Rashid et al., 2003; Ritchie, 2000; Stum, 1999); unit organizational culture, organizational subculture, and team-level culture (Lok and Crawford, 2001; Gifford et al., 2002; Glisson and James, 2002); group cultural values (Goodman et al., 2001); the fit between organizational culture and employees (O’Reilly et al., 1991); the gap between perception of the organizational culture and the preferred culture (Bourantas and Papalexandris, 1992; Harris and Mossholder, 1996); congruence between newcomers’ and their supervisors’ organizational culture preferences (Vianen, 2000); and corporate ethical values (Hunt et al., 1989; Valentine et al., 2002).  Human resource management practices have been found to be antecedents of commitment as well.  Leadership style (Lok and Crawford, 2001; Yousef, 2000), direction (Stum, 1999), investment in the employees in terms of training and employment security (Tsui et al., 1997), empowering teams (Kirkman and Rosen, 1999), participative decision-making (Harrison and Hubbard, 1998), degree of job variety, autonomy and feedback (Hunt et al., 1985), alternative work practices (Godard, 2001), flexibility policies in general (Eaton, 2003), flexible work hours in particular (Scandura and Lankau, 1997), and family-responsive human resource policies (Grover and Crooker, 1995) were found to affect organizational commitment.  A major antecedent of organizational commitment is perceived level of opportunity at work (DeConinck and Bachman, 1994; Ganesan and Weitz, 1996; Kanter, 1977; Wallace, 1995). Some scholars have restricted the definition of opportunity to promotions.  For instance, Harlan (1989) defined opportunity “as position in the organizational hierarchy and as workers' perceptions of the degree to which the firm's administrative system awards promotions through fair and open competition” (Harlan, 1989: 766).  Similarly, Kanter (1977) described opportunity as “the relationship of a present position to a larger structure and to anticipated future positions that is critical” (Kanter, 1977: 161).  However, she added that an employee “could feel reasonably satisfied with the content of a job but frustrated about growth through it or movement from it, and thus depress aspiration and look to other realms for opportunity” (Kanter, 1977: 161).  She argued that structure of opportunity was determined by such matters as promotion rates, access to challenge, and increase in skills.  Thus, Kanter did not confine the definition of opportunity to promotion.  Opportunity in a specific job is related to either “movement from it” or “growth through it,” rather than to formal advancement from one job to another (Kanter, 1977). Promotion is not the sole type of opportunity; there are other types, such as development of professional skills and continual challenge (Kanter and Stein, 1981). Other scholars have also argued that the conceptualization of opportunity should not be restricted to promotions.  Iles (1997) suggested that fast-track programs for high-potential employees needed to be re-evaluated since organizational restructuring, downsizing, outsourcing, and delayering cause a decline in opportunities for upward mobility.  Caudron (1994) argued that, instead of upward movement, companies could provide opportunities for lateral growth, enrich current jobs, and provide dual career paths in which employees are given additional challenges and compensation without necessarily advancing into managerial positions.  Similarly, although Yang et al. (2004) covered only the promotion aspect of opportunity in their study, they recommended that future researchers investigate how employees value other dimensions of opportunity, such as developing skills and accumulating work experiences. Kanter (1986) highlighted the importance of recognition and argued that, because of shrinking corporate hierarchies and removal of organizational layers, companies could not afford to view promotion as the primary means of recognizing performance.  Kanter (1986) stated that, when employees were not promoted and stayed in their places longer, greater accessibility to rewards was a necessity and recognition was an important part of this.  Wayne et al. (2002) argued that recognition and visibility were likely to be given to a small group of employees, which implied a bright future for them.  Thus, even if a group of employees do not have promotional or developmental opportunities or continual challenge at their job, if they receive recognition and visibility, they have a chance for a bright future in their organizations.  Hence, recognition is a special type of opportunity signaling future opportunities.  Thus, four types of opportunity have been covered in the literature:


Proprietary Costs, Ownership Structure and Credibility of Voluntary Disclosure of Malaysian Listed Companies

Dr. Faizah Darus, University Technology MARA, Malaysia

Roshayani Arshad, University Technology MARA, Malaysia

Dr. Dennis Taylor, RMIT, University, Australia

Suaini Othman, University Technology MARA, Malaysia



It is important to understand what influence managers to provide voluntary information to outside investors and whether the information provided by management is perceived to be credible by outside shareholders and stakeholders. Using the annual reports of 155 Malaysian listed companies, this study investigates the competing effects of information costs and ownership structure on the extent and perceived credibility of corporate voluntary disclosure during the period when public listed companies in Malaysia faced new corporate governance regulation. Results of this study provide evidence that management does not perceive their voluntary information to have sufficient signalling potential to create competitive disadvantage for their company. Findings from the study also indicate that higher percentage of outside block holder ownership has the potential to strengthen corporate transparency. However, the return-earnings relation revealed that the extent of voluntary disclosures does not give sufficient confidence to analysts and outside investors in evaluation of their stocks.  Corporate disclosure has been subjected to calls for transparency as part of the corporate governance movement, in particular among companies in the East Asian countries. Disclosure of voluntary information, in particular is a sensitive management decision which can reveal proprietary information to user groups such as shareholders and also competitors who can act on the information disclosed to the competitive disadvantage of the disclosing companies (e.g. Darrough & Stoughton, 1990; Hayes & Lundholm, 1996; Newman & Sansing, 1993; Verrecchia, 1983; Wagenhofer, 1990). The existence of proprietary information therefore affects the disclosing company’s disclosure strategies between protecting the proprietary information from potential competitors and disclosing useful information to shareholders.  The extent of corporate disclosures made (i.e., signaling undertaken by management) will affect the shareholders’ ability to make informed judgements about their investment decisions. However, as corporate ownership of companies in the East Asian countries are highly concentrated and in particular where owners are also part of management (inside owners), the information disclosed can be perceived by outside investors as reported for self interested purposes by the inside owners. As such, the extent of disclosure will also affect the shareholder’s ability to make informed judgments about whether management acts in the interests of the shareholders. An improved understanding of influences on management’s decisions to disclose more or less voluntary information and the perception of the quality of the information would therefore be sought by outside shareholders (and possibly other stakeholders such as debtholders, employees and regulators).  The aim of this study is to examine the competing effects of information costs and ownership structure on the extent and perceived credibility of corporate voluntary disclosure. In particular, it is contended in this study that the disclosure of corporate voluntary information (extent and perceived credibility) is a trade-off between perceived proprietary costs to the entity that can arise from greater disclosure and incentive effects of various elements of ownerships because corporate disclosure can mitigate agency conflicts. The theoretical perspective taken in this study under the agency theory is that management have incentives to disclose higher level of voluntary information because it signals that they are acting in the interests of the shareholders. However, the varying corporate ownership structure can have differing effects on a company disclosure strategy. Further, the benefit of providing voluntary disclosure could be outweighed by proprietary costs embedded in the information that could potentially lead to a competitive disadvantage.  There is a paucity of empirical evidence regarding the competing impacts of information costs, ownership structure and corporate voluntary disclosures in the East Asian countries. Therefore, this study aims to provide evidence of the quality to which voluntary disclosure in corporate annual reports is associated with proxy measures of proprietary costs and ownership structure of such disclosure. Understanding what influence managers to provide voluntary information to outside shareholders has been the focus of an increasing amount of attention in recent years. Such an understanding is useful to both the outside shareholders, regulators as well as other stakeholders. Disclosure of voluntary information allows outside shareholders, in particular, in making informed judgements about the performance and growth prospects of the company as a whole (see e.g., Lundholm & Myers, 2002; Healy et. al., 1999).  The context chosen for the study is the corporate disclosure environment in Malaysia during 2002 when public listed companies faced new corporate governance regulation which demands among others, greater corporate transparency.  The setting is conducive to the study of incentives for management to disclose voluntary information as public listed companies in Malaysia are required to comply with the requirements of the Malaysian Code on Corporate Governance effective for financial years ending 30 June 2001.  Proprietary information is defined as ‘information whose disclosure potentially reduces the present value of cash flows of the firm endowed with the information’ {Dye, 1986}. Such information, according to Dye (1986), would include ‘marketing and financial plans and internal accounting reports’ (p.331).  By signalling their proprietary information to rival businesses and to creditors, management can incur potential costs associated with competitive disadvantages (Dechow, Hutton, & Sloan, 1996). Therefore, management’s voluntary corporate disclosure decision embodies a complex trade-off decision because the aim of rational managers is to select a disclosing strategy that will maximize the value of their company to the shareholders by seeking to protect proprietary information and, at the same time, to voluntarily disclose information to signal that they are acting in the shareholders’ interests under the agency theory.


Towards the Estimation of the Attraction of European Residential Mortgage Markets: A Methodological Approach

Prof. Umberto Filotto, University of Rome Tor Vergata, Rome, IT

Dott. Annalisa Ferrari, University of Rome Tor Vergata, Rome, IT



The European household borrowing has been rising significantly for different years, mainly fed by the residential mortgage demand. This phenomenon has persuaded many European banks to valuate strategically the possibility to seize the development opportunities of this business area as regards foreign mortgage markets. The main theory about the productive asset landscape location (Von Thǘnen J.H 1826, A. Weber 1909, Camagni R.P.1993, etc.) shows that the different attraction degree, or the different ability in attracting new businesses (Ciciotti E. 1993), is driven by a multiplicity of territorial, social and economic factors and by their specific combination.  The attraction meaning, that is the attraction ability of the landscape, is directly related to the definition of material and non-material elements that contribute to the added value creation with reference to a specific system of preferences, aims and expectations shown by potential users. Thus an area can be defined as its direct use value (benefits for resident users), its indirect use value, or option value, (benefits for neighbouring users), and its intrinsic value (Fusco Girard L., Nijkamp P. 1997).  Borrowing this view to identify the residential mortgage market attraction, this paper aims at testing the assumption that the value of residential mortgage markets is a function of a set of variables strictly correlated to the two fundamental dimensions of residential mortgage markets: total outstanding residential mortgage lendings and gross residential mortgage lendings. Notably, it is well-known in literature that a generic indirect relation exists between the residential mortgage market trend and the tendency of some specific macroeconomic variables (GDP at market prices, unemployment rate, inflation rate and total inhabitants) and that residential mortgage markets are directly driven by specific “value drivers” (representative mortgage interest rates, residential real estate market and stock market). The survey wants to stress that also building industry represents a sensitive variable to forecast residential mortgage market tendencies. Eventually, by working out an environmental analysis, this paper aims at defining a viable methodology to estimate the attraction degree of residential mortgage markets by the calculation of an attraction composite index (RMMA index) able to supply sensitive information in the strategic decision process of a bank about the opportunity of a thrust into foreign residential mortgage markets. The debate about composite index formalization is open owing to several problems linked to their being able to be representative of phenomena and/or complex realities.  On the other hand, summarizing complex and sometimes shifty processes in only one indicator to carry out a country performance benchmark is thought more and more relevant by stakeholders (Saisana M., Saltelli A., Tarantola S. 2005).  The construction of RMMA index refers to the methodology proposed by the European Community Joint Research Centre structured in some fundamental steps: definition and check of an indicator set, indicator normalisation, indicator weighing, indicator aggregation and sensitivity test.  OECD (1993) identifies a series of requirements which indicators should possibly answer: relevancy and utility for users, easiness, analytic flexibility, measurableness, validity, sensitivity, availability of historical data, reliability, data availability and credibility. Moreover, existing literature (Bertuglia C.S., Occelli S. 1994), identifies the main characteristics an indicator should have: accessibility (easiness of comprehension), scientific rigour, reliability and time and space reproducibility.  Residential real estate markets and residential mortgage markets are typically characterized by scarce transparency, for this reason complete data time series about their underlying variables are not easily available. The degree of uncertainty due to the lack of data affects the ability to draw accurate conclusions and, in many cases, it increases with the level of data aggregation. According to literature, ad-hoc techniques such as complete-case and available-case methods (Little R.J.A., Rubin D.B. 1987) are the way of handling missing data. Concordant with the above-mentioned literature and assumptions, the variables have been identified: a sample of 8 European countries: the United Kingdom, Germany, France, Spain, Denmark, Nederland, Finland and Sweden; a set of 10 sensitive variables (see Table I). The residential real estate market is commonly described in literature as the result of three fundamental indicators: dwelling prices, number of transactions and residential real estate revenue. To face the very low information disclosure about these elements, in this paper, the survey about the residential real estate market has been worked out  considering only dwelling price movements (annual %).


Studies on the Financial Market Integration and Financial Efficiency: Evidences from Asian Markets

Dr. Hong Rim, Shippensburg University, Shippensburg, PA

Dr. Robert Setaputra, Shippensburg University, Shippensburg, PA



This study employs a GARCH model to examine the financial contagion effects and financial market efficiency in East Asia. This study uses daily returns of the Morgan Stanley Capital International market indices during 1992 - 2006.  Empirical results show that 1) financial markets in East Asia gradually became more integrated during this period; 2) the US influence remained strong, especially, after the Asian economic crisis; 3) financial integration was accompanied by financial efficiency; and 4) there were observed strong financial contagion effects across financial markets in this region.  In recent years, emerging financial markets have been open to foreign investments. Financial openness may help to discipline domestic economic policies, develop the domestic financial sector, and increase financial efficiency for domestic firms through global competition. When the barriers to financial integration are gradually eliminated, (1) firms can allocate funds to the most productive projects and choose the most efficient sources of funds in such a way to minimize the cost of capital. With more foreign capital flowing in, financial  integration may increase competition in less developed and/or developing economies and thereby improve efficiency of their financial systems. Financial integration is expected to further stimulate financial efficiency and economic growth, and thus reduce the negative effects of idiosyncratic shocks through more capital mobility and diversification. Since diversification gains mainly come from the correlation structure assets in industries and/or nations, diversification benefits would significantly decrease as financial markets become more integrated.  Empirical studies show that financial markets in developed economies are fairly well integrated each other, but those in developing economies have not been integrated. Despite fairly good progress of financial integration among developing economies, empirical studies have not  provided any consensus on the trend of financial integration and market efficiency in East Asia. The objective of this study is to examine the financial integration and contagion effects with a GARCH (generalized autoregressive conditional heteroskedasticity) model along with correlation coefficients. It is of great importance to know the trend of financial integration so that emerging countries can pursue effective policies to stabilize domestic economies while investors and multinational corporations need to better control their foreign exposures. Specifically, this study is to provide answers to the following questions: 1) whether financial markets in East Asia have become more integrated during this period; 2) whether the US influence remains strong in Asian financial markets; 3) whether financial integration is accompanied by financial efficiency. The result of this study is of great importance to investors and multinational firms when diversifying their investments across financial markets to minimize risk without sacrificing returns. This study proceeds as follow. Section II provides literature review. Section III discusses data, methology, and empirical results. Summary and Conclusion follows in Section IV. According to the modern portfolio theory, diversifying investments over different types of assets with lower correlations would reduce (or minimize) risk without sacrificing returns. There have been two ways of measuring financial integration, which are price-based and quantity-based measures (Cavoli et al (2003), Fratzscher (2001). (2) The price-based method measures (e.g., interest rate parity) discrepancies in asset prices (or returns) caused by their geographic origins (i.e., law of one price). Since assets have different characteristics in reality, it is needed to consider differences in risk factors and other pertinent characteristics in valuation process. On the other hand, the quantity-based method measures the diversification benefits by using pair-wise correlations among financial markets. One group of studies has examined the effects of the economic crises on the financial integration in East Asia. (3) Ghosh et al. (1999) found three types of markets during the Asian economic crisis: the first group was heavily influenced by the US stock market (i.e., Hong Kong, Korea, and Malaysia); the second group was influenced by Japanese stock market (i.e., Indonesia, the Philippines, and Singapore); and the third group had not been influenced by any other stock markets (i.e., Thailand and Taiwan). Worthington et al. (2003) reported that the Asian markets are highly integrated before and after the Asian crisis, and the inter-market relationships between developed and emerging stock markets became weaker over time. Yang et al. (2003) reported that the long-run cointegration and short-term causal relationships between stock markets became stronger during the Asian crisis; financial markets became more integrated after the crisis; the US market significantly affected the Asian markets; but Japanese market had little impacts on the other Asian markets except during the Asian crisis. Park (2005) reported that the level of financial integration greatly improved after the economic crisis. Daly (2003) noted that the level of financial market integration in the Southeast Asia is qualitatively the same before and after October 1997. Fooladi and Rumsey (2006) found that despite higher global integration for the period of January 1988 to June 2000, the diversification benefits (in US dollars) persist, and the increase in co-movements between equity market returns (in local currency) had been counterbalanced by changes in exchange rates. Chai (2003) noted that during the 1990s, financial markets became more integrated in Asia, the US influence remains strong in Asian  markets; but financial market integration is not accompanied by financial efficiency. Rim and Setaputra (2007) found that due to higher correlations between ASEAN-5 and 4 economies, stock markets in East Asia became more integrated during and after the Asian crisis.



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