The Business Review, Cambridge

Vol. 17 * Number 2 * Summer. 2011

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

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Business Opportunities Arising from Smart Grid Virtual Power Plants

Dr. David Wright, Professor, Telfer School of Management, University of Ottawa, Canada



Virtual power plants are a major component in the smart grid for balancing supply and demand for electric power. They consist of distributed energy resources for increasing supply, demand side management for reducing demand at critical times, and electric vehicle batteries as a buffer between supply and demand. The electric power industry is projected to spend $180bn on the smart grid over the next ten years and government stimulus funding and environmental subsidies for renewable power are also available. This paper identifies business opportunities arising from deployment of virtual power plants and classifies them into seven types.  The generation, transmission and distribution of electric power is a highly capital intensive operation in which business and residential customers expect power immediately they demand service. Customer demand varies throughout the day, week and year, resulting in peaks in demand that sometimes strain the capacity of the grid. Capacity can be expanded at additional capital cost, or alternatively the grid can be made “smart” so as to match supply and demand. McGowan (2008) estimates that in North America, the cost of meeting demand by increasing capacity will be $900bn over the next ten years, whereas the cost of a “smart” grid is $180bn. That is a capital saving of $720bn to the electric power industry and a revenue opportunity of $180bn for those who contribute to building and operating the smart grid. In addition, $7bn of government stimulus funding is available for smart grid projects in USA. Environmental legislation also provides subsidies for smart grid projects that reduce carbon emissions. This paper identifies the business opportunities arising from this $180bn of spending and government support in one specific area of the smart grid, namely virtual power plants. Figure 1 shows how electric power is generated at a bulk generating station, passes through a step up transformer at a generation substation, and is sent over long distances on the transmission network. When it reaches a city, it passes through a step down transformer at a distribution substation and is distributed to residential and commercial customers along feeder lines, to which customers are connected sometimes using more transformers. Each link in this network has its own capacity limits and upgrade costs, transformers being particularly important since they have a high capital cost. Small transformers overheat rapidly when overloaded and their temperature sensors cut them out of the grid. Larger transformers can tolerate overload for longer periods of time until they also cut themselves out of the grid. When a transformer cuts itself out of the grid, the corresponding customers are either blacked out or are supplied via another transformer thus increasing the load on that transformer and potentially causing it also to cut out. This cascading effect has been responsible for large scale blackouts in recent years. Each piece of equipment protects itself. However the ultimate solution to the problem of overload is to inform customers to reduce demand. Demand side management is therefore a key element in building a smart grid, Saffre and Gedge (2010). A second element in matching supply and demand is the use of distributed energy resources which are smaller scale generators than the bulk coal, nuclear, hydro and gas generating stations that supply the majority of the world’s power today. Solar, wind and other generators can be located along the feeder lines in the distribution network, Figure 1, thus supplying power to customers without an increase in the capacity of the distribution substation transformer. A third part of the solution is storage. Electric power is notoriously difficult to store. The grid has used pumped storage for some time in which water is pumped up a mountain to a reservoir at times of excess power and released down again to hydro-electric generators when power is required. Pumped storage is used to keep nuclear power stations running overnight when their power is not required, and is therefore useful in matching supply and demand in the transmission network. The advent of electric vehicles opens up the possibility of using their large capacity batteries as a buffer to store and release power as required to balance supply and demand, Anderson (2009). Israel, Denmark, Australia, California and Hawaii have declared an interest in this approach. Following Molderink et al. (2010) we regard Demand Side Management, Distributed Energy Resources and Storage as constituting a Virtual Power Plant, Figure 2. When demand exceeds supply, additional Distributed Energy Resources may need to be brought online. An alternative is to use Demand Side Management to reduce demand, or to withdraw power from Storage. The coordination and planning of these alternatives implies the need for a smart grid and the associated computer and communications networks. We now identify the broad range of business opportunities presented by the implementation and operation of virtual power plants. Advanced Metering Infrastructure. Many Distribution System Operators throughout the world are deploying the Advanced Metering Infrastructure, AMI, for their residential customers, starting with the introduction of smart meters. Although these are portrayed to customers as enablers of time of day pricing, they also have many other functions. Not only do they transmit meter readings every 15 minutes or 1 hour, but they can also transmit other utility billing information such as water, natural gas and community heating usage. They can also transmit readings of the amount of electric power being generated locally, e.g. from solar panels on the roof, they can notify the utility if there is an outage and they can monitor the voltage and phase of the power for load analysis purposes. They can also receive information from the utility, e.g. control signals to switch the customers loads (e.g. air conditioners) on or off, real time pricing information, and signals to implement load limits for customers who have unpaid bills.


Motives and Consequences of Investment Decisions: Evidence from Factual Movie Projects

Dr. Wayne J. McMullen, Pennsylvania State University, PA

Dr. Raj Varma, University of Delaware, Newark, DE



Despite much theoretical work on how managers make project choices, empirical studies on capital projects remains largely restricted to the firm-level as data is typically only available for the entire portfolio of the firm’s projects rather than a specific project.  Our analysis of factual projects in the movie industry indicates that that these projects are selected by powerful managers and provide managers with substantial private benefits from prestige. Our results are consistent with explanations wherein projects are purposefully chosen to match with managerial motives.  Investment policy or decisions concerning the kind of projects in which a firm should invest its cash, are widely recognized as one of the most important financial decisions made by the firm’s CEO.  A considerable body of research has evolved on project-specific theories on investment decisions.  See, for example, Stein (2003) for an extensive review of theoretical research on investment policy decisions.  Yet, empirical evidence on investment policy remains limited to the firm-level as data is typically only available at the aggregate-level for the entire portfolio of the firm’s projects.  In this paper, we empirically examine the effect of individual projects on firm performance by examining investment policy decisions in the motion picture industry.  Specifically, we examine factual movies which are based on a true story and compare these to fictional movie projects based fictional characters.  Our motivation for an investigation in this industry is the availability of rich project-by-project data on the effects of numerous new projects. Our interest in the commerce aspects of movie projects also follows recent trends in the increased attention of the movie industry by scholars in a variety of disciplines, perhaps at least partly “in response to Hollywood’s increased focus on the ‘bottom line’” (Elaishberg, Elberse and Leenders (2005, p.3).  Also contributing to this trend has been the entry of hedge funds as co-financing partners in the motion picture industry.  (See, for example “Defying the Odds, Hedge Funds Bet Billions on Movies,” Wall Street Journal, April 29-30, 2006, A1). Finally, our interest in the use of the movie industry as a useful laboratory for testing various theories in financial economics also follows recent trends in the increased attention of the movie industry by finance scholars.  Ravid and Basuroy (2004), for example, investigate investment policy decisions within the context of the motion picture industry because “the particular characteristics of this industry are likely to encourage seemingly suboptimal behavior on the part of managers, along the lines described in the literature” (p. S159).  A paper closely related to ours is McMullen and Varma (2010), which examines biopics, a particular kind of a movie project based on the life of an actual person and compares these to movie projects based fictional characters.  Our paper extends and complements their work in several ways.  First, we use a comprehensive sample of projects based on true stories of which biopics are only a subsample.  Our results are therefore generalizable for a larger set of projects than those for a more limited set of biopics.  Second, in their examination of the role of private benefits from prestige as a motivation for choosing biopics, McMullen and Varma (2010) investigate the prestige gained from Academy Awards (Oscars) given by the Academy of Motion Picture Arts and Sciences.  Whereas these awards are widely regarded as being the most prominent in providing prestige to both nominees and the winners, recent research suggests that the prestige gained by an award can vary depending on the types of persons (peers versus experts) that give the award.  In our paper we use two additional proxies for awards: one where the selection system only contains peers and the other where the selection is done only by experts.  Finally, given the role of private benefits to managers as a motive for choosing a particular project, unlike McMullen and Varma (2010), we examine whether powerful managers with more control are likely to be associated with projects that enable them to extract private benefits of control.  The rest of the paper proceeds as follows.  In the next section, we develop our hypotheses and in the following section describe the methods used for our analysis.  Our results are reported and discussed next and the final section concludes. Since the seminal work on agency problems by Jensen and Meckling (1976), an extensive literature has documented the agency conflicts arising from the separation of ownership and control.  Extant theoretical research on agency conflicts suggests two possible managerial motives for choosing a particular project.  Factual movie projects may cater to the needs of an audience population that is significantly large enough to generate more competitive advantage to the firm that makes factual movie projects rather than fictional movie projects.  If value or profit maximization is the ultimate motive for the manager, factual rather than fictional movie projects would be chosen by the manager because of their higher returns.  We call this hypothesis the Shareholder-Interest Hypothesis.  On the other hand, managers may have motives different from value or profit maximization with the movie projects they choose to make.  Such managers may choose to make factual movie projects for a variety of private benefits.  For example, managers may be attracted to the creative complexity offered by factual movie projects and choose to make factual movie projects because of the prestige that making such projects offers.  Given the extreme uncertainty in the movie industry (DeVany and Walls, 2002) and the absence of managerial job security (Weinstein, 1998), Ravid (2004) argues that many decisions regarding project choice in the movie industry are essentially an end result of risk minimization to enhance job security.  Managers may choose to make factual movie projects because they feel that factual movie projects are less risky on account of audience familiarity with the material.  If so, still another private benefit that managers may attempt to extract from their project choice decisions is job security from risk minimization.  To the extent that project choice by managers is motivated by desires to extract private benefits such as prestige or job security, factual movie projects would be associated with lower returns than fictional projects.  We label this hypothesis the Management-Interest Hypothesis.


Market Integrity, Market Efficiency, Market Accuracy

Dr. Donald Margotta, Northeastern University, Boston, MA



Market integrity, market efficiency, and market accuracy are related, but distinctly different concepts which are often misunderstood or misused in public policy debates, especially with regard to corporate takeovers and corporate governance issues. This paper discusses the differences in these terms. It also attempts to clarify and differentiate them and thereby help inform the often heated debate over what these terms mean.  Examples are discussed which demonstrate how misuse or misunderstanding of these terms can affect corporate decision making and public policy related to corporate governance issues and hostile takeovers.  Market integrity is a legal concept with a long history in securities law.  The U.S. Securities Acts of 1933 and 1934 and the 1968 Williams Act were enacted primarily to promote market integrity, with an emphasis on disclosure as the key mechanism to achieve that goal.  Market efficiency, in contrast, is a more recently developed finance concept, with its modern usage dating from about 1970.  Although more recently developed, and although extensively researched in the modern finance literature, it is nevertheless often debated and often misunderstood.  Market accuracy is a separate concept from both market integrity and market efficiency.  It is an infrequently used term and an elusive concept, but market accuracy is what public policy makers and investors most seek in public securities markets.  Market integrity exists when stock prices are set in a market free from misinformation.  It is a widely used concept in the legal literature and is discussed here primarily to serve as a point of reference and contrast for the remainder of the paper, which focuses more on the relationship between market efficiency and market accuracy.  A primary purpose of the securities laws in the U.S. is to foster integrity in financial markets.  Underlying this purpose is a belief that greater market integrity will lead to security prices that more closely reflect the value of securities. Section 10(b) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5 make clear that full disclosure of information is the mechanism by which the government seeks to promote market integrity, defined as a market free from manipulation.  The full disclosure intent of Rule 10b-5 can be seen in its plain language, which states;  “It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.” Rapp (1982) expands on market integrity and Rule 10b-5 in his review of fraud-on-the-market cases, saying “The Santa Fe Industries Court (recognized) that the Supreme Court repeatedly has described the fundamental purpose of the Act [SEC Act of 1934] as implementing a philosophy of full disclosure; once full disclosure has occurred, the fairness of the terms of the transaction is at most a tangential concern of the statute.” The fraud-on-the-market theory to which Rapp refers was first articulated by the U.S. Supreme Court in Basic v. Levinson (1) and can be used to briefly illustrate the differences between market integrity, market efficiency, and market accuracy before discussing these concepts more fully. In this case the CEO of Basic Industries was asked by a reporter if recent unusual activity in the stock of the company was due to an imminent merger. The CEO responded that it was not, when in fact the company was in negotiations to be acquired by Combustion Engineering. He was subsequently found liable for violating Rule 10b-5 because he issued false information on the company, thereby violating the integrity of the market, or causing a “fraud-on-the-market,” with regard to Basic Industries stock. The stock price of Basic Industries fell on news of the CEO’s denial of merger negotiations, reflecting the impact of the CEO’s false statement that no merger was imminent since an “efficient” market reflects all available information, whether that information is true or false. The price thus reflected in the market was “efficient,” in that in reflected all public information, including false information, but the “integrity” of the market had been violated because of the false information, and the resulting stock price, although “efficient,” was also clearly “inaccurate.” This, in short illustrates the difference in these terms, but a more detailed examination follows. Understanding the way “market efficiency” is defined, tested, and used in finance is critical to understanding how it differs from market integrity and market accuracy, and to understanding its limitations, especially in corporate governance debates.  An efficient market was defined by Fama (1970) as one in which “prices always ‘fully reflect’ available informa­tion.”  He states the assumptions for an efficient market as: (i) there are no transactions costs in trading securities, (ii) all available information is costlessly available to all market participants, and (iii) all market participants agree on the implications of current information for the current price and distributions of future prices for each security.


Ten Common Misconceptions About Implementing Continuous Improvement Efforts in Health Care Organizations

Dr. Stewart L. Tubbs, Eastern Michigan University, MI

Brock Husby, The University of Michigan, MI

Laurie Jensen, Henry Ford Health System, MI



Modern health care organizations are under tremendous pressures to improve value. This paper discusses the ten most common myths about implementing continuous improvement efforts in health care organizations. Recommendations for alternative methodologies are included.  In 2010, Toyota experienced, what one source called, "The worst crisis in its history." (Welch, Naughton and Helm, 2010), p. 38. This case dramatically illustrate the complexity and difficulty of successfully implementing continuous improvements in organizations. (Gardner, 2010; Gardner and Hyde, 2010; Hyde, 2010A; Hyde, 2010B; Linebaugh, Searcey and Shirouzu, 2010; Philips, 2010; Welch, 2010). Toyota's methods have long been considered the gold standard for such activities. So, " one could have predicted that Toyota, the company that invented kaizen, or continuous improvement, would flame out over quality."(Welch, Naughton and Helm, 2010), p. 40. The accusations being levied against Toyota demonstrate a clear example of Toyota leadership diverging from their own principles and therefore can actually be viewed as validating of the Toyota Production System, rather than discrediting it.  Given the fine work accomplished by millions of dedicated health care workers throughout the country, one might reasonably ask, why is it even necessary to have continuous improvement efforts in health care organizations? According to  Dr. Craig Feid,  emergency medicine specialist at Washington (D.C.) Hospital Center,  "...over 98,000 patients die from causes other than what brought them into the hospital...Wrong diagnoses (the result of carelessness, hubris or cognitive bias); medication errors (based, far too often, on sloppy handwriting); technical complications (reading an x-ray backward, for instance); and bacterial infections (the deadliest and most pervasive problem). " (Quoted in Leavitt and Dubner, 2009), p. 68-69.  However, Gawande (2009) offers an alternative explanation. He writes, "We have accumulated stupendous know-how. We have put it in the hands of some of the most highly trained, highly skilled, and hardworking people in our society..[however] Avoidable failures are common and persistent, across many fields-from medicine to finance, business and government. And the reason is increasingly evident; the volume and  complexity of what we know has exceeded our individual ability to deliver its benefits correctly, safely, or reliably. Knowledge has both saved us and burdened us.  That means we need a different strategy for overcoming failure" (p. 13).  With enormous pressures to reduce costs, health care organizations have reduced staff wherever possible. This often leads to job overload throughout the organization. Common and predictable results of overload include, but are not limited to: Omission-Failing to handle all the tasks. Error-Ignoring or failing to find and correct mistakes. Queuing-Letting things pile up. Filtering-Dealing with input in categories ranked according to priority. Approximation-Lowering standards or precision. Multiple channels-Sending redundant messages to those who don't respond. Escape-Refusing to handle tasks (Tubbs, 2010). It is estimated that, for every dollar spent on healthcare, over 75% is spent on the non-patient care activities of communicating, scheduling, coordinating, supervising, and documenting care. (HealthMEDX, 2007). Jimmerson (2003) writes that, “The national numbers for waste in healthcare are between 30% and 40%. That’s waste of time, money, and materials. The waste is not limited to administrative costs…it’s everywhere, patient care, and non-patient care alike.” Continuous improvement efforts are simply dedicated to, “Reducing waste in everything to maximize value to the customer.” With this in mind, and given the overwhelming need to address these problems, it is worthwhile to examine ten of the most common reasons why continuous improvement efforts fail, and to offer an alternative methodology. Misconception 1.  Hiring top notch and expensive expert consultants will ensure success. Healthcare organizations that can afford to hire the best in the business, often do so. However, the reports and recommendations generated by these expert teams often sit on a shelf after the consultants leave, and are never implemented. Gawande (2009) writes, "I saw pallet after pallet of two hundred page guideline books from other groups that had been summoned to make their expert pronouncements...The standards had been carefully written and were, I'm sure wise and well considered...But in most cases, they had at best trickled out [into the organization]...little had changed. (p. 92). In another case, one company hired McKinsey as a consultant to help them become a better company. That company was Enron. In many cases, what often results from experts leaving their reports after months of careful study and sincere, dedicated work is nothing more than what one team calls, SPOTS-Strategic Plans [left] On Top Shelf. (Ulrich, Smallwood and Sweetman, 2008) 


The Concept of Internationalization and its Relevance to Small and Medium Service Enterprises (SMSEs)

Dr. John Stanton, University of Western Sydney, Parramatta, Australia

Dr. Patricia Stanton, University of Newcastle, Newcastle, Australia



This paper challenges the narrow concept of internationalization widely used by international business researchers, that potentially excludes a growing array of different types of SMSEs that have the potential to become involved in the international exchange process. After reviewing the growing scope for different forms of  international services exchange and how this tends to not be reflected in measurement, the paper proposes a widened and more dynamic view of  the internationalization process SMSEs may pursue. The core argument is that a restricted view of the internationalization process underestimates services involved in this process and neglects opportunities for encouraging SMSEs to internationalize.  This paper challenges a narrow approach used by international business researchers in studies of the internationalization process, an approach that potentially excludes a growing array of different types of SMSE firms that have the potential to become involved in the international exchange process. Examination of relevant research is used to identify research gaps pertaining to services varying widely both in their tangibility characteristics and in their mode of international supply. Following Gronroos (1999, p.203), there is an underlying premise that “the type of service will affect the degree to which internationalization is possible”. Rather than a restriction, this paper argues that ongoing changes in the global regulatory and technological environment are changing the types of services in which internationalization is possible, expanding opportunities for SMSEs. Following Axinn and Matthyssens (2002), the study highlights the inadequacy of dominant internationalization theories to explain observed service firm behaviors and proposes a widened and more dynamic view of the internationalization process SMSEs may pursue.  While the internationalization of manufacturing enterprises appears the main focus when studying the internationalization process, recently a growing literature has focused on the growing importance of international trade in services and the opportunities and impediments for SMSEs to participate (Productivity Commission, 2002). Given the heterogeneity of economic activity encompassed in manufacturing and service activities, aggregated, quantitative studies seeking to understand the drivers and impediments of service firm internationalization may result in generalizations that obscure contextual differences. In particular, given that services encompass a spectrum of activities varying in the  importance of the tangibility component in the value delivered (Lovelock et al., 2007), at one extreme similarities to manufacturing could well be expected  but with increasing importance of performance and experience in the value delivered, increasing dissimilarities at the other extreme. Further, because of intangibility within services, the delivery of value across international borders, encountering possible physical and psychic distance, also impinges differently on services and their internationalization; a factor that until recently has led economists to assume  services were largely non-tradable (Productivity Commission, 2002, p.61).  This study examines how differences in the properties of service activities may influence the internationalization process of services, with internationalization itself taking different forms of behavior. The aim is to focus on current shortcomings in assessing the internationalization process of service firms in particular and hence the issues that arise. The core argument advanced is that a restricted view of the internationalization process underestimates services involved in this process and neglects opportunities for encouraging SMSEs to internationalize.  There is no universally accepted definition of services (Productivity Commission 2002). For measurement of economic activity, for example, services have been defined as a residual: activities not defined as mining, manufacturing or agriculture. Using this definition, the Productivity Commission (2002) uses five sub-groups to examine and analyze changes in service activity. The five are: 1. Distribution services, including transport, storage, and communications; 2. Social services, including education, government administration and defense; 3. Producer services such as property, business services and finance; 4. Personal services, that include accommodation and restaurants, all forms of personal services as well as cultural and recreational services; and 5. Utilities and construction services. While useful for this purpose, a functional classification of this form may be unsuitable for understanding why services and in particular, service firms, may vary in their international involvement. Erramilli (1990) for example, for export of services distinguishes between hard services that can be delivered across borders with very little local presence (effectively consumption can be separated from production) and soft services such as fast food retailing and most forms of medical treatment, where little local presence is not possible. Thus the properties of services that distinguish them from goods as well as each other may need to be considered to understand differences in the marketing of services and their internationalization process. The usefulness of separating goods and services for marketing purposes is not universally recognized. Enis and Roering (1981) expound the development of marketing strategies based on the benefits provided by goods and services, rather than on the classification of goods and services based upon hypothetically unique characteristics. Others (Murray and Schlackter, 1990; Hartman and Lindgren Jr., 1993) reach similar conclusions by different paths, using three 'simplifying evaluative dimensions' of goods and services (customization, evaluation and delay), while Murray and Schlackter argue that consumers make clear distinctions between consumer items on the basis of the qualities of goods and services. Nevertheless, the proposition that services are different from goods remains largely undisputed. Arguably, the intangibility of services makes it difficult for customers to understand what is being offered, to identify potential providers, and to evaluate alternatives (Legg and Baker, 1987). Consequently, characteristics of services necessitate different consumer evaluation processes from those used when assessing goods (Zeithaml, 1981), and require distinct marketing techniques (Zeithaml et al., 1985), both raising  significant market research issues if firms seek to market internationally.


Does Firm Size Matter? The Relationship between Firm Level Volatility, GDP Volatility and Capital Structure Decisions for Firms of Different Size Groups

Dr. Deniz Ozenbas, Montclair State University, NJ

Dr. Luis San Vicente Portes, Montclair State University, NJ



Recent academic literature shows that the capital structure decisions of the firm depend on the volatility of that firm’s stock prices and its earnings. Additionally, the effect of the performance of real economy and more specifically the effect of economic slowdowns and expansions on such firm level decisions is an important empirical question. In this study we provide an empirical assessment of the effect of higher idiosyncratic risk on that firm’s capital structure decisions and the firm’s borrowing rates, while controlling for the slowdowns and the expansions in the economic cycle. We perform this analysis separately for firms that belong to different size groups (four different quartiles according to market capitalization) since we expect that the effect of any slowdowns would be felt differently for firms of different sizes.  We find a statistically significant negative relation between firm risk and debt ratios, and a positive one between firm risk and the cost of external financing. The former effect is stronger during slowdowns than in normal times.  These findings are more pronounced for small and medium sized firms which are more likely to face borrowing constraints compared to larger firms. Finally, we pay particular attention to the firms in the financial services industry, and look for any implications for more efficient financial services regulation. As firms face idiosyncratic, industry and aggregate risks, they must determine their capital structure policy. While industry level risk has not exhibited any trend in the recent past, firm-level (idiosyncratic) risk has trended upwards (Campbell et al. 2001). At the same time, barring the 2008-09 financial crisis, aggregate risk has decreased since the mid-1980s (see Kim and Nelson, 1999; McConnell and Perez-Quiroz, 2000; and Stock and Watson, 2002). The connection between idiosyncratic risk and aggregate volatility has been theoretically explored in San Vicente Portes and Ozenbas (2009). The authors have found that a likely connection between these two trends can be found in the firms’ financial decisions, particularly in how they adjust their capital structure policies in response to heightened idiosyncratic risk. Namely, firms counteract higher financing (borrowing) costs due to higher idiosyncratic risk through deleveraging, and this deleveraging in turn leads to smoother credit cycles, and as a result, to a more stable aggregate economy. At the heart of such transmission mechanism are financial accelerator-like effects that tighten credit markets during the time of crisis. This in turn depresses investment and output further. Hence, as firms deleverage and rely more on internally generated funds or equity during times of crisis, the financial-accelerator effects are muted leading to more stable business cycles in spite of the higher firm-level risk. This paper sets out to ask the effect of firm size in the strength of this relationship.  Smaller companies typically have more volatile earnings and growth compared to their larger counterparts. Additionally, their means of raising capital is more limited compared to more established companies with more stable earnings and track records in the industry. As a result, we are asking the question whether smaller companies are affected more from slowdowns in economic activity and if their capital structure response to heightened idiosyncratic risk differs compared to larger firms? We expect that smaller firms, which are more likely to be credit constrained, may experience a larger share of such effects. If this is indeed the case this would open the door to additional government support measures and a more efficient financial services regulation. Using CRSP and Compustat data, we are able to separate the effect of higher idiosyncratic risk on the firms’ capital structure and on the cost of external financing at the different phases of the business cycle for a spectrum of small to large firms. We group the firms and carry out our analysis at the quartile level. Our main finding suggests that it is firms at the bottom of the size distribution (i.e. small to medium size) that are the most vulnerable to financial-accelerator like effects, particularly during downturns. This signals more stringent credit constraints for these firms. The article is organized as follows. Section II provides a literature review, Section III describes our conceptual framework, Section IV describes the data and the empirical results, and Section V concludes the study and provides policy recommendations. Kim and Nelson (1999), McConnell and Perez-Quiros (2000), and Blanchard and Simon (2001) among others investigate the volatility of U.S. output growth and find that the aggregate output volatility has declined nearly by half over the last 40 years in the US economy. This trend is called “the Great Moderation”. Firm-level idiosyncratic risk, on the other hand, has more than doubled since the 1960s while market risk has remained unchanged (Campbell et al. (2001) and Xu and Malkiel (2003)).  Chaney, Gabaix and Philippon (2002), Comin and Mulani (2003), and Comin and Philippon (2005) explore additional dimensions for which firm-specific volatility has increased and find that parallel to the increase in volatility in firm-level stock market returns, firm-specific sales, employment and earnings have also become more volatile. Empirical corporate finance literature generally agrees that leverage decreases with increased volatility. Some important studies that show this relationship are Bradley, Jarrell, and Kim (1984), Friend and Hasbrouck (1988) and Friend and Lang (1988).  For example, Bradley, Jarrell, and Kim (1984) find that firm leverage ratios are related inversely to earnings volatility using cross-sectional, firm-specific data.


Consumer Protection in the Context of Global Financial Market Regulation: The Australian Position

Carlo Soliman, Solicitor, New South Wales, Australia

Phillipa Kerr, Barrister, New South Wales, Australia



This research paper examines the effectiveness of consumer protection as a regulatory measure of the Australian financial system in the context of the Financial System Inquiry (‘FSI’). It is postulated that regulation has contributed to the economic stability of the Australian financial system and placed this economy in a strong position to resist the economic fluctuations witnessed during the Global Financial Crisis (‘GFC’) and its aftermath. Recent legislative reforms have resulted in stronger consumer protection laws which continue to build upon and encourage a culture of compliance. It is argued that the use of a single regulator has been effective in the promotion of uniformity and consistency in the application of the law. The Financial System Inquiry (‘FSI’) into the banking and finance industry was the product of three inquiries, (1) which culminated in the Wallis Report in 1997. The objective of the FSI was to facilitate and promote economic efficiency, accountability, transparency and assist business to adapt to change in the financial climate. These aims were achieved by a series of reforms to the regulatory environment which would stimulate economic activity and place the Australian financial system in a strong position to meet the challenges of a globalised world economy. The central aim of financial regulation is to promote an efficient and competitive financial system through effective regulation and the prevention or minimisation of the consequences of market failure. (2)  Such failure is interpreted to mean a lack of appropriate disclosure, inappropriate, if not illegal, conduct by providers of financial services and the systemic and excessive risk taken by some financial providers. (3)  A stable financial system encourages market participants to act with integrity and seeks to promote the protection of consumers within its boundaries. This in turn enables markets to operate efficiently and competitively through rules which ensure adequate disclosure, the prevention of fraud and the prohibition of anti-competitive, collusive practices and monopolistic conduct. Such measures are necessary to ensure that financial services are transparent and that financial service providers are accountable to the investing public.  The current legislative regime which governs the financial sector is the product of the Wallis Report and the Corporate Law Economic Reform Program 6 (‘CLERP 6’). The rationale behind this regime is to increase Australia’s competitiveness in the financial sector. This was based on the financial deregulation of the 1980’s and the attempt to address the challenges confronting the sector amidst growing global competition and a rapidly evolving world economy. Australia currently adopts a Twin Peaks model of regulation which involves two key regulators sharing responsibility for implementing and administering the legislative regime. The first regulator is the Australian Prudential Regulation Authority (‘APRA’). (4)  It was established, following the Wallis Report,  (5) to set and enforce prudential standards in the banking and insurance industry. The second regulator is the Australian Securities and Investments Commission (‘ASIC’).  (6)  This body is responsible for the protection of investors and the promotion of market integrity. (7)  It is this latter body whose functions are the focus of this paper.  This paper will analyse the effectiveness of the consumer protection measures that regulate the Australian Financial System in the light of the FSI. The GFC represents a watershed in the global financial regulatory landscape which, some commentators correctly note, has forced the modern business world to rethink the assumptions that underpinned the financial system (8) such as the belief that management understood their businesses and that adequate risk management policies were in place without the need for regulation. It was the lax regulatory attitude of many western civilised nations that set the foundation for some of the most spectacular economic failure seen in the economies of the United States, United Kingdom, Greece and, recently, Ireland. The ultimate aim of any efficient financial system is to develop and implement a framework that increases investment, maintains market integrity and responds decisively to changes in that market. It is argued that appropriate laws exist in Australia that are administered by efficient and effective regulators to achieve these aims which are in line with the objectives of the FSI. (9) The implications for consumers of financial services will be considered in the aftermath of the GFC. Several forms of statutory regulation exist, such as investment protection, prudential control, anti-fraud measures and consumer protection. The first was the subject of an earlier paper entitled Financial Systems Regulation in the Global Context: the Australian Experience. (10)  The present paper will analyse the increasingly important area of consumer protection regulation. The Wallis Report (11) recommended that a single regulator be responsible for Corporations, financial market integrity and consumer protection. The Australian Securities Commission (‘ASC’) was formed in late 1989 and later renamed the Australian Securities and Investments Commission (‘ASIC’).  (12) ASIC (913) regulates market integrity and consumer protection in relation to finance companies, merchant banks, banks, superannuation funds and life insurance providers. The regulation of market integrity focuses on the maintenance of confidence in the markets and the protection of consumers against fraudulent and unfair market practices.


Improving Employee’s Organizational Commitment, Self-Efficacy, and Organizational Citizenship Behavior Through the Implementation of Task-Oriented and Relationship-Oriented Leadership Behavior

Dr. Pieter Sahertian, Kanjuruhan University, Malang, Indonesia

Dr. Budi Eko Soetjipto, State University of Malang, Indonesia



This study is aimed at analyzing the effect of the worker perception about the relationhip-oriented and task-oriented leadership behavior by leader or the supervisor on work through organizational commitment and self-efficacy and OCB. Explanatory research is conducted in correlational research. The sample consists of 125 respondents from the workers of PT. Bank Central Asia Tbk. District VII Malang, who are supervisors (SPV) or chief managers (CM). The data were taken from questionnaires and interviews and analyzed using Structural Equation Modelling (SEM). The results of the research shows: 1) The leaders tend to apply relationship-oriented and task-oriented leadership, self-efficacy, organizational commitment, and extra-role (OCB) performance. 2) The effect of relationship-oriented and task-oriented leadership behavior on extra role performance (OCB) is not significant. The correlation among those variables changes after the variables are moderated by self-efficacy and organizational variables. 3) The self-efficacy variable mediates the influence of relationship-oriented leadership behavior on extra-role performance (OCB), but task-oriented leadership behavior does not. Organizational commitment mediates task-oriented leadership behavior’s effect on extra-role (OCB) performance, but not its effect on the employment of OCB.  The leadership role is one of the most interesting roles in the organization because the leader plays a central role in determining objectives, allocating scarce resources, focusing attention on the goals of the company, coordinating changes in the organization, making personal contacts with the followers, and determining the most appropriate or correct direction to take in case of failure. The rapid changes that must be made by organizations these days have prompted many to voice the need for adaptive and flexible leadership. An adaptive leader can work more effectively in a dynamic environment if he or she understands the challenges faced by the organization so he or she can provide the appropriate response. Adaptive leaders will cooperate with followers to facilitate creative solutions for complex problems and will develop themselves so they can handle a broader range of leadership responsibility (Bennis, 2001). Bass and Avolio (1995) described the concept of relationship-oriented leadership behavior, which is measured by indicators like idealized attribution, idealized behavior, individualized concern, intellectual stimulation, and inspirational motivation. On the other hand, task-oriented leadership behavior includes contingent rewards, active management by exception, and passive management by exception. Despite the plethora of terms used for these concepts, the concept that receives the most attention from researchers now is the effectiveness of task- and relationship-oriented leadership behavior. However, findings remain mixed. Several studies have found evidence for the effectiveness of task- and relationship-oriented leadership behavior and of the combination of those two leadership behaviors (Bass, 1990). MacKenzie and Podsakoff (2001) found that relationship-oriented leadership behavior is positively correlated with performance. Hater and Bass (1998) found that relationship-oriented leadership contributes more to predicting the followers’ performance than task-oriented leadership does. Brown and Dodd (1999) reported that one leadership behavior, contingent reward, produces greater satisfaction in the supervisor and greater productivity, while Jung and Avolio (1999) found that individual performance will increase and employees will contribute more ideas under a task-oriented leader than under a relationship-oriented one; however, collective performance will be greater when they work under a relationship-oriented leader than a transactional one.  Several studies have found a relationship between organizational commitment and these two types of leadership behavior. The result of a study by Konovsky (cited in Brown, 2003) shows that supervisors who are helpful and willing to give emotional support affect employees’ commitment to the organization. Koh et al. (1995) reported that relationship-oriented leadership has a greater effect than task-oriented leadership does in predicting organizational commitment, OCB, and job satisfaction. In term of self-efficacy, Bass and Avolio (1995) stated that relationship-oriented leadership behavior improves followers’ perception of their self-efficacy (self-confidence and belief in their potential for development). In this way, self-efficacy can influence the relationship between relationship-oriented leaders and the performance expected from the subordinates. Self-efficacy has been found to impact employee performance; Fuller et al. (1999) found that psychological empowerment moderates the relationship among three of the four dimensions of transformational leadership and job satisfaction.


Beliefs About and Attitudes Towards Online Advertising

Dr. V. Aslihan Nasir, Bogazici University, Turkey

Dr. Meltem Ozturan, Professor, Bogazici University, Turkey

Selcuk Kiran, Istanbul Kavram MYO, Turkey



With the increased usage of Internet and high penetration of electronic devices, online advertising begin to receive great attention from the business world as well as academic environment. The main purpose of this study is to examine Turkish consumers’ beliefs about online advertising, and investigate the relationship between beliefs about online advertising and attitudes towards online advertising. Secondly, we’ve explored whether there is a relationship between consumers’ attitudes towards online advertising and their behavioral responses. After conducting a factor analysis, it is found that Turkish consumers’ beliefs about online advertising can be grouped under four main dimensions, respectively, functionality, customization, credibility, and controllability. Results of the correlation analyses indicate that attitudes towards online advertising are found to be positively correlated in a statistically significant manner with all four belief factors. It is also discovered that there is a statistically significant positive relationship between Turkish consumers’ attitudes towards online advertising and their behavioral responses.  The advances in technology, particularly in digital media, cause a significant growth in the market share of online advertising. It was the only advertising format that didn’t go backwards in 2009, despite the challenging economic conditions that severely influenced almost every advertising market (IAB-Europe, 2010). Online advertising’s virtues of being transparent, innovative, accountable and flexible are among the reasons of its being an attractive ad format even in recession periods (ZenithOptimedia, 2009). According to a report by PricewaterhouseCoopers (2008), internet advertising worldwide made up $12.6 million in 2003; however, by 2012, it is estimated that it will reach $120.4 million. In other words, by 2011, internet advertising is expected to account for 15.1% of all global ad expenditure, up from 10.5% in 2008 (ZenithOptimedia, 2009). The increased attention from the practitioners makes the examination of online advertising a crucial topic from the perspective of academicians as well. Particularly, the consumers’ beliefs and attitudes towards online advertising has become an intensely studied research area (Wang et al., 2009). However, as stated by Wang et al., (2009), most of these studies focused on consumers of U.S. or other developed countries. Therefore, it is aimed to investigate the beliefs and attitudes of Turkish consumers about online advertising. This paper is founded on the studies of both Korgaonkar and Wolin (2002) and Wang et al. (2009), particularly the research of Wang et al. (2009) which mainly examines beliefs and attitudes towards online advertising among Chinese consumers. By adapting and applying the study of Wang et al. (2009), this paper mainly investigates the beliefs of Turkish consumers about online advertising. Secondly, it is aimed to examine whether Turkish consumers’ beliefs are predictors of their attitudes towards online advertising. Finally, it is also aimed to explore the relationship between Turkish consumers’ attitudes towards online advertising and their behavioral responses to online advertising. Within the context of this study, internet advertising, online advertising and web advertising are used interchangeably.  Consumer attitudes towards online advertising have become a debate topic since mid 1990s. In an earlier study, Ducoffe (1996) found that informativeness and entertainment were crucial predictors of value of web advertising, and asserted that there is a positive and highly significant relationship between advertising value and attitude toward web advertising. In their study, Briggs and Hollis (1997) found that banner ads can cause people to change their attitudes toward the brand and increase their likelihood of making a purchase. Schlosser et al. (1999) also explored consumers’ attitudes towards internet advertising and concluded that web users’ perceptions about internet advertising are generally positive. Research by Gordon and De Lima-Turner (1997) revealed that consumers have a passive attitude towards internet advertising, and these attitudes are relatively homogeneous. According to Gordon and De Lima-Turner (1997), consumers do not object to advertisements on the Web as long as they are clearly identified; and they prefer that advertisements be target-specific. In their research, Korgaonkar and Wolin (2002) concluded in a similar way that overall consumer attitudes towards internet advertising are positive. According to Korgaonkar and Wolin (2002), the more frequently internet users surf online, the more positive attitudes they have towards internet advertising. It was found that user’s level of internet advertising interest as well as his interest in clicking on the site are both significantly correlated with his attitude toward online advertising (Korgaonkar and Wolin, 2002). However, there are still studies that could not find a relation between attitudes towards online advertising and online purchase intentions, that is to say behavioral responses (Karson et al., 2006). In their study, Wolin and Korgaonkar (2003) showed that males display more positive attitudes towards internet advertising than females. In another study, Wolin et al., (2002) illustrated that several belief factors affected web users’ attitude towards online advertising, which in turn, had an impact on users’ behavioral intention. Furthermore, it was demonstrated that complexity can have a negative influence on the attitude towards the ad; that is to say simpler web site backgrounds have significantly more positive effects on consumer attitude toward ad and purchase intention (Stevenson et al., 2000). Baltas (2003) examined banner ads, and revealed that creative factors such as banner size, animation, message length and logos, as well as media factors such as campaign length, number of host websites, use of offline media, and campaign cost, may influence the direct response of the target audience.


Tax Incentives to Foster Green Investments Under the Spotlight of State Aids’ Prohibition

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



The article 107 of the Treaty of Lisbon establishes the elements of State, Autonomous and Local aids: 1.- Assistant´s institution that gives the grant: State, Autonomous Community, City Council 2.- Sources of the State, Autonomous, Local Aids: grants, interest, tax reliefs, tax deductions, guarantees; 3.- Economic profit; 4.- Distorsion of the competition in trade between Member States; 5.- Incompatible with the Common Market; 6.- Recipients´s institution of State, Autonomous, Local Aid: companies and people. In the situation where a regional or local authority adopts, in the exercise of sufficiently autonomous powers in relation to the central power, a tax rate lower than the national rate and which is applicable only to undertakings present in the territory within its competence, the legal framework appropriate to determine the selectivity of a tax measure may be limited to the geographical area concerned where the infra-State body, in particular on account of its status and powers.  A company which receives government support obtains an advantage over its competitors. Therefore, The Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, signed at 13 December 2007 generally prohibits State Aid, unless it is justified by reasons of general economic development. To ensure that this prohibition is respected and exemptions are applied equally across the European Union, the European Commission is in charge of watching over the compliance of State aid with EU rules  (European Commission, 2011):. We are going to create an Autonomous and Local aids after the studio of the Judgment of the Court of Justice of the European Communities - 11 september 2008.- cases c-428 to c -434/06, 11 September 2008, State aid – Tax measures adopted by a regional or local authority – Selective nature, in Joined Cases C‑428/06 to C‑434/06,  This paper is the result of the researches that the author is carrying out about “Taxation and Climate Change”, that is a National Investigation and Development Research (DER2010-14799) and the other research about “The management of the water for fluvial basins and for States, Regions or Autonomous Communities: problems and solutions "(USP BS PPC013/2010). We need to determine whether a company has received State aid, which is the case if the support meets the following criteria: 1) there has been an intervention by the State or through State resources which can take a variety of forms (e.g. grants, interest and tax reliefs, guarantees, government holdings of all or part of a company, or the provision of goods and services on preferential terms, etc.); 2) the intervention confers an advantage to the recipient on a selective basis, for example to specific companies or sectors of the industry, or to companies located in specific regions; 3)competition has been or may be distorted; 4) the intervention is likely to affect trade between Member States. By contrast, general measures are not regarded as State aid because they are not selective and apply to all companies regardless of their size, location or sector. Examples include general taxation measures or employment legislation (Conor Quigley & Anthony M. Collins, 2003). The article 107.1 of the Treaty of Lisbon (old article 87 EC Treaty) establishes the general prohibition of State Aid: “Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market. After the analysis of the article 107 of the Treaty of Lisbon we establish the elements of State, Autonomous and Local aids (Fernández de Soto Blass, 2010): 1. Assistant´s institution that gives the grant: State, Autonomous Community, City Council. 2. Sources of the State, Autonomous, Local aid: grants, interest, tax reliefs, tax deductions, guarantees. 3. Economic profit. 4. Distorsion of the competition in trade between Member States. 5. Incompatible with the Common Market. 6. Recipients institution of State, Autonomous, Local aid: companies, people. The European Commission adopted the Commission Notice on the application of the State Aid rules to measures relating to Direct Business Taxation (98/C384/03) and establishes  at the paragraph 8 to 12 that in applying the Community rules on State aid, it is irrelevant whether the measure is a tax measure, since article 107 applies to aid measures "in any form whatsoever'. To be termed aid, within the meaning of article 107, a measure must meet the cumulative criteria described below. 1. The measure must confer on recipients an advantage which relieves them of charges that are normally borne from their budgets. The advantage may be provided through a reduction in the firm's tax burden in various ways, including:


Development of Corporate Governance by Expanding the Corporate Responsibility of EU Member Countries

Dr. Niculae Feleaga, The Bucharest Academy of Economic Studies, Romania

Dr. Liliana Feleaga, The Bucharest Academy of Economic Studies, Romania

Dr. Voicu Dan Dragomir, The Bucharest Academy of Economic Studies, Romania



A modern interpretation of corporate governance would not be achieved without considering the various issues of accountability, sustainability and business ethics. In the range of definitions of governance one should also note the following formula: corporate governance is a system of control procedures and equilibrium states, internal and as well as external to any enterprise, which results in discharging corporate responsibilities in relation to various stakeholders, with an impact in all developmental areas of business. The evolution of corporate governance is the consequence of major changes in recent decades in the context of sustainable development, with the aim to improving the quality of life for all people worldwide. Sustainability engages exponential integrated actions in three areas: economic growth and equity, conservation of natural resources and environment and social development. In this paper, we ask the question on how corporate governance can be reformed in a pragmatic, in a context where its growth is significantly influenced by the responsibility of companies, on the axes of social, economic and environmental responsibility. The present research is built on a mixed methodology, using qualitative, comparative and critical tools.  On the backdrop of the developments in European economies, which are have been recently faced with the phenomena of economic and financial crises, businesses in many countries are looking for new models of corporate governance. In modern scientific studies aggregating a set of assumptions involving organizational theory, these entities are often considered as a nexus of contracts. In such a conceptual framework of organizations, significant differences are emerging. We are interested in two theoretical models of development: the agency theory, i.e. an approach which is relevant in the context of ownership, and stakeholder theory, which has been extremely successful after being integrated by Edward Freeman into strategic management.  The study of corporate governance is interdisciplinary in that it relies on the combination of socio-political analysis, company law, history of economics, sociology of organizations, management sciences and financial markets. In this framework of governance one must take into account information asymmetry, managerial entrenchment, and disciplinary procedures for administrators and executives (Pérez, 2009).  The years 1990-2000 were devoted to increasing the strength of institutional investors, mainly in developed countries. The accelerated growth of this category of investors has followed a major shift in the direction of household savings. The macroeconomic and financial context of the 1990s, demographic trends (accelerated aging of population, the “baby boom” generation, the difficulties in providing social protection for the elderly) and strong supply effects (i.e. taxation and financial innovation) are factors that have contributed to the deviation of traditional banking products to the benefit of saving assets on a longer term and with a higher risk.  The literature generated by the development of corporate governance and social responsibility has distinguished three types of research. The first type refers to descriptive studies on the disclosure of legal issues involved in the nature and scope of social and environmental reporting, with regard to disclosure media, activity sectors, the national regulatory context and the timeliness of reporting. The second type refers to the studies that trace the direction of development and interpretation of the causes that have induced the advent of social and environmental disclosures, especially those published voluntarily. The third type discusses the reasons behind environmental and social disclosures in relation to the performance of the enterprises. The paper is structured as follows: the first section analyzes the progression of corporate governance research; next, the institutional investors are presented as significant actors in the field of corporate governance; a third section discusses the link between social and environmental responsibility in connection with the development of corporate governance; finally, several conclusions are presented alongside potential avenues for future research on the topic of corporate governance and enterprise responsibility. It is known that agency theory has developed a very dense and comprehensive theoretical framework regarding the control and governance of different entities. Such a theoretical framework can hardly be applicable to all organizational forms covered by the international accounting standards. At the opposite side of the spectrum, stakeholder theory has a less formalized theoretical framework which is continuously evolving. In relation to the two theoretical frameworks, corporate governance has developed around three categories of organizational actors: shareholders (in their capacity as business owners), managers (in their role of executing the nexus of contracts) and other stakeholders (employees, customers, suppliers, banks, communities etc.). Best practice codes, as the main regulatory instrument in the shaping of corporate governance, are legally non-binding, due to the application of the “comply-or-explain” principle. Hence it is inferred that different businesses have the right not to adopt all or part of the so-called “best practices” of governance, but are required where appropriate to explain reasons for these decisions. Therefore, the complex aspects of contemporary world and outstanding economic issues have determined the emergence of a theoretical and empirical effort for shaping “good governance” principles to deal with these issues.


What Controls the Australian Airspace Ticketing Prices?

Caleb Lye, Singapore Polytechnic

Dr. Simon Lye, Holmesglen Vocational and Higher Education



The research documented in this paper shows an analytical technique which is used to study the relationship between the air distances travelled by the Australian airlines and its ticketing prices.  The parameters of the problem were selected so as to gain an insight into the effects that occurred within the Australian airspace ticketing pricing system with a thorough understanding of the airspace ticketing fares and the distances between cities of the world.  Data was taken from the Australian leading airliners serving the major cities of the world.  The regression analysis and measures of association were used where a mathematical model was identified and used for prediction.  The Excel’s regression tool was employed to perform all calculations.  Good results were achieved using this model. In the past, the air fares only include prices of the tickets and the airport tax.  Flying is no longer cheap.  Nowadays, the fares paid by most commuters include a number of miscellaneous expenses such as fees paid to air traffic marshals because of threats due to terrorism, rising fuel prices, higher maintenance costs and taxes.  The ticketing prices of most airliners are based on some criteria.  These may include distances between cities, location where the airline departs, brand of airliners, competitions, types of food and beverages, weights of baggage, etc.  The main objective of this research is to find a link between a set of bivariate data such as the airspace ticketing prices in Australia and the distances between cities beginning from Australia.  In doing so, this paper will look at formulating a mathematical model [6], [8] that will determine its relationship and the strength of this relationship is assessed so as to determine whether it can be used for future prediction/forecasting. This paper will use a probabilistic model where the relationship was first approximated with a deterministic model, and then a random term is added to measure the error of the deterministic component [8].  Here the regression analysis is utilised where one variable is used to predict on the information of the other variables.  This involves the developing of a mathematical equation that describes the relationship between the variables to be forecasted.  Values are assigned to the independent variable and the values of the dependent variable are then determined.  Once the mathematical model, using the least square method, has been developed, the strength of this relationship is assessed by using the measures of association such as the Pearson Product Moment coefficient of correlation [6], [7].  The Pearson coefficient of correlation will enable the description/estimation of a linear relationship between these two variables.  The regression line generated using the least square method should be a line with the smallest sum of the square of errors.  Hence the coefficient of determination [6], [7] is utilised to determine the goodness of fit of this line with bivariate data.  The coefficient of determination is also used as a measure of the explanatory power of this mathematical model.  The sum of squares due to error is a significant statistic and should not be ignored because it aids to assess as to how well the linear regression model fits the observed data.  After determining the best fit regression line, two other tests are conducted to assess its appropriateness; these tests included the determination of the standard error of estimate and the hypothesis test, which is conducted to test for a significant regression relationship of the bivariate data.  Appendix 1 illustrates a computer output produced by the Data Analysis Toolpak, which is a computer package, used to generate the calculated results from the set of observed data.  In order to assess the performance and accuracy of the mathematical model, the results are validated against a set of assumed values with certain levels of confidence and also from a set of data gathered from the major airliners in Australia [1], [2].  The formula which is used in this validation will be discussed in detail in the ‘Mathematical Formulation’ section. The amounts of the air fares used in this analysis are based on the prices of the two-way (return) economy fares as stated from the internet [1], [2].  A total of 124 observations were gathered and used in this study.  These fares are based on the airlines departing from any major cities in Australia.  The distances between the airports of two cities are taken from two quite reliable sources [3], [4] where the distances had been verified with the ‘World Atlas’ [5]. In considering the regression analysis, assumptions are made regarding the application of an appropriate mathematical model to link the relationship between two variables.  This assumed model, using the least squares method, is applied to develop values relating to the estimates of the model parameters.  This resulted in the development of the estimated regression equation for a set of observed data.  The association between this set of bivariate variables are assumed to have a linear relationship and its mathematical equation [6], [8] is given as: Where  x   is the distances between cities (the independent variable). y   is the airspace ticketing prices in Australia (the dependent variable). b0 is the y intercept or when the value of x is zero that is when the plane has not started from its destination, the fare is b0. b1 is the slope or gradient of this regression line.  This means that the constant change in the airspace ticketing price per km change in the distance between cities. e   is the error variable  (also known as random term). The coefficient of determination provides a measure of the goodness of fit of the estimated regression equation.  It is important to note that even with a coefficient of determination value that is close to one, the estimated regression line should not be used until further analysis has been conducted as to the appropriateness of the assumed model.  Hence, an important step in determining whether the assumed regression model is appropriate will involve testing for the significance of the relationship of the observed bivariate data.  The tests of significance in the regression analysis are based on the following assumptions about the error variable, e.


Strategic Import Tariffs, Managerial Delegation, and Social Welfare in a Quality Differentiated Market

Dr. Ya-Chin Wang, Kun Shan University, Taiwan



This paper explores motivations for an importing country imposing discriminatory or uniform tariffs on quality differentiated imports. The purpose is to examine how the import policy and quality choice respond to managerial incentive in turn. In comparison to free trade, both interventions increase average quality and consumer surplus by a greater amount than the decrease in tariff revenues; accordingly, it increases the domestic welfare. The highest welfare is obtained by practicing a discriminatory tariff, where a high-quality firm pays zero-tariff and a low-quality firm gets quality subsidy. This result brings meaningful support to the WTO initiative for tariff elimination. According to the World Trade Organization’s (WTO’s) World Trade Report 2009, the value of world merchandise trade totaled approximately $32 trillion in 2008, a 52 percent growing from 2003. Although merchandise trade is decline about 10 percent in 2009 because of the global financial crisis, the International Monetary Fund’s (IMF’s) World Economic Outlook (2009) predicts that international trade will increase 2.7 percent in 2010. In international trade theory, import protection and export competition have always attracted considerable attention by less-developed country (LDC) and developed country (DC). Zhou et al. (2002) explored strategic trade policy and welfare maximizing incentives towards investment in the quality of exports by a LDC and a DC. Toshimitsu and Jinji (2007, 2008) further indicated that social welfare and the appropriate strategic trade policy depends on the form of market competition and the assumptions of marginal production costs. In the aforementioned papers, firms have been treated as simple profit-maximizing entities. However, in viewing the separation of ownership and management that prevails in most modern managerial enterprises, the owner seeks to maximize profit, but the manager may be more concerned with performance, market share, or revenues rather than profits only. Das (1997) and Colonques (1997) extend Brander and Spencer (1985) and Eaton and Grossman (1986) by introducing sales delegation to examine strategic trade policies. They conclude that managerial delegation results in lower levels of the trade intervention and greater welfare than without delegation. Wang et al. (2008) further explore the influence of the generalized Nash bargaining model on sales delegation and strategic trade policies. Compared to Das (1997) and Colonques (1997), the introduction of the managers' bargaining process further reduces the ‘scale’ of government intervention.  As argued in industrial organization (IO) and international trade theory, the strategic decision and the equilibrium outcomes are sensitive on the nature of product-market competition. For example, the strategic use of managerial delegation or export subsidy (tax) will make the firm act as a Stackelberg leader based on simultaneous quantity-setting (a Stackelberg follower based on simultaneous pricing-setting) in order to shift the profit from the rivals. Miller and Pazgal (2001) indicate that if owners have sufficient control over the behavior of their managers in a horizontally differentiated duopoly model, the differences of equilibrium outcomes between price and quantity competition dissolve once embedded in a delegation game. Further, in Miller and Pazgal (2005), it shows that the optimal trade intervention only depends on whether the goods are substitutes or a complement because of the use of a relative-performance scheme. In the quality differentiated model, theoretical works have also shown that optimal trade policy is highly sensitive to the nature of product-market competition. (Park, 2001; Zhou et al., 2002; Toshimitsu and Jinji, 2007, 2008). In addition, quality competition in global-wide manufacturing and technological industry is fierce. In order to keep the core technology in the home country, the owners of firms in the headquarters provide quality technology to the subsidiary’s manager. Wang and Wang (2010), therefore, introduces the relative-performance contract into the market stage and finds that the optimal policy does not depend on whether firms compete by prices or quantities in such a cross-border decentralized model with delegated competition. Through manipulating incentive schemes to the manager, the parent firm can affect its strategic position in the third market. As a consequence, for a given level of quality, each owner delegates his manager to engage in price or quantity competition.  From the government’s viewpoint, there are a number of possible motives for importing country to impose a discriminatory or uniform tariff onto different quality imports. From the viewpoint of firms, it is meaningful to introduce a relative-performance contract into a vertically differentiated product market. The purpose of this paper is to examine how the optimal tariff invention and quality choice respond to the managerial incentive in turn. We find that the strategic import policy, instead of imposing tariff, is free trade to a high-quality firm and subsidy to a low-quality firm. This result brings about important support to the WTO initiative for tariff elimination. In view of importing country, the discriminatory import policy is superior to uniform import policy by practicing “friendly tariff”. The remainder of this paper is organized as follows. Section 2 describes the basic model and the delegated game. Section 3 deals with strategic import policy and gives intuitions behind our results. Section 4 provides conclusions.


Knowledge workers in Croatian Companies

Dr. Danica Bakotic, University of Split, Faculty of Economics, Croatia



Knowledge workers are generators of company’s growth and development. Most knowledge workers have spent their lifetime as all other employees who have a job, receive a salary, and could be fired. However, unlike other workers, knowledge workers are the owners of the resource, which is their knowledge. Leaving the company, industrial workers leave machines and equipment, but when knowledge workers leave the company they take the most precious resource, the knowledge. So, the key investment of today's companies is not investing in facilities, equipment and devices, but in knowledge or knowledge workers, because without them, no matter how sophisticated and advanced technology company has, it will not be effective and efficient. Knowledge workers and company they work for are interdependent. It is extremely important that knowledge workers understand what the company in which they work expects from them. But the company must know the needs, requirements and expectations of knowledge workers as well. Specifically, the company provides knowledge workers with resources (Alverson, 2000). Only knowledge without organizational support and resources is worthless. On the other hand, company depends on knowledge workers, precisely on their ability to synthesize theoretical and empirical knowledge and to apply it to design adequate solutions. In this sense, company must meet the aspirations and expectations of knowledge workers. This should result in knowledge workers being dedicated to the achievement of company's objectives. In this context, it is extremely important to stress the role of management, whose primary objective is to make knowledge workers productive. Due to these considerations and the growing interest in understanding the importance of knowledge workers in contemporary companies and their contribution to society as a whole, this concept is slowly becoming the focus of interest among scientists and management. According to this, the empirical research of this paper deals with knowledge workers in Croatian companies with the aim to clarify their individual characteristics. The empirical research is conducted on the sample of 736 knowledge workers employed in 40 Croatian large and medium-sized companies. The research results suggest that the majority of knowledge workers are women; knowledge workers are younger than other workers; knowledge workers are workers with the shorter tenure compared to other workers; knowledge workers mainly work on higher organizational levels (usually on managerial positions); knowledge workers employed on managerial position are mostly men. The cognition of these characteristics is an important factor in developing efficient human resources strategies and practices because human resource management should appropriately cover all dimensions which determine knowledge workers. The term knowledge workers was used by P. Drucker (1959) for the first time. He has described knowledge workers as those who process the existing information and create new ones in order to make decisions and solve problems. Knowledge workers use their intellect and knowledge in converting their ideas into new products, services and processes. These are people who constantly learn because they are aware of the fact that if one wants to be effective, it is necessary to continually learn and improve oneself since knowledge has a limited lifespan.  After Drucker many authors have also attempted to define the term knowledge workers. However, despite large and recent popularity of this concept in literature, it is quite poorly defined. Vogt (1995) defines knowledge workers as individuals who have the capacity and motivation to create new views, who have developed communication skills and capacity of transferring knowledge and creating new ideas. In their work they use traditional scientific methods as well as their imagination. They must know how to deal with the complexity and uncertainty which requires a developed intuition, creativity, flexibility and social skills. In his definition of knowledge workers Reed (1996) pointed out that these workers, in their work, rely on a sophisticated combination of theoretical and analytical knowledge, judgmental skills that one can find difficult, but not impossible, to standardize and incorporate into organizational routine (Reed, 1996, pp. 585). Griffin (2002) defines knowledge workers as those whose contribution to the organization in which they work is based on the knowledge that they possess (Griffin, 2002, pp. 443). According to him knowledge workers are workers who use information technology in creating new products or new business processes (Griffin, 2002, pp. 687). Furthermore, Henderson (2003) points out that knowledge workers are those who are significantly involved in problem solving and decision making. They are not focused on performing routine repetitive tasks, but they spend many working hours in solving complex problems (Henderson, 2003, pp. 389). Knowledge workers are often defined as groups of different professions or occupations that are most commonly associated with information technology or other high technology. Professions that are mentioned in the context of knowledge workers are scientists, engineers, computer scientists, professors, psychologists, lawyers, doctors. Some authors define knowledge workers by the level of education that they possess. Thus, Bentley (1990) points out that knowledge workers have high education. A similar definition was given by Janz et al. (1997). They define knowledge workers as those who apply theoretical and analytical knowledge gained through the process of formal education. Considering all these definitions of knowledge workers, it could be stated that these are workers whose work is based on the knowledge gained through the formal education, training or work experience. These are people who are looking for challenges and respond to them by creating new solutions or improvements. By doing this they contribute to the development of their profession and the company in which they are employed.


Ecosystem’s Analysis Using Econometric Techniques

Assoc. Prof. Giani Gradinaru, Academy of Economic Studies, Bucharest, Romania



The economic approach to nature has its origins in a number of theories developed since the eighteenth century. By contrast, the notion of ecosystem services is of relatively recent origin, close to the beginning of coherent environmental concerns, namely the 1970s. In order to analyze the evolution of structural-qualitative characteristics of environmental elements in Romania, data were organized using the pressure-state-response conceptual framework. By applying econometric models of simple and multiple regression, models for error correction, VAR model (vector auto-regression) there were studied 20 statistical linkages. Using the constructed econometric models, ecosystem degradation rates are developed. Information provided by degradation rates regard the behavior of result variable than the cause variables are modified, thereby showing the direction and size of the modification for the result variable. There are analyzed air quality degradation rates, soil quality degradation rates and biodiversity degradation rates.  The concept of ecosystem services is of relatively recent history, as originally proposed in the form of environmental services. Its rationale is the need to create a conceptual link between ecosystems and the human welfare state that allows quantitative expression of the value of ecosystems and the change propagation mechanism. This link has been reported long ago by the renowned naturalists and ecologists such as George Perkins Marsh, Aldo Leopold, Fairfield Osborn and Paul Sears. In general, natural sciences and environmental signals about the state of society and suggests that essential elements of life in general, and thus human life, are dependent on proper functioning of the components of nature. The Economic approach to nature has its origins in a number of theories developed since the eighteenth century. By contrast, the notion of ecosystem services is of relatively recent origin, close to the beginning of coherent environmental concerns, namely the 1970s. A complete and detailed analysis of the evolution of conceptual was made recently by Gomez-Baggethun et al. (2010) proposing the division process in three stages: origin and genesis, consolidation, construction of market instruments. Currently, although the issue of ecosystem services enjoyed great attention from researchers, the significance of the concept is still subject to different interpretations. 1. Ecosystem services are the flows of materials, energy and information from natural capital stocks which combine with manufactured and human capital services to produce human welfare (Costantza and colab., 1997). 2. Processes by which the environment produces resources that are considered free of people, such as clean water, timber, habitat, pollination (American Ecological Society, 2000). 3. Ecosystem services are benefits that people obtain from ecosystems. (MEA, 2005; TEEB, 2008). 4. Are components of natural ecosystems services consumed or used directly to produce human welfare (Boyd and Banzhaf, 2006). 5. Conditions and processes through which natural ecosystems and species that are part of them, and necessary for human life. For example, providing clean water, maintaining a constant atmosphere (carbon sequestration), pollination of crops and flora, fulfilling the needs of cultural, spiritual and intellectual people (FAO, 2008). Definitions from Box 1, reveal at least three meanings. Such flows are ecosystem services/ processes, benefits, and components. In the first case, decisions should be directed to the maintenance of such an intensity deemed appropriate, in the second would introduce how they contribute to human welfare (utilitarian approach), while in the third case targets should be expressed in a large stock (natural capital). In the light of quantitative analysis it is important to clarify these issues and the emphasis is on the last option, which may correlate with enough accuracy benefits. The formal procedures that were used envisaged the realization of check lists for data availability and methodologies to obtain them for statistic variables identified for each of the considered components (Gradinaru G., 2004): agriculture-environment; forestry-environment; extractive industry-environment; energy industry-environment. For their analysis there were employed specific statistical methods (Malinvaud E., 1988): data quality verification, systematization of data organized in time series and in territorial profile, transformation of data in information through using specific indicator systems for chronological and territorial series. Data provided by the Romania National Institute of Statistics, Ministry of Environment and Sustainable Development, and Ministry of Agriculture, Forest and Rural Development was analyzed in order to reveal the evolution of structural-qualitative characteristics of environmental elements. Data were organized using the pressure-state-response conceptual framework. That resulted in the selection of thirty three environmental indicators, of which twenty two reveal the intensity of anthropogenic pressure of environmentally sensitive sectors (agriculture, forestry, extractive and energy industries) and eleven reports on the quality of different environmental factors at that moment. Social response was approximated by establishing the structural characteristics of environmental spending since the considered timeframe is not covered consistently by data and also by referring to the progresses made in environmental policy. The evolution patterns of indicators were depicted for a ten year period on the base of their variations’ occurrence, amplitude, frequency and direction.


Strategic Decision Making: Empirical Findings from Croatia

Dr. Ivana Pavic, University of Split, Croatia



 A path one business organization will take, and where that path will lead, depends on a broad range of decisions made by managers in the managerial structure of an organization. Of course, the importance of all managerial decisions is not the same. Strategic decision making is a key organizational process, and strategic decisions are the most important decisions made in an organization. They deal with high-stake problems, and whose solutions have long-term implications. They target business areas essential for organizational growth, prosperity, and survival. Therefore, it is not surprising that there is a growing interest in this topic among researchers all over the world. The purpose of this paper is to highlight the importance of strategic decision making by describing its main characteristics in a different context, namely in Croatia. After the list of twelve successfully implemented strategic decisions is created, the importance of different phases in decision making process, the level of decision making decentralization, decision makers’ attitude toward risk, and their tendency toward the use of decision making techniques and methods has been analyzed. Based on research results this paper reports the following empirical findings: in cases of successfully implemented strategic decisions the most important decision phase is intelligence phase; lower levels decision makers are participating, in greater or lesser extent, in the activities during all decision making phases; women have greater propensity towards risk when making decisions than men; decision makers use different kind of decision making techniques and methods.


Which colour is better? The Influence of Website Photo Colour on Consumer: The Incongruity Viewpoint

Dr. Shao-Cheng Cheng and Yu-Huan Kao, Chinese Culture University, Taipei, Taiwan



 Colours have been existed in the human world for ages. Many marketing scholars research the influence of colours on consumers. The recent rise of the Internet to bring E-Commerce changes the traditional shopping model. More and more consumers purchase travel products online. However, the researches about the colours of the copywriting on the travel websites are limited and there is no research applying the congruity theory to explore.  Therefore, this study tends to apply the congruity theory to understand the influence of different colours on the travel websites on consumers. Within this research, we conducted the survey through advertising scenarios formed 2 x 2 experimental grids (beach and city; cold and warm colour).  Result shows that under the tourism website’s advertising, the incongruity theory is statistically unsupported. Which indicated that the advertising effectiveness and consumption willingness is better when the ad’s subject and its trait of colour are in congruity than in incongruity. Finally, the academic and managerial implications of the study for global product advertising are discussed.  The human eye is the only sensory organ that can receive information almost simultaneously as the material is presented; visual perception is the only method that can be used to distinguish among the vast array of colours in life. Since human judgment and acceptance of goods often rely on visual experience, the use of colours assigned to products is often regarded as one of the most important aspects in marketing. Consumers’ preference of colours will likely affect their purchase decisions (Geboy, 1996; Grossman and Wisenblit, 1999).


Integrated Marketing: Success Story of Crystal Gallery

Dr. K. Prakash Vel, Usha Ramesh Goplani, and Tehzun Sura, University of Wollongong in Dubai



 The choice of a well planned integrated marketing strategy becomes vital for the success of an organisation. This paper is a case study based description of how Crystal Gallery, a company manufacturing crystal products with eighteen years history in the UAE and rest of the world understood the customer expectations and used integrated marketing to structure the marketing efforts revolving around the customer’s needs. The company is a market leader in the industry.  With changing times, the areas of trade and commerce have witnessed a rise from the point it was first introduced. There has been a shift from a manufacturer focused market to a consumer focused market these days. As a result, one of the most important functions in an organization today is the ‘Marketing’ function. As opposed to the other business functions such as finance or accounting which deal with the figures and amount of wealth generated by the investors, marketing emphasizes on how to attract and retain more and more customers as well as consumers, which in the long term means huge returns. Corporate vision is an essential investment for a long term strategic marketing thinking. It is important for organizations to understand the customer expectations as well as structure the marketing efforts revolving around the customer’s needs. It is essential to be an integrated marketer in terms of effective product management, being a value pricer, a focused distributor, a targeted communicator, a carefully thought out administrator and a non-myopic marketer to the end users.


Critical Success Factors in Russian Industrial R&D Projects

Vladislav Andreev, Financial University under the Government of the Russian Federation, Moscow, RF



 The paper is devoted to improving the commercial performance of innovations in the real economy in Russia. The paper defines basic criteria of efficiency of R&D projects and establishes critical factors of the innovative environment that determine the success of new product development. It also proposes logistic regression models with high forecasting accuracy for assessing the probability of commercial success of industrial innovations, taking into account the specific features of large enterprises and SMEs. Application of mathematical models is appropriate when R&D projects are selected and when forming project portfolios. Despite the intensification of government support measures and the widespread opinion that the return on investments in innovations is high, the majority of Russian businesspeople are not ready to invest in R&D projects. This hesitancy makes identifying the factors that promote and hinder commercial success in new product development (NPD) in Russia difficult. The high level of creativity of Russian innovators is demonstrated at competitions and exhibitions, but new ideas attract very little investment, and innovation’s effect on firm performance as a whole remains low. The lack of tools for objective and validated analysis of the commercial potential of innovations delays their development in Russia, since it is easier for businesspeople to raise money using familiar methods than to venture on an untraveled road.  Still, the opportunity to maximize profit attracts capital investment, so identifying the success factors for new product development will facilitate the development of the innovative sector of the Russian economy. After all, innovative companies do not rely on intuition and tea leaves to make decisions on new product development but use effective methods for assessing R&D projects based on testing each new idea according to key success factors ranked according to their significance for individual countries (Lambin et al., 2007).


Profitability of Technical Analysis Indicators: A Study of an Adjustable Technical Indicator, ABZ', on the Malaysian Futures Markets

Dr. Noor Azlinna Azizan, University Malaysia Pahang, Pahang, Malaysia

Dr. Ibrahim Mohamed and Jacinta Chan Phooi M'ng, University of Malaya, Kuala Lumpur, Malaysia



 This paper presents empirical evidence of the usefulness of technical indicators like moving average and standard deviation to generate powerful trading signals that result in net abnormal returns after after taking into transaction costs.  It studies futures markets on Malaysia's stock index futures (FKLI), Malaysia's Crude Palm Oil Futures (FCPO), Korea's stock index futures (KOSPI), Singapore's stock index futures (SiMSCI), Soyoil and Corn Futures.  This study presents evidence of abnormal returns for these futures.  In particular, it shows a profitability of 316 index points for FKLI compared to a buy-and-hold policy of -562 index points in 2008 using a new adjustable technical indicator called Adjustable Bands Z-Test-Statistics (ABZ').  Markets generally exist in 2 conditions: trending and ranging.  One of the most baffling things that confronts market technicians daily is the critical definition when market is ranging and when the market is trending.  Applying a trending algorithm to a ranging market will result in whipsaws (false entry signals) that yield losses.  To avoid some of these false entry signals, this study proposes to vary moving average and standard deviation bands to avoid some of these false entry whipsaws and yet capture a new trend early.  Findings from this research interest market investors worldwide, especially the professional model trading desks of large financial institutions because it addresses this common problem baffling traders for over a century objectively with quantitative methods in technical analysis.  Technical analysis is the study of historical prices and volume to identify trends for trading purposes.  In many large financial institutions, some professional traders depend entirely on technical analysis and mechanical technical trading systems to trade in financial instruments.  Taylor and Allen (1992) [14] find in their survey of chief foreign exchange dealers based in London that more than half of the respondents place some importance on technical analysis.  As an approach to financial investment, technical analysis propagates the use of technical indicators to decipher recurring patterns in the historical price series.  Technical indicators are mathematical algorithms designed to identify the beginning of new trends. 


Consumers’ Beliefs About Companies Using Online Advertising

Dr. Meltem Ozturan, Bogazici University, Turkey

Dr. V. Aslihan Nasir, Bogazici University, Turkey

Selcuk Kiran, Dept. of Computer Programming, Istanbul Kavram MYO, Turkey



 Due to the increase in the share of online advertising out of total advertising market, beliefs about online advertising, especially about the companies using it, have become important for assigning marketing strategies. The main objectives of this study are to explore Turkish consumers’ beliefs about the companies using online advertising, to seek whether there are relationships between consumers’ demographic characteristics and these beliefs, and to examine the effects of these beliefs on consumers’ behavioral responses. Results indicate that beliefs of Turkish consumers about companies using online advertising a) are more favorable as compared to companies not using it, b) have relationships between consumers’ personal monthly income and Internet usage experience, and c) are different for consumers with different online ad clicking frequencies.  Information technology penetration is continuously growing especially due to the new comer technologies and is affecting the lifestyles of consumers by introducing various online opportunities. On the other hand, advertising is an encouraging strategy designed to promote the purchasing behavior of consumers by developing attitudes and creating awareness. Hence, providing informative, credible, reliable and effective ads for consumers by companies becomes an important issue which can be enriched and facilitated by using information technologies. As the Internet has become an important communication channel, many companies nowadays are using online advertising which is synonymous with Internet advertising and web advertising in this study.  Related to the utilization of these online ads, previous studies show that there are various factors that determine the consumers’ beliefs about and attitudes toward online advertising as summarized in Table 1.


Income Tax Incentives on Renewable Energy Industry: Case of USA, China, and Indonesia

Yunita Anwar and Martin Surya Mulyadi, BINUS University, Jakarta, Indonesia



 Renewable energy is derived from natural processes that are replenished constantly. In its various forms, it derives directly from the sun, or from heat generated deep within the earth. Included in the definition is electricity and heat generated from solar, wind, ocean, hydropower, biomass, geothermal resources, and biofuels and hydrogen derived from renewable resources. USA and China is market leader and the most attractive market for renewable energy investment. Moreover, they also lead in wind energy sector.  Tax incentives are also given in favor to developing this renewable energy industry. Indonesia as a developing country could learn and review incentives given by USA and China specifically in wind energy industry. Our study show that Indonesia might consider give a reduction on income tax rate rather than reduction on net income amounted 30% of investment allocated during six years. Reduction in income tax rate create higher shareholders’ value than reduction on net income based on investment.  Besides, Indonesia can also consider giving tax credit for personal and corporate taxpayer who install a renewable energy system in their office or residence. This tax credit will indirectly boost sales of renewable energy industry and increase the attractiveness of Indonesia as a place of investment. This two option can be considered as Indonesia has a huge potential for investment in renewable energy industry.


Fairness in the Workplace: The Relative Effects of Distributive and Procedural Justice on Incentive Satisfaction

Dr. Kalayanee Koonmee, Assoc. Professor, Graduate School of Human Resource Development

National Institute of Development Administration, Bangkok, Thailand



 The two Thai parliament secretariat offices, i.e. the secretariat office of the House of Representatives and the secretariat office of the Senate have implemented the new performance management system comprised of goal setting, performance appraisal, and incentives for performance since 2006. The ultimate objectives were to improve standards in services and to continually improve the efficiency of their officers. This research investigates the relative importance of distributive and procedural justice in predicting satisfaction in incentive allocated for performance. Data were collected via self-administered questionnaires from those two secretariat staff. They were random sampling with 305 usable samples (92.4% response rate) from the secretariat office of the House of Representatives and 282 usable samples (94.0% response rate) from the secretariat office of the Senate. A hierarchical regression was used to analyze the relative effects of distributive and procedural justice, and to prove the previous studies of fairness investigated the conditions under which either distributive or procedural justice is more important to employees. The findings are: (1) Both distributive justice and procedural justice have significant positive relationships with incentive satisfaction. (2) Distributive justice plays a more important role in incentive satisfaction than procedural justice. However, because of a limited budget for incentive allocation in the public sector, therefore, procedural justice will come to have more importance. Some managerial implications and recommendations are also included.  Reforming public-service delivery occupies a central position in current policy agendas around the world. The use of explicit incentives to improve efficiency in the public sector is one of the important elements in public-service modernization initiatives. Explicit incentive contracts in the form of performance-related pay have always been more common in the private sector than in the public sector. The use of incentives in the public sector is relatively recent. 


Enterprise Resource Planning Systems’ Impact on Accounting Processes in Turkey: A Research on the Largest 500 Industrial Firms

Dr. Raif Parlakkaya, Huseyin Cetin, and Halil Akmese, Selcuk University, Konya, Turkey



 Enterprise resource planning (ERP) is an approach to the provision of business support software that enables companies to combine the computer systems of different areas of the business – production, sales, marketing, finance, human resources, etc. - and run them off a single database.  This single database is the simple core of the concept: it enables different divisions and departments to easily share information and communicate with one another. Advances in information technology, expansion of the Internet and electronic business as well as an ever-growing global competition have made running a successful business more difficult than ever before. To remain successful and to be competitive, managers of manufacturing and service organizations must use technology to improve information flow, reduce costs, streamline business processes, offer product variety, establish linkage with suppliers, and to reduce response time to customer needs and expectations.  A questionnaire survey is conducted and research frame is selected from the Turkish manufacturing sector. A final list of 500 Turkish manufacturing companies was prepared and the responses received were 75, representing a response rate of 15%. This study examines, via an exploratory survey of 75 companies, the underlying reasons why companies choose to convert from conventional information systems (IS) to ERP systems and the changes brought in, particularly in the accounting process. The empirical evidence confirms a number of changes in the accounting process introduced with the adoption of ERP systems.  Single vendor-based ERP systems dominate the information technology (IT) landscape but have proved problematic for some organizations. ERP systems are generally implemented to overcome the maintenance difficulties associated with custom developments as they offer a clean slate through a common data set and suite of integrated applications (Holland and Light, 1999a; Davenport, 1998; Appleton, 1997). ERP is based on the concept of identifying and implementing the set of best practices, procedures and tools that different functions of a company can utilize to accomplish total organisational excellence through integration.


A Methodology for an Evaluation of the Impact of the Minerals and Petroleum Resources Royalty Act on the South African mining Industry

Pieter van der Zwan , North-West University, South Africa



 The Minerals and Petroleum Resources Royalty Act (MPRRA) became effective in South Africa on 1 March 2010. This legislation may have a significant impact on employment, foreign investment and future exploration in the South African mining industry. This article reports on proposed research, specifically the methodology to be followed, to be conducted to perform a critical evaluation of the MPRRA in order to identify aspects that may impact adversely on the South African mining industry. The article concludes by identifying certain pre-implementation concerns regarding the provisions of the MPRRA as well as by recommending a methodology for conducting research to evaluate the impact and provide alternatives to areas of concern.  Globally no type of mining tax has caused as much controversy as mineral royalties (Otto, Andrews, Cawood, Doggert, Guj, Stermole, Stermole & Tilton, 2006). The introduction of legislation to impose mineral royalties in South Africa is no exception.  The inauguration of the new political dispensation in South Africa in 1994 initiated a dynamic shift in the ownership, management and development of the country’s mineral heritage (Cawood, 2004). An overall transformation of the national mineral and mining policies resulted in the enactment of the Mineral and Petroleum Resources Development Act (28/2002) (MPRDA) in 2002. In accordance with the MPRDA the country’s mineral and petroleum resources are the common heritage of the people of South Africa. The State acts as the custodian of these resources for the benefit of all people. The MPRDA allows the State, in its capacity as custodian, to determine and levy a fee or consideration payable in respect of these resources. This enabled the National Treasury and the Department of Minerals and Energy (DME) (subsequent to the development of the MPRRA the DME was split into the Department of Mineral Resources and the Department of Energy) to develop legislation to impose royalties on the extraction of the country’s mineral and petroleum resources. This process culminated in the enactment of the Mineral and Petroleum Resources Royalty Act (28/2008) (MPRRA) on 24 November 2008.


Geopolitics and Accounting

Oana Adelina Floricioiu and Loghin Radu-Daniel, Bucharest Academy of Economic Studies, Romania



 This paper aims to prove that political factors are no less influential on accounting practices than economic or cultural factors.  We have identified various ways in which political influence is expressed when accounting practices have to be chosen at a national or international level. The three main ways are “pressure,” “political ideology” and various “key players.”  In order to illustrate our point, representative examples have been taken from international cases, and we then shifted our focus to the Romanian accounting experience. It is important to understand individual actions in the context of group dynamics. Geopolitics provides the concepts and deals with the terms necessary to understand this issue. Since Romanian elites are trying to establish their homeland as a regional power in South-Eastern Europe, and because Moldova is placed at the borders of EU and CIS (Community of Independent States), it is clear that this power is likely to be exerted on Moldova in the near future, including its accounting standards. From the perspective of key players related to foreign trade and investment, the situation is uncertain and depends on the international game between France and Germany. As can be illustrated with a mathematical function, control, options and disclosures in accounting are interconnected in a meaningful way.   Regarding the methodology, we have conducted positive research, which does not focus on what accounting should be, but rather about what accounting currently stands for and its perspectives for development, rather than a critical approach, which would be based on a socialist perspective .


IFRS Consciousness and Adoption: A Research on the Turkish Corporations Listed on Istanbul Stock Exchange

Dr. Raif Parlakkaya, Halil Akmese and Huseyin Cetin, Selcuk University, Konya, Turkey



 This research examines the degree of consciousness and adoption of International Financial Reporting Standards (hereafter IFRS) within a sample of Turkish corporations and is derived from the PhD dissertation of Huseyin Cetin. Research sample constitutes 79 Turkish corporations from different industries which are listed on Istanbul Stock Exchange. Especially the corporate managers in charge of accounting policies and decisions were selected as the participants of this study. After the literature review and background studies’ evaluation, a research methodology and research questions are developed.  In the first section of the research five considerations relating to the problems that might be faced during the initiation of adoption process are evaluated by IFRS adopters or potential adopters. In the second section of the study ten suggestions relating to the advantages of adopting IFRS are evaluated on a scale ranging from “Strongly agree” to “strongly disagree”.  As a result of globalization, the volume of economic relations increased sharply and led to the formation of new entities called “multinational corporations” (MNCs). Multinational corporations might be evaluated as the initiators of international accounting standards. All countries have their own regulations regarding to the accounting policies and applications within their jurisdiction area. However, the requirements developed for multinational corporations forced them to a greater extent of regulatory exposure. This exposure increased the need for standardized financial reports from the perspectives of investors. Need for standardized financial information and financial reports facilitated the convergence and harmonization of financial reporting standards all over the world gradually.  There is enormous literature concerning the process of international accounting harmonization and more recently, that of convergence. The most significant role in achieving international convergence is played by the International Accounting Standards Board, which advances the need to increase the international comparability of the financial information. Many countries intend to adopt IFRS or make their national regulations converge with IFRS (Albu N., et al, 2010).   


Influence of Ethics Education on Management and Entrepreneurship Students Attitude Toward Ethical Behavior: Case of Croatia

Ivana Bilic and Ivona Sustic, University of Split



 In a modern society business ethics has become very important and emerging issues especially as a characteristic of company’s management. The complex and dynamic modern business environment driven by globalization of economy and supported by technology has launched a new era of disclosure of companies in terms of companies ethical behavior. The advent of the Internet has changed the way how companies do their business and how they communicate with all interested stakeholders. Ability of stakeholders to communicate with one another, social networking etc. make companies more vulnerable than ever before. In response to the ethically oriented conscious environment, companies need to assure that theirs employees; especially company’s management does their business with respect of high ethical standards. The aim of this paper is to provide evidence of influences of education process on students’ ethical attitudes, furthermore we try to find out how integration of ethics into the academic business curricula influences on students’ ethical behavior. In this research observed students will be students of second year of business school and undergraduate students on Faculty of Economics University of Split. The sample was chosen from the students who attended Management and Business Communication class where business ethics is integrated into curricula. We can assume there is a positive link between gender and ethical attitudes. Second assumption is that there is a positive link between higher students’ ethical attitude and having previous working experience. Statistical methods will be used to argument this hypothesis and to research previously mentioned correlations between working experience and gender and students ethical attitudes.


Experience of Workplace Regulations in a Multi-National Construction Organisation

Dr. H. M. Linde and Prof. J. C. Visagie, North-West University



 Employment regulations as a collective term include all forms of legislation or negotiated rules that guide the employment relationship. The purpose of this article is to focus on the primary relationship and the workplace regulations regulating this relationship. The emphasis will be on the employment contract, the disciplinary code and procedure, the grievance procedure and the performance appraisal system as part of employment regulations. A random sample of 50 participants was drawn from the population (N=180) of permanent staff or staff classified as administration, qualified tradesman or management as authorised by the management of the engineering and construction organization where the research has been done. The ‘’Experience of Employment Regulations Questionnaire’’ was distributed to gather the data and measure the employees perceptions of the applied employment regulations in the participating organization.   Employees’ experience of workplace regulations a in multi-national construction organisation.  The desire for justice is central to the human existence. It can be accepted that justice or fairness would be one of the core values in any group of people (Nel, Swanepoel, Kirsten, Erasmus & Tsabadi, 2005). In striving towards universal fairness, the need for rules and regulations is inevitable although not always achievable.  According to Basson, Christianson, Garbers, Le Roux, Mischke and Strydom, (2002), humans in any given society have become accustomed to their lives being regulated by rules and regulations. Organisations or companies are smaller groups within the wider society and within these groups the accepted systems are just as valid (Nel et al., 2005). 


Voluntary Internet Financial Reporting in Croatia - Analysis of Trends and Influential Factors

Dr. Ivica Pervan and Marko Sabljic mag. oec., University of Split, Split, Croatia



 The basic purpose of this study is to explore trends and influential factors of voluntary Internet reporting for the listed companies in Croatia. Today, Internet represents the main communication media and many listed companies across the world utilize Internet for investors' relations. Studies conducted in the countries with developed capital markets show that vast majority of companies extensively use Internet for financial reporting. In Croatia, emerging market country with undeveloped capital market, the usage of Internet for voluntary financial reporting has been very limited as reported in previous research. Yet, measurement of voluntary Internet disclosure, which was conducted in 2010 has shown that extent of voluntary disclosed information has significantly increased in comparison with early research. Also, regression analysis has identified market capitalization and official listing as factors that positively influence the level of voluntary Internet disclosure (measured with IFR Score). Other variables included into research: profitability, ownership and stock activity were statistically insignificant in explaining IFR Score.  In the Internet era many listed companies have decided to use Internet as a communication tool for investors' relations. Internet has got many advantages over classical "paper reporting" since information can reach almost every part of the world very quickly and with low cost. Furthermore, processable formats of financial reports can be used in order to make easier calculation of different ratios that are used in financial analysis. Usage of mailing lists and information alerts can contribute to timelines of information. All previously mentioned advantages of Internet are recognized by many listed companies in developed countries in which companies extensively use Internet for financial reporting. Previous research (Pervan, 2005; Pervan 2006) revealed that in Croatia voluntary Internet reporting was not very extensively used by listed companies.


Stakeholder Orientation and Firm Performance: Value Generating Strategy or Sophisticated Entrenchment Strategy? - Empirical Evidence from Croatia

Dr. Darko Tipuric, University of Zagreb, Croatia

Marina Lovrincevic, University of Split, Croatia



 Stakeholder theory of the corporation was developed as an alternative to the prevalent system of corporate governance with shareholders being the only group managers are responsible to. Top management’s responsibility goes far beyond shareholders alone, because corporation is not merely an instrument for maximizing shareholders’ wealth, but also is a social entity with broader and more complex purpose and role.  Stakeholders, at least in what is commonly regarded, are defined as those groups and individuals who can affect or are affected by the achievement of the organization objectives. Stakeholder groups’ involvement in strategic decision making or stakeholder participation in corporate governance processes has its normative, but also its instrumental argumentation. Stakeholders participate in the decision making process because it is ethical and socially responsible (normatively right) but also because stakeholder participation in organization objectives and strategy formulation process will facilitate strategy implementation and achievement of organizational goals (instrumental, strategic argumentation).  Stakeholder management or stakeholder orientation has rarely been quantified. In this paper we use survey methodology and perceptual measures of stakeholder orientation and empirically test the relationship between stakeholder orientation and performance measures on a sample of large Croatian companies. With respect to theoretical and empirical contributions of researchers within the field of stakeholder theory and context specificity in which Croatian companies exist we have identified eight relevant stakeholder groups; (1) shareholders, (2) employees, (3) customers, (4) suppliers (including creditors), (5) government, (6) communities, (7) media and (8) universities. We used past performance measures; three year average of growth rates and profitability indicators.  The results of this research indicate that there are differences in stakeholder orientation regarding company’s past performance results.


Changes of Market Structure and Competition in the Croatian (Non) Life Insurance Industry

Dr. Maja Pervan, Tomislava Pavic Kramaric, and Dr. Ivan Pavic, University of Split, Split, Croatia



 Until the nineties of the last century, the Croatian insurance market used to be highly concentrated. However, with the entrance of foreign capital and private investors, market structure and level of competition significantly changed. From former almost monopolistic situation with only one (or a few) state owned insurance companies operating on it, insurance market has developed into more competitive structure – oligopoly. The purpose of this article is to analyze the degree of competition and market structure as well as to determine whether the presence of dominant company is still one of the (non)life insurance market characteristics. In order to determine the degree of competition and the concentration level (as a basic indicator of market structure) the concentration ratios, Herfindahl-Hirschman index and entropy index were computed separately for the life and non-life insurance industry for the period from 1998 till 2010. The results reveal that Croatian non-life insurance market is highly concentrated and characterized by the presence of “tight oligopoly“ and dominant firm existence. However, moderate to low concentration and the presence of “loose oligopoly“ is detected on the life insurance segment.  Development of insurance market is an indicator of the degree of economic development of a certain country. As a rule, this market is most developed in the most developed countries (USA, UK, Japan etc.). Because of relatively stable economic development in Croatia, the progress recorded in insurance sector ranks this business among the sectors with highest development potential. It wasn’t always like that. Until the nineties of the last century, the Croatian insurance market was characterized by the presence of a small number of insurance companies mostly focused on the non-life insurance. These companies were owned by the state and had almost monopolistic position on the market. Because of the lack of competition, motivation for innovation and further development of insurance sector were reduced. However, the switch to market economy caused significant changes in the organization and functioning of this industry.


Aligning Industry Needs With Skill Development at Educational Institutions

Deepesh Tiwari, Assistant Professor, Institute Industry Interaction Cell, MNNIT, Allahabad

Prerna Kaushik, Guest Faculty, Computer Science and Engineering Dept, MNNIT, Allahabad



 Globalization of economic activities, high rate of technological development and ever evolving demands of society have changed the rules of the game for the industry which in return has created a new challenge for the educational institutions. The challenge is to match the pace of developmental changes by providing human force well equipped with desired skill sets and aptitude. This challenge has strengthened the need for fostering interdependence of educational institutions and industry. This demands a long term strategic thinking on part of institute and industry while framing curricula and designing programs. Equipping our students with the skills required for industry needs puts the learning function at the centre of the issue. A diagnostic study based on responses of students pursuing post graduate programs in engineering and management has been conducted to propose a strategy to do the needful. Outcome of the study shows that there is need to change the traditional educational processes, training and research work to orient the same to the skill needs of the industry.  Rapid evolution of technologies [2] and diverse education landscapes demands for institutes and industry to join hands. The global nature of business requires institutes to play a vital role to impart a quality education and skills in the students to be competitive on the leading edge of technology. Indian education model of four year technical degree programs followed by a two year specialized master’s program is the typical system of training and skill development. This is often supported by various training and certification programs by various companies. Though the combination of traditional degree programs and certification programs present ways to acquire the required skills, it is often challenging to ensure the right combination and format of programs to ascertain that skills demands are met. Fresh graduates out of institutes have to go through a rigorous training program before they are absorbed in the industry. Majority of these training programs are designed towards upgrading technical skills and developing soft skills, which are not addressed adequately by our education system.


A Comparative Study of the Relationship Between Working Capital Management and Profitability of Listed Companies in Tehran Stock Exchange

Dr. Mohsen Zayanderoody, Islamic Azad University-Kerman Branch, Kerman, I.R of Iran



 This research is a comparative examination of the relationship between working capital management and profitability of food, mineral, and automobile companies Tehran stock exchange from 2005 to 2008. Managers can satisfy their share holders’ desire for profits by reducing accounts receivable and inventory. Managers should consider approaches that can improve company profitability.  Working capital is important in making financial decisions because it is a segment of capitalization in properties. The decision making process is the basis of solving problems in capitalization of properties.  Capital structure and the working capital management are studied in many universities. Working capital management can be applied in different operational ways, so some researchers have evaluated the effect of inventory optimized management and others have studied the relationship between receivable management and profitability; therefore the different parts of working capital (means payables, receivables and inventory) should be taken into account. The method of capital working management has an undeniable role in a company’s profitability. There is a direct relationship between cash management and a company’s scale; large companies that focus on cash management have less cash sale and this causes problems with cash flow; in smaller companies with less of a focus on stock and profit management, the methods of credit management receive more attention.  In most companies, working capital management is one of the main challenges in financial management. Managers can increase the value of their companies by keeping an optimized level of working capital. A large part of a company's resources are usually invested in working capital and this makes working capital management even more important. In addition, companies spend their incomes in different sections, for example, having enough inventory and open credit policy can affect a company's revenues; maintaining a sufficient inventory can decrease the risk of an inventory shortage at a time of high market demand, prevent the delays and halts in production program or increase the sale of company by using the open credit policy. On the other hand, maintaining a large inventory or extending too much credit to customers may block the cash flow. These items can be studied under working capital management.


A Comparative Study of Job Satisfaction in the Malaysian Services and Manufacturing Sectors

Dr. Kartinah Ayup and Lillian Lim, Universiti Malaysia Sarawak, Malaysia



 This study examined the factors influencing job satisfaction by using employees in the automobile retailing and hardware manufacturing companies as case studies. The influential factors investigated are pay, the work itself, promotion opportunities, and supervision. The choice of these two sectors was motivated by the researcher’s concern to see whether the differences in the industry’s dynamics greatly influence the level of job satisfaction between the two different industries. The collected data was analyzed using two types of inferential statistic: correlation and hierarchical multiple regression. The result of the study showed that all four tested work-related variables were important factors influencing job satisfaction levels in the sample population. Based on the findings, implications for companies are discussed and further research is suggestedHigh quality employees are the cornerstone of a successful industry, and attracting and retaining high quality employees is a primary necessity for all industries in any country. Over the last decade, organizations of all types and sizes have increasingly realized the importance of employees’ job satisfaction towards this end. High levels of employees’ job satisfaction can lead to enhanced productivity, efficiency, reduction in overall cost, customer satisfaction, employee retention, loyalty and business profits (Oshagbemi, 1999; Lok and Crawford, 2004; Okpara, 2006, McCausland et al., 2005). On the other hand, low levels of job satisfaction have been linked to negative behaviours such as low productivity, absenteeism and higher turnover (Morgan et al., 1995; Koustelios, 2001; Lambert et al., 2002; Sutherland, 2002; Okpara, 2006, McCausland et al., 2005). In terms of the definition of job satisfaction, it has been described as the feelings or ‘affective response’ someone experiences in a job role. Buitendach and De Witte (2005) proffer the view that job satisfaction relates to an individual’s perceptions and evaluations of a job, and this perception is in turn influenced by their circumstances, including needs, values and expectations. Individuals therefore evaluate their jobs on the basis of factors which they regard as being important to them (Sempane et al., 2002).


Cross Cultural Management: An Indian Perspective

Agam Nag, Professor, Institute of Management Technology, Nagpur, India



 The fast growing markets of India and the competitive cost structure combined with the high caliber workforce has made India a preferred destination for multinational corporations (MNCs). MNCs that set up operations in India or do business with Indian companies find that managing Indian workforce requires understanding Indian work culture that has evolved over several centuries.   This paper discusses the observations made by practitioners and the studies conducted by researchers on Indian work culture and analyzes them in the contexts that have elements from the Indian perspectives.  Management assumptions, organizational structure and functions are influenced by national culture (Hofstede, 1980). Indian work culture is different from those in Europe and North America. Indian work culture is driven by a value system that hinges on family and personal relations. The behavior at the workplace is influenced by the religious and spiritual traditions. Sensitivity to Indian work culture and relating to the strengths of the Indian value system will help organizations manage their Indian operations successfully and make most of the opportunities offered by India.  India with a healthy growth rate and an unsaturated market for a billion people and a preferred destination for high quality cost efficient outsourcing has been attracting attention from businesses for right reasons.  Today India boasts of the presence of almost all major MNCs. They are in India to participate in the market or to leverage the benefits of outsourcing to remain competitive in their host markets.  Participating in the Indian growth story requires managing operations in India.  Much has been said about the challenges of managing cross-cultural workforces across geographies. Some observations have become stereotypical in describing certain workforces and cultures. India, with her share of attention in the world business, somehow remains understudied and under-discussed.  This paper attempts to present a balanced view of the challenges in managing Indian workforces and the strengths and weaknesses of Indian teams and work environment.


Stereotype, Image, and Reference Others As Predictor of Buyer Behavior; An Empirical Investigation

Dr. Edward Vitale, Lebanese American University, Beirut, Lebanon



 The purpose of this paper was to investigate the impact of the Reference others scores, the American stereotype, and the country of origin effects (image) on buyers behavior. The study was conducted in Beirut, Lebanon on Lebanese respondents. The result showed that a negative American stereotype did not carry on to the market place, and country of origin effect showed a generally favorable image of the label made in USA, and had no relation with the negative stereotype.  Prediction of buyer behavior has preoccupied researchers for the past decades.  During that period of time, a number of variables such as income, social class, attitudes and self-concepts have been suggested with varying degrees of success as predictor variable of buyer behavior.  This research was designed to test the relationship between consumer stereotypes, images, and reference others and consumer buying behavior. This represents the first attempt to link these three variables to buyer behavior in Lebanon.  Lebanon, where this study was conducted in Fall 2010, is a tiny republic about the size of Connecticut (4,000 miles).  It follows a laissez-faire economic policy; also it is located in a region dominated by rigid economic controls on all kinds of investments, both private and foreign.  This has brought Lebanon one of the most remarkable economic upsurges in modern times, and has lifted it from the ranks of underdeveloped countries.   Economic liberalism and a political democracy in Lebanon date back to 1861, have attracted a wide range of foreign investors.  Lebanon is also the center of education for the entire Middle East.  Not only is the population literate, but English and French are also spoken by large segments of the population.  English serves as the official business language.  A voluminous literature on stereotypes has accumulated since Katz and Braly’s (1933) publication of the adjective check list, a technique for identifying and measuring stereotypes.  A stereotype is defined as “a standardized and oversimplified mental picture of a group” by Daniels et. al. (2011). There is in the literature theoretical support for viewing attitude as consisting of three components: cognitive, affective and behavioral.


Leadership Styles Correlate of Learning Organization In a Non-Western Culture

Angela Mahseredjian, Dr. Silva Karkoulian, and Dr. Leila Messarra

Lebanese American University, Lebanon



 Attention to the idea of learning organizations has been gaining intensity and leaders are needed to aid with the process. Although there are a number of styles in the way leaders lead, nevertheless, the purpose of this study was to assess the impact of subordinates’ perception of their managers’ leadership style (Transactional, Transformational, or Laissez-faire styles) on the learning organizational dimensions in a non-western environment. 200 participants from ten medium-sized companies operating in the retail sector in Lebanon participated in the study. The results suggest that transformational leaders have a more profound influence in cultivating a learning organizational environment than transactional leaders do. However, Laissez-faire leaders may slow the process down.  Over the course of the last few years, the idea of learning organizations has been drawing more and more attention (Starkey, 1996). As employees and managers makeup an integral element of organizations, it is likely that they play an essential role in learning organization. Organizations can then except to gain knowledge from these individuals (Kanter, 1983; Kim, 1993). A learning organization is an organization which possesses a strong capacity to acquire, utilize, and share knowledge as well as continuously aim for corporate success (Garvin, 1993). Yet, employees may be hesitant to share the knowledge they have acquired, so leaders are needed to aid the process. In the conventional perception of the world, leaders run organizations; they have a great influence on the behavior of others through various ways. Previous studies have shown strong correlations between leadership styles, individual motivation, satisfaction, effectiveness, performance and values within the workplace (Bass and Avolio, 1990). Although there are a number of styles of leadership, the purpose of this research is to identify which specific leadership style: transformational, transactional or laissez-faire leadership helps cultivate a learning organizational environment in a non-western culture.  Nowadays, organizations are under severe pressure to learn faster and more effectively in order to promote a learning environment (Kline & Saunders and Dervitsiotis, 1998). Due to the rapid change in technology and strong competition, organizations are constantly learning, changing, and adapting to new circumstances. Clearly, the need for a learning organization is imperative.  


The Labor Market’s Flexicurity in the Romanian Bank Sector

Dr. Costin Daniel Avram, The University of Craiova, Romania

Dr. Veronel Avram, The University of Craiova, Romania

Dr. Marioara Avram, The University of Craiova, Romania



 The concept of flexicurity has appeared after 1990 in Holland and represents the political strategy that attempts, in a synchronic and deliberated manner, to raise the flexibility on the labor market, in organizing the labor and the work relationships on one hand and the social security and the security of the employment on the other hand. The present international financial crisis compels the banks to increase their social responsibility and to change the behavior of their top management, because when the banks were racing in spectacular performances the state was not forced to intervene, but today, when the European states put on the shoulders of the contributors such huge burdens, the banks must show some signs of recovery from within. The first reaction of recovery from within in the Romanian bank system will be the reduction of the personnel that will lead to the decrease of personnel’s security in the bank system. The balance is achieved in the bank system through differentiated personnel strategies leading to the growth of flexibility for the youngsters and the growth of work security for the more experienced personnel categories.  The creation of the two leveled banking system has proved to be an important moment in regard to our country’s alignment to the good practices existent worldwide but also a reviving of the traditional role the R.N.B have assumed before the nationalization made in the post-war period.


The Significance of Leaders in Modern Business

Dr. Dragica Tomic, Higher School of Professional Business Studies, Novi Sad, Serbia

Dr. Radovan Tomic, Academician, Higher School of Professional Business Studies, Novi Sad, Serbia



 In this paper we deal with the relationship between leaders and employees as well as the extent of significance and influence of the leaders to motivate the employees. The paper will try to respond to the questions whether everyone can be a leader, whether leaders should have other qualities along with their qualifications, whether every leader can motivate the employees and what impressions the employees have about their leader and so on. Since we are from Serbia, we will try to explain the relationship between the leader and employees in Serbia from our point of view. In the backdrop of global economic crisis, business operations have declined and most companies are fighting to survive on the market; therefore, leaders have to work out the solution which will be the best escape from the ongoing situation. It is known that during crises people become closer and they more rely on one another so the leader and employees must act as an efficient team. All are aware that everyone should do their part of job, that there is a good communication in the relation leader – employee, that leader talks to the employees and then makes the best decisions based on the right information, because the leader is also responsible. It is very important for the leader to observe the ongoing events and adapt to the current changes which develop fast because those who can face and adapt to changes are able to survive. However, while facing pitfalls and difficulties, it is easier if the employees are with their leader and support him or her in achieving the common goal, that is to say, good business results because all can benefit from it.  The question that arises here is what kind of relationship there should be between the leader and employees. What is the ideal situation when the leader and employees act in an efficient and creative way, that is to say, when they have positive results? On the one hand, we have a situation when the leader issues peremptory commands and expects his or her decisions to be made without constructive discussion with the employees because the leader knows best what is to be done; on the other hand, there are situations when the employees take part in discussion and express their ideas because the leader wants to hear their opinion and then make a decision. In our opinion, the employees make the strongest contribution when the atmosphere is creative and when their leader trusts them and believes in their ideas.



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