The Business Review, Cambridge

Vol. 19 * Number 1 * December 2011

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

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Financial Valuation Using CLV Metrics: A Study of Online Brokers

Dr. Neeraj Gupta, Elon University, Elon, NC

 

ABSTRACT

 High growth service firms, such as online brokerage firms, are difficult to value because traditional financial metrics such as net income or cash-flow are expected to be negative for a considerable period of time.  To better value firms based on its current and prospective customers, we examine how customer retention and acquisition rates relate to firms’ spending on these activities.  We develop hypotheses to explain how these metrics, identified from customer lifetime value (CLV) studies in the marketing literature, affect stock returns.  Our model is tested on a sample of online brokerage firms with a particular emphasis on the market leader – Charles Schwab.  We confirm that our critical findings hold up to scrutiny for the full sample of firms.  Traditional discounted cash-flow valuation models, and financial markets, struggle to correctly value high-growth stocks because these firms have no dividend or earnings, and often very low book value or sales.  Consequently, prices of these firms may be much more volatile than those of firms with more stable cash-flows.  Some researchers, such as Damodaran (2001), have advocated the use of non-traditional methods.  However, even these still rely on projections of future firm cash-flows, sales, earnings or book value, which tend to be inaccurate over longer horizons.  Prior research suggests significant relations between firm value and non-traditional measures of a firm’s performance.  Demers and Lev (2001), studying Internet firms during and after the Nasdaq “bubble”, find that their stock prices have a positive relation with the number of new customers (reach) and retained customers (stickiness).  Trueman, Wong, and Zhang (2000) find that unique visitors and page views better explain market value of Internet firms than does its net income.  Amir and Lev (1996) study firms in the wireless communication industry, a high-growth, technology-based industry, and find that financial information such as earnings, book values, cash-flows do not explain equity valuations.  Firm valuation is better explained when financial information is combined with non-financial indicators such as population coverage, adjusted for ownership and market penetration, that are proxies for growth and operating performance respectively.

 

Evaluating Enterprise Systems Solutions: A Holistic View

Dr. Zehai Zhou, University of Houston-Downtown, Houston, TX

 

ABSTRACT

 As the complexity of managing the data across entire business processes is ever increasing in an organization, it is not efficient nor feasible to rely mainly on manually connecting functional information systems. Therefore, in addition to moving from silos to processes, an organization must move from functionally focused information systems to integrated Enterprise Systems (ESs). As organizations continue to expand their operations regionally or globally and view organizations from a process view rather than a functional view as a way to adjust and reorient operations around business processes in order to better manage and control the regionally or globally distributed organizations, multiple types of Enterprise Systems are increasing adopted and used by all kinds of orgnizations to gain and sustain competitive advantages. The major Enterpise Systems, including Enterprise Resource Planning (ERP) systems, Supply Chain management (SCM) systems, Supplier Relationship Management (SRM) systems, Customer Relationship Management (CRM) systems, and Product Life Cycle Management (PLM) systems, are increasingly connected/integrated. In the past, research focus has been on the evalauating and selecting of the most appropriate Enterpise Resource Planning Systems (ERP). We argue that an holistic apprach may be a more appropriate way of or necessary in evaulating and selecting of Enterprise Systems. Furthermore, while an application suite (i.e., the collection of these systems mentioned above) may be availabe and thus can be purchased from a suite vendor, it is not clear that if this is the best stragegy an organization shouldd take. Alternatively, an organization could select different systems from a selected group of vendors based on a varity of criteria inclduing the relative strenths/weaknesses, cost, etc. This study focuses on the ESs evaulation and selection using an holistic or integrated approach. Methods suggested could inclde Analytic Herarchy Process (AHP), Analytic Network Process (ANP), multi-level mathematical programming, fuzzy mutilple objective decision making, among others.  The advent of the Internet and proliferation of Web-based applications have caused radical changes in a wide variety of functions: from personal communication, to business purchases, to shopping habits. The impact of information and communication technology (ICT) is really phenomenal and revolutionary. ICT is one of the major driving forces for businesses of all sizes today. It has dramatically and profoundly changed our global society in general, and the ways in which organizations conduct business and how people live and work in particular. We are undoubtedly in an information age and more and more people live and work within the context of information and communication technology. In today’s rapidly changing society and workplace, and global markets, it is more important than ever for organizations to understand the importance of adaptation of information systems. Information systems provide the foundation for all kinds of organizations to conduct business. Real world organizations, local or regional or global, need to use information technology and systems in order to manage their daily operations, facilitate and control their business processes, gain market share, improve their customer services, and increase their profitability or efficiency.

 

Integrating Product Platform Decisions With Supply Chain Design Decisions: A Review

Dr. Bimal Nepal and Dineshkumar Muniyandi, Texas A&M University, College Station, TX

 

ABSTRACT

 The benefits of integrating platform based product development and supply chain decisions are well documented in the existing engineering management literature. While ample works have been done in the areas of both product platform design and supply chain design, very little effort has been made in the past in terms of providing an integrated review of the both areas in one place. The objective of this paper is to provide a comprehensive review of the prior works in these areas to facilitate the further research. The review is done from two perspectives: i) scope of the papers like platform design, supply chain design, or both; and ii) modeling techniques used such as empirical research, mathematical modeling, or other methodologies. Next, few areas are identified as a potential extension of the current literature. Lastly, a conceptual framework is presented to optimize the product platform design and supply chain design simultaneously using a game-theoretic approach.  Global competition and heterogeneous customer demands are forcing the organizations to offer diverse products leading to product proliferation. Product proliferation often results in difficulty in handling the supply chain due to complexity, which ultimately results in high production and inventory cost for companies and often causes the delays in products to market at the right time. On the other hand, product lifecycle is ever shrinking due to advancement in the information technology and highly globalized marketplace. Thus shorter life cycle of products coupled with heterogeneous markets urges the organizations to concentrate on product, process and supply chain decisions simultaneously. One of the common strategies pursued by industry in dealing with increasing customer demands to create the large variety of products is platform based product development (PPD).  It has been well recognized that the product design decisions and supply chain configuration (SCC) are closely related to each other, especially in a PPD environment (Fine et al., 2005).  In other words, it is important to identify suppliers at early stage of product development (PD) so that their capability can be leveraged with minimum changes in design.  Cost of switching the suppliers exponentially increases as we move from conceptual design to prototype, and then to actual production. Hence, the recent trend is to integrate the PD decisions with supply chain design decisions (Fixson, 2005).

 

Dynamic Impact Analysis of Floating Currencies in Mixed Exchange Rate Arrangements: Another Look at Interest Rate Parity (IRP)

Dr. Sung Chul No, Southern University and A&M College, Baton Rouge, LA

 

Abstract

 

This study revisits the classical model of interest rate parity to capture short term dynamic equilibrium paths of five major floating currencies followed by a series of revaluations of a pegged currency, Chinese yuan. Based on the estimates of co-integrating equations and the impulse response functions of the VECMs, the study found that the dynamic paths of spot and forward exchange rates to a new equilibrium are qualitatively similar across nations with few exceptions; their responses to an unexpected interest rate shock are much more prolonged than what the IRP suggests, indicating that there exists an arbitrage profit opportunity in the foreign exchange; and the arbitrage profit opportunity is more likely and often to occur in the recent months.  The foreign exchange market is the most unregulated financial market; it operates in the mixture of various exchange rate arrangements: Pegged, crawling pegs, manipulated float, independently floating. This alone renders the exchange market a research laboratory for international finance. In recent years, the market has gotten political spotlights as well. The most current one was a currency dispute between the U.S. and China (April 20, 2011, the WSJ). The main focal point was China’s unwillingness (crawling pegs) to allow its currency to rise quickly.  The opposite spectrum of Chinese currency arrangement is an independent floating exchange rate scheme in which market forces alone drive spot exchange rates. Various theories offer the elements of the market forces that dictate static long-run equilibrium exchange rates. A classical theory is the interest rate parity (IRP) popularized by John M. Keynes (Eun and Resnick, 2009): An increase in one country’s interest causes a spot exchange rate in direct terms to decrease; in turn, the change in a spot exchange rate leads to a change in forwards rate for no arbitrage conditions.  Numerous earlier studies explored testing on this no arbitrage condition. Using the static model and ordinary least squares, Mishkin (1984), Mark (1985), and Cumby and Mishkin (1986) found that the IRP, in general, does not hold and suggested that a risk free profit should exist in the foreign exchange market. Similarly, Fraser and Taylor (1990) supported evidence of arbitrage profits using vector autoregressive models. On the other hand, Kugler and Neusser (1993), Goodwin and Grennes (1994), Moosa and Bahtti (1996) provided evidence supporting the interest rate parity, indicating no persistent arbitrage profits made from cross transactions between the foreign exchange markets and international money markets. In addition, Lee and Wu (2004) found evidence in favor of IRP. In sum, empirical findings on the IRP are divisive.

 

Strategic Positioning of Burkina Faso Agricultural Products on the Agricultural World Market

Dr. Hamadoun Sidibe, University of Moncton, Canada

 

ABSTRACT

 In response to the opening  and access to markets that encourage the less developed countries (LDC) of the world, that was agreed on during the negotiations of the WTO, the IMF reported in 2010 that one of these LDCs Burkina Faso seeks to support export further diversification opportunities, notably in the agriculture and mining sectors. Focusing on the agriculture sector because of its vital role in  development, this research addresses the following question: What products should Burkina Faso - one of the poorest countries of the world -  choose to export to the world market? Using the strategic management perspective, particularly the BCG tool, the results of this study show that  world markets for the exports of Burkina are growing, except for its principal export of cotton lint. The  country should  diversify its exports and reduce its dependence on cotton lint. Indeed, Burkina Faso should increase its relative market share to become competitive and an important player in the world agricultural markets, and/or form solid alliances with other countries.  The opening of markets to the world trade has always interested businessmen, managers of enterprises,  governments, and all kind of organizations because it would paves the way for positive development gains. So, it was one of the main points of the negotiations for the World Trade Organization (WTO) meeting held in Hong Kong in December 2005. The Financial Times – in the December 13, 2005 article titled,  “Poor nations the priority in Doha talks,” - reported that “The US, the European Union and Japan all regard early agreement on a combination of cash and unrestricted access for poor countries' exports as essential to clear the way for negotiations at this week's WTO meeting on how to break the deadlock in the Doha trade round.” (p. 8). Indeed, on the last day of the ministerial meeting of the World Trade Organization (WTO), the Ministerial Declaration stated that the members of governments had committed themselves to comprehensive negotiations aimed toward  three main goals: market access (“elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect to be completed by the end of 2013”); exports subsidies elimination (reduction of, with a view toward phasing out, all forms of these exports subsidies); and  domestic supports reductions (substantial reductions for domestic supports that distort trade). The purpose was to correct and prevent restrictions and distortions in the world agricultural markets (WTO 2005). The leaders believed that these actions  would  benefit those countries that can compete on quality and price rather than the size of their subsidies. That focus, they said, is particularly the case for many of the  developing countries whose economies depend on an increasingly diverse range of primary and processed agricultural products being exported to an increasing variety of markets, including the other developing countries (WTO 2005).  Under this same context of opening the markets and eliminating  agricultural subsidies, the African countries and the developing countries must decide which agricultural products they need to grow to serve the world market. Indeed, what agricultural products do they need to promote as exports?

 

Lead-Lag Relationships Between Commodity Prices and Corresponding Company Stock Prices

Alan Stevenson, Former Graduate Student, University of Manitoba, Winnipeg, Canada

Dr. Milton Boyd, Professor, University of Manitoba, Winnipeg, Canada

 

ABSTRACT

 This study analyzed lead-lag relationships between commodity prices and corresponding company stock prices. This may be of interest to investments funds and analysts, as they may want to better understand the price relationships between these markets.  Lead-lag relationships between markets refer to the tendency of prices to be determined in one market, such as oil futures market, and with information then passed to a corresponding market price over period of time, such as Exxon stock price. The well known Granger causality method is used to analyze the lead-lag price relationships in this study. Data are from a variety of commodity futures markets such as lumber, copper, gold, and oil. Stock prices are included for thirty-five companies that produce these commodities. Results showed that for seventeen out of the thirty-five firms in the study, that the underlying commodity futures price led the stock price. This indicates that the commodity futures markets were a lead source of information for the corresponding commodity producing companies traded on the stock markets. In contrast, only three of thirty-five firms showed that the stock price led the underlying commodity futures price. These firms were Georgia-Pacific in the lumber sector, and both Barrick Gold and Placer Dome in the metals sector. Nine of the thirty-five firms showed feedback between the stock market and the underlying commodity futures market. This indicates that the commodity futures market and the stock market each pass information back to the other in relatively simultaneous fashion.  Only six of the thirty-five firms did not show a significant lead-lag relationship in either market. More specifically, in the oil sector, for integrated oil companies, crude oil futures price led the stock price for all ten integrated companies. Since oil futures prices here consistently led stock prices, this indicates that oil futures price may serve as a possible predictor of oil company stock price.  The objective of this study is to analyze the lead-lag relationship between commodity prices and corresponding company stock prices. Investment fund managers holding commodity company stocks (e.g. oil companies) often follow the stock’s underlying commodity price as a source of leading information, in hopes that this price information can be used for analyzing future stock price movements. For example, investment managers would expect to find a relationship between crude oil price and an oil producing company such as Exxon. This study attempts to provide further information on these types of relationships by analyzing the lead-lag relationships between commodity prices and related company stock prices.

 

Credit Risk Models By Type of Business

Seda Durguner, University of Illinois, Urbana-Champaign, IL

Dr. Ani L. Katchova, University of Kentucky, Lexington, KY

 

ABSTRACT

 This empirical study focuses on credit risk models for small businesses in the U.S. and tests if different models are needed based on the type of business. The application is specifically for small farm businesses (dairy, beef, grain, and hog farm businesses) in Illinois from 1995 to 2006. The results show that the effect of financial ratios on repayment capacity, and thus on credit risk, differ for farm businesses based on their business types. These findings show that working with aggregated models across business types in the U.S. may lead to misleading results and that lenders should take into consideration the type of business when evaluating the credit worthiness and repayment capacity of small businesses. Since the 1990s, credit risk models have received much attention in the literature. Lenders’ decisions about giving credit to borrowers are influenced by both subjective and quantitative methods. Subjective methods rely on lenders’ knowledge and their past experiences with borrowers and how well the borrowers have paid back previous loans with them. Quantitative methods rely on credit scoring models. Credit scoring models are statistical models and are derived from borrowers’ characteristics, which have the most effect on determining credit risk levels. Several of previous studies focused on significance of financial ratios in derivation of the credit scoring models (Barry et al., 2002; Miller and LaDue, 1989).  The focus of this study is to empirically examine credit risk models for small businesses in the U.S. and test if different models are needed based on the type of businesses. The application is specifically for small farm businesses in Illinois from 1995 to 2006. The Farm Credit System (FCS), which is the major lender in the U.S. for agricultural loans, typically issues five different aggregate types of loans: commercial farm, farm real estate, agri-business, rural housing, and small loans. Although the FCS groups loan applications into the categories above and treats them differently, the institution does not specifically account in its quantitative analysis for differences due to farm business types. For instance, when the FCS considers a loan application, it treats an application from the hog industry in exactly the same way as an application from the dairy industry.  In reality, considerable differences in rates of return on assets, leverage ratios, and liquidity exist among agricultural enterprises in the U.S. Boessen et al. (1990) identify large differences between the return on assets and leverage ratios for swine farm businesses and beef cow farm businesses in the U.S. Analysis of data collected from the Illinois Farm Business Farm Management (FBFM) Association in the U.S. also supports the view that financial characteristics across hog, dairy, beef, and grain farm businesses differ in the U.S., specifically in Illinois.

 

Understanding the Factors Contributing to Inter-Partner Trust in Joint Ventures

Samson Ekanayake, Deakin University, Burwood Campus, Victoria, Australia

 

ABSTRACT

 Forming an international joint venture (IJV) with a local partner in a host country is one of the popular ways available for an overseas investor to do business in any foreign country. A joint venture is commonly viewed as a cooperative, rather than a competitive, business relationship between two or more partners. Further, it is widely acknowledged that inter-partner trust as a key prerequisite for genuine cooperation between joint venture partners. Although the importance of trust in the context of joint ventures is well recognized, the question of how interpartner trust is formed has received only scant attention in academic as well as professional literatures. Drawing from diverse academic literature bearing on the formation of trust between partner firms, this paper explores the factors that may contribute to inter-partner trust in the context of joint ventures. The primary argument in this paper is that trust between IJV partners is determined by observable and objective social, economic and structural factors. In other words, it is argued that interpartner trust is rational and it does not require a ‘leap of faith’.  When a foreign firm (for example, a US firm) which pursues global strategies is convinced that there are potential benefits to be gained from forming an international joint venture (IJV) in a particular host country (for example, China), one of the first steps it seems to take is search for a suitable local partner (i.e., a Chinese firm) in the host country (i.e., China).  A joint-venture being a close business relationship based on cooperation, as opposed to an arm’s length transaction, the foreign firm will be keen to join hands with a trustworthy local partner. More specifically, the foreign firm would look for a competent partner who is unlikely to behave opportunistically. This is because, when the local partner is trustworthy, the foreign partner’s concerns about the local partner’s competence and intentions will be mitigated. According to scholars, partners’ incompetence and opportunistic intentions are the main partner-related concerns that exist in joint ventures and other inter-organisational relationships (e.g., Das and Teng, 2001; Dekker, 2004, Emsley and Kidon, 2005; Woolthuis, Hillebrand and Nooteboom, 2005).  Because partner-related concerns or risks are lower in a trustworthy partner, foreign firms typically give an important place to partner selection in the process of IJV formation.  Although the importance of trust in selecting a partner for a joint venture is obvious, the question of how inter-partner trust is ascertained or established has received only scant attention in the literature. Drawing from diverse academic literature bearing on the formation of trust between partner firms, this paper explores the factors that may contribute to the establishment of inter-partner trust in the context of international joint ventures.

 

A Comparative Study of Airlines Operating in Turkish Domestic Market: Low-Cost Business Model Perspective

Dr. Ferhan Kuyucak and Dr. Yusuf Sengur, Anadolu University, School of Civil Aviation, Turkey

 

ABSTRACT

 The low-cost airline business model has been one of the most striking phenomena of the airline industry. The model that started in the United States has been applied around the globe for about 40 years. Followers of the model in Europe succeeded and gave momentum to its spread all over the world. This study investigates what type of low-cost airline business model is prevailing in Turkey and what characteristics are similar to characteristics in the original low-cost business model.  Low-cost airline or low-cost carrier (here after LCC) business models have been discussed since they became an important issue in the global airline industry. Actually there is no single business model for this, and there are important differences in the business models of airlines who are all commonly referred to as “low cost carriers” (Mason and Morrison, 2008). However, there are some successful operating characteristics of low-cost airlines that are widely accepted as a model (Lawton 2002). Many LCCs have benefited from the benchmarks of the low-cost business model. Slightly different low-cost airline business models emerged depending on the particular industry environment.  Low-cost airlines’ features have been investigated since the model came into scene by its success (Franke, 2004; Button and Ison, 2008; Brüggen and Klose, 2010). Especially, Southwest Airline has drawn a lot of attention from researchers because of its successful application of low cost airline business model first time and some studies have been done comparing features of low-cost airlines to the original model of Southwest Airlines and to each other (Rhoades, 2006; Alamdari and Fagan, 2005; Mason and Morrison, 2008). Also, low-cost airlines in different part of the world have been discussed and compared to European and American counterparts (Forsyth, 2003; Lawton and Solomko, 2005; Connell and Williams, 2005; Evangelho and et. al., 2005; Zhang et. al., 2008; Oliveira and Huse, 2009). Although there are numerous studies dealing with low-cost airline business models and their applications worldwide, there is no prominent study focused on low-cost business models in Turkish domestic airline market which has a remarkable growth during the last decade.  In this study, domestic airline industry is reviewed and airlines operating in domestic routes in Turkey are analyzed in terms of their strategic choices and their positioning with some characteristics such as network and fleet structures. To make comparison between airlines that are thought to be low-cost airlines in Turkey, Southwest Airlines’ original low-cost model is used. The differences among these airlines in question, and between these airlines and widely accepted low-cost business models, are discussed. Some airlines in Turkey seem to have similar operating characteristics to those low-cost airlines.

 

To What Extent Should All The Attributes Be Transformed to One Comparable Unit When Evaluating Safety Measures?

Dr. Eirik Bjorheim Abrahamsen, Dr. Frank Asche and Dr. Terje Aven, University of Stavanger, Norway

 

ABSTRACT

 In evaluation of safety measures there are a number of methods to use, including cost-benefit analysis, cost-effectiveness analysis and multi-attribute analysis. All these methods have in common that they are systematic approaches for organizing the pros and cons of a decision alternative, but they differ with respect to what extent one is willing to make the factors in the problem explicitly comparable. Among experts there are different views related to which of these analyses that should be adopted when evaluating safety measures. Many safety experts prefer multi-attribute analyses and cost-effectiveness analyses, while many economists prefer to transform all the attributes to one comparable unit by using a traditional cost-benefit analysis. This raises the question to what extent all the attributes should be transformed to one comparable unit when evaluating safety measures. In this paper we look closer into this issue by discussing to what extent the different methods will meet generally known and accepted principles of good decision-making. We show that the decision-making can neither be ‘consistent’ nor ‘transparent’ if one is not willing to transfer all attributes to one comparable unit. There are, however, many weaknesses and limitations of traditional cost-benefit analyses. We then conclude that a more pragmatic view of a traditional cost-benefit analysis is the most appropriate approach for evaluation of safety measures. Two examples are used to illustrate our main ideas.  When evaluating safety measures we need to take all the pros and cons into consideration. A common challenge is that the unit of measurement is different for different attributes in the analysis. In general this implies that the decision-maker either must subjectively weight the different units in relation to each other or find a common comparable unit to express the attributes in.  Among experts there are different views on how to weight the different attributes when evaluating safety measures. Some experts will transform all attributes to one comparable unit by using a traditional cost-benefit analysis. While this unit does not have to be money, that is the most common choice since most people have a familiarity with the unit and the value of all market goods are represented with this unit. These experts search for identifying the correct monetary values for all attributes, including values of lives and the environment. Many economists belong to this category (Foster, 1996). There are also some experts with a more pragmatic view of a cost-benefit analysis. An analysis could for example include the value of a statistical life but excludes the cost of environmental damage. The argument being that it would be difficult to assess a proper value for the environmental damage (Aven, 2003; Aven and Kørte, 2003). For other experts a traditional cost-benefit analysis where all the attributes are transformed to one comparable unit is not considered appropriate at all. The main argument is that there are too many weaknesses and limitations of such analyses to justify their use.

 

Managing Hidden Illnesses That Impact on Performance and Absenteeism

Dr. Mirella S. De Lorenzo-Romanella, Lecturer, Swinburne University, Victoria, Australia

 

ABSTRACT

 

Under-performance and absenteeism are issues that all organisations seek to reduce, often devoting substantial resources to the establishment of performance management policies, extensive training programs and a host of complementary policies. However, while most contributory factors to these unwelcome workplace issues are known and tackled, one factor stands alone as a key contributor to sub-optimal performance and poor attendance, namely mental illness. This paper oultines the extent of mental illness in western countries, why it is hidden, and how the use of additional policies can be adopted to assist employees who choose not to divulge to their employer that they have a mental illness.  Under-performance and absenteeism are issues that all organisations seek to reduce, often devoting substantial resources to the establishment of performance management policies, extensive training programs and a host of complementary policies. However, while most contributory factors to these unwelcome workplace issues are known and tackled, one factor stands alone as a key contributor to sub-optimal performance and poor attendance, namely mental illness. This factor, while acknowledged is seriously under-valued in size and breadth of coverage in the workplace with few operational managers knowing that in any calendar year somewhere between a fifth and a quarter of their staff will have a mental illness. The effect of mental illness on fitness to work is not well known in management literature as its incidence is shrouded in secrecy and subterfuge by its sufferers, most of whom seek to attribute changes to performance and attendance to other factors. Consequently, performance management plans will rarely have this information available, even when employees are directly asked if they have a health problem affecting their fitness for work.  The pervasive nature of stigma that surrounds mental illness keeps it hidden and away from public view and the wider community, few people knowing that in any 12-month period mental illness accounts for 20-27% of any community (NIMHa, 2011; ABS, 2007; Wittchen and Jacobi, 2005). Fears of a negative backlash after disclosing such illness is so powerful, that employees with temporary or long-term mental illness would rather attribute performance issues to other problems rather than to run the risk of being viewed with the prevailing stereotype that surrounds sufferers of these types of illnesses. Hence, when performance issues arise, such employees are often resistant to the agreed goals of performance plans, often to the frustration of operational managers and human resource staff alike. This paper will outline the incidence of mental illnesses in the workplace, showing why it is concealed and common effects of mental illness on employee performance and attendance.  Strategies to effectively manage employees with a hidden mental illness will be reviewed and outlined, Currently both management and human resource literature fail to provide adequately for the management of employees with a hidden mental illness.

 

Assessment Standards in the Technology Transfer of Long-distance Steep Turn Pipe Impelling Construction Method

 

Dr. Yeong-Bin Lee, Ling Tung University, Taiwan

 

ABSTRACT

 

In recent years, the rapid urban development and increasing demands for a higher quality of living have geared up large-scale construction of infrastructures such as underground power, underground sewage works, gas piping system, telecommunications lines, tap water lines, and optical fiber Network. The construction must be well planned and managed to have minimal impact to residents on neighborhoods and traffic above the ground. The underground space utilization will offer chances to help ease these issues while the techniques used become more sophisticated and complex. To meet the demand of underground construction, there have been several new techniques. Long-distance Steep Turn Pipe Impelling Construction Method(LDSTPICM) is a new construction technique that is being actively introduced in Taiwan. The study first conducted an interview with a Japanese company that owns the technique to understand the key technology, major benefits and advantages of the construction method, followed by a discussion with professionals from Japan, researchers in Taiwan, other experts  about technology transfer of Long-distance Steep Turn Pipe Impelling Construction Method. By organizing into hierarchies and utilizing Analytic Hierarchy Process (AHP), an evaluating framework of assessment standards was finalized for the analysis, examination and investigation of assessment standards in technology transfer of Long-distance Steep Turn Pipe Impelling Construction Method. The major research findings showed that the three key components of the construction method critical to successful transfer involve the compatibility among the turning machine, the launching pipe and the turn pipe, and if the technology provider is willing to provide with complete information and advice based upon their experience. The experience and knowledge of the technology provider and their engineers will maximize the chance of successful transfer. Therefore, the government should encourage and support the technology transfer to assist domestic industries  in promoting their ability and experience accumulation. By setting quality standards and establishing codes and regulations governing the construction methods, the government can ensure the localization and popularization of  the technology which will lead to local industry upgrading and diversified economic development. The purpose of the study is to examine the assessment criteria of the technology transfer of Long-distance Steep Turn Pipe Impelling Construction Method (LDSTPICM) . The paper first addresses the background and motivation and details the purpose of the study as follows.  Based on the latest Global Competitiveness Report released by the World Economic Forum (WEF) released on Sept. 26, 2006, Taiwan has dropped its ranking to 14th in 2007, down from 13th in 2006, 8th in 2005 with poor performance of infrastructure system as the one of the major reasons.

 

On Using Post Purchase Behavior to Assess Service Innovations:  A Multi - Method Multi Criterion Approach

 

Dr. Chaim Ehrman, Jerusalem College of Technology, Israel

ABSTRACT

 In the area of Service Innovation, the producer often is unsure which particular innovative feature is the one that may offer maximum want satisfaction for the user. Typically, innovations are multiattribute in nature, and the innovation addresses several features concurrently.  If the provider of the innovation could pinpoint which feature was "best," this can become the Unique Selling Proposition1 that the provider can use in promoting the new innovative service. In this paper, we focus on an innovative service that several Universities have introduced in Israel, known as English Speaking Programs or ESP. This service is designed, to accommodate students who do not know Hebrew well.  The attitudes of students who attend these ESP at Israeli Universities are analyzed and are used to evaluate these innovative programs, using a multi method – multi criterion approach. The procedures described in this paper can be used by firms who introduce innovative services to consumers.  Evaluating product or service innovations is fairly complex. Consumers have a lot of conflicting attitudes and the true attitude is hard to measure. For instance a "High" price can be viewed as a good thing, since it signifies high product quality. On the other hand, a "high" price can be an impediment to purchase, since the demand curve for products and services is a downward sloping curve: As price increases, quantity sold decreases. In this paper, the measuring of attitudes is focused on the users of the new service. Attitude measurement about ESP was taken from students who registered and paid for this service. So the validity of our measurements is greater, since this is "Post Purchase" measurement.  The motivation of the study came from the College of Matula (name is disguised); one of the Universities in which the ESP is being offered. The students seem to be unhappy with the program but are unable to define a specific reason why they do not experience want satisfaction. In this study, we measure student happiness with ESP across all universities. Subsequently, the analysis is directed toward salient features that generate student satisfaction as well as differences in happiness with the respective ESP endeavors that the universities offer. Student perception on USP for each university is going to be different.  This paper is divided into 3 sections. The first section describes how one can measure student satisfaction with the ESP program. Sampling methods are also addressed, i.e., how the respondents were selected to be in the study. The second section focuses on data analysis and method of analysis that was used. The third section is a summary of our findings. The contribution of this paper is in the area of muli-method data analysis on post purchase attitudes. Both parametric as well as non-parametric analyses are used and the conclusions are the same.  This is an illustration of Multi Method – Multi Criterion approach.

 

Self – Marketing for Graduates and Professionals as a Strategic Career Management Tool

Ezgi Merdin, Bogazici University, Istanbul

 

ABSTRACT

 Within the relatively quick transformation of the Industrial Age into the Information Age, career management has not only gained increased importance but also its content and domain changed very much accordingly. As Drucker (1994) argues, we are in the middle of a great social transformation where the primary resource is knowledge and the new class of post-capitalist society is made up of knowledge workers and service workers. Due to these major transformations, in career management we witness much interdisciplinary collaboration with psychology, economics or marketing. This work is also built upon the foundations of such collaboration, the possible uses and benefits of marketing and product management theory and practice within the domain of career management. The transition to Information Age and the accompanying paradigm shift have been put forward as environmental changes and the statement of a current problem. One of the strategies to advance a career in such an environment is self-marketing which has been theoretically explained and supported by a realistic self-marketing plan example in this paper. Overall, this study is aiming to provide an explanation of how self-marketing changes the perspective to career management as well as a practical guide.  As there have been major definitions of “career” in the Information Age and many alternative roads of advancing it have occurred, also the ways to manage career have varied. Let alone the management of a career, also ways of even starting it have been topics of thought and discussion. Getting employed, sticking to the company or the position and getting the desired promotions are not as easy as before. According to McCorckle and others’ analysis (2003), today’s job market is much more competitive and challenging than before, and also it requires substantial effort in order to pursue a suitable position successfully. Some facts, observed in the USA but also easy to be observed in other countries as well, are presented to support this argument.  By the end of 2001, the national unemployment rate in the U.S. had reached a 5-year high of 5.4%, with the pool of unemployed managers and professionals increasing 63% to 1.2 million in the past year (Dunham, 2002). What this means is that the potential chances of recent graduates are decreasing due to the enlargened pool of experienced yet unemployed people in the economy, bringing further competition. In addition, fewer employers are visiting college campuses for potential hirings. Even if they had done these visits, the year of 2003 witnessed varying amounts of open positions, decreases between 4-20% compared to previous years (McCorckle et al., 2003).  According to the OECD reports (2007), the unemployment rate among university graduates in Turkey is 12,5%, and some European countries are closely following it with ratios of 8.1% in Spain, 7.4% in France and 7.3% in Poland. As reported by MonsterTRAK (2001), “Students are finding that they need to be more proactive in their job search than in years prior” (p.1).

 

Knowledge Creation Mechanisms: Factors Influencing The Knowledge Creation Process

Dr. Wei-Li Wu and Dr. Yi-Chih Lee, Ching Yun University, Taiwan

 

Abstract

 Based on the view of knowledge-based theory, firms can be seen as the main venue of enhanced knowledge creation, while external knowledge acquisition is an important source of knowledge creation. Basically, whether companies can properly use their strategic alliance partners’ resources for the activities of knowledge creation has become a key factor of gaining a sustainable competitive advantage. If firms are the main venue of enhanced knowledge creation, different organizational designs should have various impacts on the processes of knowledge creation. However, researchers do not yet realize how organizational designs influence their output of knowledge creation within firms. Therefore, in order to recognize the importance of organization designs for knowledge creation, three types of organizational mechanism are proposed (“knowledge creation mechanisms”), which will be good for promoting knowledge creation.  Based on the perspective of a knowledge creating firm, this study will explain how firms perform knowledge creation effectively, through acquiring knowledge from their strategic alliance partners, and will explore the impact of knowledge creation mechanisms on the relationship between knowledge transfer and knowledge creation. Finally, this study will conclude with suggestions for future research and practical implications on knowledge creation in strategic alliances.  In the age of the knowledge economy, organizations that have been under good management and the application of knowledge maintain advantages in competition (Nonaka and Takeucji, 1995). In general, there are two sources of knowledge creation. Firstly, the organizations develop and create new knowledge on their own, and secondly, the organizations can acquire knowledge from the outside, such as marketing, trade or strategic alliances (Tallman and Shenkar, 1994; Cho and Yu, 2000; Tsang, 2000). Recently, many researchers have been concerned with how an organization might strongly enhance its advantages by acquiring knowledge from external sources (Hagedoorn and Schakenraad, 1994; Lambe and Spekman, 1997; Arikan, 2009). In particular, cooperation through strategic alliances has been considered as a significant source (Inkpen, 2002).  It is also believed that the process of strategic alliance cooperation provides the firms with the chances to observe, imitate and learn, and even to transfer their strategic alliance partners’ knowledge to their own organization. As a result, a strategic alliance has been seen as a major learning platform for the firms that eagerly wish to acquire new techniques and knowledge (Kogut, 1988; Hamel, Doz and Prahalad, 1989; Prahalad and Hamel, 1990; Huber, 1991; Hamel, 1991; Inkpen and Crossan, 1995; Khanna, Gulati and Nohria, 1998). For example, the reason that Taiwan’s information and electronics companies have rapidly improved on knowledge creation has been to learn the advanced technology and knowledge by working in cooperation with international strategic alliances.

 

Clustering Chinese Visitors Based on Chinese Cultural Values

Mei-Hsia Chiang, National Central University and Hsing Wu Institute of Technology, Taiwan , R.O.C.

Dr. Yi-Wen Fan, National Central University, Jhongli City, Taoyuan County, Taiwan, R.O.C.

Charles W. M. Chiang, Applied Films Taiwan Co., Ltd., Tainan City, Taiwan, R.O.C.

Dr. Eric T. G. Wang, National Central University, Jhongli City, Taoyuan County, Taiwan, R.O.C.

 

ABSTRACT

 This study is to investigate the most relevant Chinese cultural values that may affect Chinese tourists’ perceptions regarding the services received during their stay in UK Bed-and-Breakfasts (B&Bs) and to identify various visitor clusters based on their different emphases on these relevant values and to explore differences among these various visitor groups. Self-administered questionnaires and e-mail surveys were distributed to cross-strait Chinese visitors with accommodation experience in UK B&Bs. Factor analysis confirmed the relevance of three Chinese cultural values – Li (Propriety), Face, and Interpersonal relationships – in the UK B&B context. Using a factor-cluster segmentation approach, three distinctive visitor segments were identified: practical, polite/socializing, and save-face groups. Hospitality and tourism managers and marketers can adopt culturally customized management and develop segmentation-based marketing strategies for each Chinese visitor segment to cultivate positive word-of-mouth and win customer loyalty.  Relevant Chinese cultural values have been confirmed in the UK B&B context, especially the rarely-mentioned cultural value of Li. Although this is demonstrated in a UK B&B setting, it can be generalized to other similar contexts. Moreover, this study represents an initial attempt to segment Chinese visitors based on the importance ratings of these relevant values.  China is now widely recognized as a key driver of global economy since it has experienced a few decades of 8–9% compound economic growth.  China will become one of the top three outbound tourism markets in the world in less than 20 years (Nania and Green, 2004).  Among the world’s top ten tourism spenders in 2008, the strongest growth (+21%) came from China (World Tourism Organization [WTO], 2009).  The number of mainland Chinese visitors to the UK doubled between 1999 and 2004, but their 2004 expenditure more than trebled the 1999 expenditure figure.  The UK was granted Approved Destination Status (ADS) by the Chinese National Tourism Administration (CNTA) in 2005, which means that Chinese nationals can visit UK for leisure travel. Before that, it was only possible for Chinese to visit UK for business or study.  This approval unlocked the growth potential of Chinese holiday visitors.  In addition, Chinese students should not be neglected as potential tourists as the number of Chinese students studying in UK higher education has increased dramatically, making them the largest group of non-EU nationals (Nania and Green., 2004).

 

Organizational Climate and its Effects on the Employees’ Commitment

Dr. Abdul-Nasser El-Kassar, Miss Nour Chams, and Dr. Sylvia Karkoulian

Lebanese American University, Beirut, Lebanon

 

ABSTRACT

 This study investigates the effects of the seven dimensions of organizational climate (Structure, Responsibility, Risk, Reward, Warmth and Support, Conflict, and Expect Approval) on the three types of organizational commitment (Affective, Continuance and Normative). The purpose of this paper is to examine if a relationship exists between each aspect of organizational climate and each type of employee commitment. The research reports the results of 214 survey questionnaires. Participants were individuals working in medium and large sized organizations located in Lebanon. Results indicate that the affective commitment is highly correlated with five components of organizational climates: structure, responsibility, warmth and support, conflict and expect approval.  Also, continuance commitment is impacted by three organizational climates: rewards, warmth and support, and structure. Moreover, normative commitment is significantly related with three organizational climates: rewards, warmth and support, and expect approval. To improve productivity and performance of an organization, managers should understand the human resources, attitude and behaviors of the workforce. Organizational commitment can be one of many aspects that can be studied in order to measure workforce attachment to an organization within a certain climate. Nowadays, firms tend to create comfortable atmosphere and suitable working environment to enhance performance, increase job satisfaction, decrease employees’ turnover and absenteeism and to improve workers’ involvement and attachment to the organization as a whole entity.  By definition, organization is considered as a group of financial, capital, physical and human resources working together in order to achieve mutual goals and objectives. This set of resources works towards same mission and vision, shares common values and norms, and follows similar strategies, systems and procedures.   Many factors within organization may have an important impact on employees and staff. These internal and external features determine the organizational climate which affects performance, operation, functioning and culture of the organization. In order to assure effective and efficient use of resources and specifically the human assets, management of any organization might provide an optimistic encouraging atmosphere that can enhance worker commitment level and attachment.  Herscovitch and Meyer (2002) defined commitment as the extent to which workers recognize the goals and objectives of the organization and they are willing to make effort and to work harder to help it prosper. Similarly, Bateman and Strasser (1984) described commitment as a multidimensional aspect relating employees’ devotion and faithfulness to readiness to exert effort on behalf of the organization and the desire to maintain membership.  Meyer and Allen (1997) distinguished three different forms of organizational commitment:

 

Firm and Economic Factors and Performance: Croatian Composite Insurers

Dr. Marijana Curak, and Sandra Pepur, University of Split, Split, Croatia

Dr. Klime Poposki, Insurance Supervision Agency, Skopje, Republic of Macedonia

 

ABSTRACT

 The paper investigates key factors that determine the financial performance of composite insurance companies in Croatia during the period 2004 to 2009. The chosen explanatory variables, taken into account as determinants of the insurers’ profitability, include both firm-specific (internal) and economic (external) characteristics.  The results of the panel data analysis applied indicate that size, underwriting risk, inflation and equity returns have significant impact on the insurers’ ROA as a profitability measure. The paper extends prior research and contributes to the literature in two ways. First, to the best of authors’ knowledge, it is the first research performed on the composite (both life and non life) insurance companies that represent the largest segment among total insurers in Croatia. Second, the study provides insight into the impact of the several firm and economic specific characteristics that have not yet been examined in the context of the insurers’ profitability in Croatia.  The successful performance of a company’s activities contributes not only to an increase of its market value, but also leads towards the growth of the particular industry and towards the overall prosperity of the economy. Insurance companies gain the importance due to the number of functions of financial system they perform. Not only do they provide mechanisms of risk management, but they also collect funds through selling policies and channelize them to deficit economic units. This articulates the role of insurance companies in supporting the business activities in the economy as whole which is a plausible rationale for deeper research of their financial performance and its determinants. The insurance sector in Croatia is composed of 27 insurance companies. It is dominated by state-owned company Croatia osiguranje d.d. with market share of 31.4 per cent in total insurance premiums in 2009. Foreign insurers have increased their market share, especially in the life insurance (76.1 per cent in life insurance and 29.8 in non-life insurance in 2009). After the period of strong growth of both, non-life and life insurance premiums (in the period between 2005 and 2007 the growth rates were double-digit), the growth was slow down in 2008 while there were negative growth rates in 2009 and 2010. Insurance penetration is 3.83 per cent of GDP while insurance density accounts 401.5 USD per capita. The share of non-life insurance in total insurance premiums is 73.4 per cent. The dominant insurance line of business is compulsory motor third party liability insurance that participates in total insurance premiums with 31.3 per cent in 2009 (Croatian financial service supervisory agency, 2006-2011, Croatian Insurance Bureau, 2010). Thus, the main indicators of the insurance industry imply low level of development but with strong dynamism.

 

Business Intelligence and Competitive Intelligence: Separate Activities or Parts of Integrated Process?

Dr. Rimvydas Skyrius and Dr. Vytautas Bujauskas, University of Vilnius, Lithuania

 

ABSTRACT

 The field of business intelligence (BI) maintains a number of conflicting views as to what is encompassed by the term, and what the boundaries of the function are. The growing diffusion of BI processes raises high user community expectations which have to be supported by adequate understanding of BI function and the potential sources of its value. In particular, the presentation of BI as being mostly inward-oriented may misguide the user community away from some potential sources of BI value. The goal of this paper is to challenge the current definitions of BI and, using the results of a survey of business users, justify the positioning of the BI function regarding inward and outward orientation. The paper concludes that intelligence issues need an integrated view of a business environment, both for common monitoring or special problem solving functions.  The field of business intelligence is an active and still growing area of computer applications in business and economy (Gartner 2009). The term has been used to describe processes and systems dedicated to the systematic and in-depth analysis of an organization and its competitive environment (Bucher, Gericke 2009). BI has largely taken over the functions of decision support systems (DSS) as an approach to strive for thorough understanding of business activities and related problems. The numerous definitions and types of BI applications have spurred debates regarding both the core understanding of BI and the value it creates.   Although much has been said about what constitutes the field of business intelligence, the views are still conflicting on issues such as goals and boundaries of BI, structure of the BI process, key BI features and some others. Broad definitions of BI encompass internal and external monitoring, data integration, master data management, data warehousing, data mining and other discovery techniques, presentation techniques including reporting and dashboards (Calof 2008). Narrow definitions concentrate on areas of analytics, reporting and dashboards (Evelson 2010). In our opinion, in any case we assume a presence of a set of methodologies and instruments to aid insights and decision making.  As this paper concentrates on the IT-based procedural part of BI, the further stages – human processing, dissemination of results and eventual taken actions are outside the scope of discussion, although a follow-up of activities based on intelligence results, as well as its influence on monitoring activities, is a rather interesting area of related research.  One of the important dimensions for different approaches to BI that comes to attention is separation of business intelligence and competitive intelligence as being respectively directed inwards and outwards. Some sources (e.g., Nash 2010) do state that business intelligence is a well-defined activity with tools and methods for estimating internal efficiency and possible subsequent automation of activity management – approaches like business process management (BPM) or key performance indicators (KPI) are frequently used in this context.

 

Improving the Functionality and Attractiveness of Beach Touristic Destination Websites in Mexico

Ana M. Ramirez-Herrera and Prof. Celestino Robles-Estrada

Universidad de Guadalajara, Mexico

 

ABSTRACT

 This document introduces the reader to the generals of tourism in Mexico. The text provides a review of the official Web sites of the five main touristic destinations in Mexico (Cancun, Los Cabos, Puerto Vallarta, Ixtapa, and Cozumel) based on a modified balanced scorecard proposed by Feng et al. (2002). After the analysis, we present several strategies to improve the functionality and attractiveness of these Web sites, by improving their contents and making them more appealing to the consumer at the same time; these improvements offers a better value proposition to accomplish their purpose as promotional agents for the economical development of their regions.  México is located on the south side of North America, between the Pacific Ocean and the Gulf of Mexico. The country has an approximate extension of 2 million square km, with around 107 million inhabitants, according to the last census by the National Institute of Geography, Statistics and Information (INEGI, 2009). Mexico is the biggest Spanish-speaking country in the world.  Because of the net volume of its GDP, Mexico is the 14th largest world economy, and in 2001 was even higher, at the ninth largest. It is the second biggest economy of Latin America, only behind Brazil, and the fourth biggest on the continent. For the majority of the past century, the main income source for Mexico was the oil industry, even when there was an industrialization process that allowed the diversification of its economy.  Mexico also has one of the largest diversity of climates in the world. This allows the country to be one of the 12 most mega-diverse countries in the world, since it possesses 10% to 12% of the world’s biodiversity and hosts more than 12,000 species.  Tourism is an important economic activity for Mexico, which holds the eighth place in the world in terms of international tourist arrivals, and first place in international arrivals in Latin America. The incomes from this activity in the country surpassed 12 billion USD in 2006. This industry also provides around 15% of the direct and indirect jobs in the domestic economy.  The tourism industry in Mexico started to develop in 1928, with the development of the cinematography industry in the United States and Mexico (Berger, 2006). Destinations such as Acapulco and Puerto Vallarta were selected as locations for international moviemakers, which positioned these destinations on the international touristic map.

 

Earthquake Disaster Risk Control in Tourism Industry Via Probability Analysis

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

 

ABSTRACT

 The Taiwan government is aggressively promoting projects, such as the so-called “Double Tourist Plan", encouraging the development of the sightseeing business. Operators in the tourist industry naturally want to construct facilities at or near scenic areas, which in Taiwan are often adjacent to the mountains or the ocean. Unfortunately these are the areas that most often experience natural disasters. This has a negative impact on the tourism industry. The centralization of touring regions, leading to the gathering of large numbers of tourists during the holiday seasons places people in danger. In other words tourism operators in the Taiwan region face a high risk of natural disasters. This paper describes how earthquake risk-based risk control allocation model works. We begin by discussing the economic rational for allocating risk control in a Tourism Industry.  Considering a probability model for risk control decision making under uncertainty and risk, we propose a model involving stochastic total loss amount constraints with respect to various tolerable default level. Our main objective is to develop a method that would allow shaping the risk associated with risk control outcomes.  The direct and indirect losses caused by the simulated disasters can be estimated using the engineering and financial analysis model. Basing on the model, we can generate exceeding probability (EP) curve and then calculate how much loss will be ceased or transferred to other entities, if somehow spending budgets on risk control actions. Optimal natural disasters risk control arrangement with probabilistic formulation is explained in this paper. Results from the proposed formulations are compared in case studies.  Having a special geographical environment, Taiwan, therefore, has many unique and beautiful types of scenery, changeable climate, and even more, conceiving numerous precious and natural sightseeing resources, however, the special geographical environment will become a primary cause subjected to frequent natural disasters as well. In general, there are more than 200 sensible earthquakes and 4.6 typhoons attacking Taiwan region annually, and the exposure of natural disaster risk will be formed quickly and centrally along with the rapid economic development and centralized urban development in the past two decades, therefore, the potential risks regarding the loss of tourism industry caused by the catastrophes, such as, the earthquakes, typhoons, floods etc. have been raised obviously.

 

 What can Higher Education learn from the Business World in term of Customer Satisfaction?

Dr. Rassem Amash, Royal University for Women, Riffa, Kingdom of Bahrain

 

ABSTRACT

 Evidence drawn from many non for profit organizations and governmental agencies including Department of International Education and Student Exchange in Washington D.C show that the enrollment of international students in United States is declining in the past decade. One million international student and twenty billion dollar business in late nineties to less than four hundred thousand student in 2010, it’s a major decline. This research examines the phenomena of the decline, satisfaction of international students, and the alternatives of international students.  This study was designed to examine the challenge, difficulties facing international students in the United States and the quality of student services provided by one of the most culturally diverse postsecondary institutions in the United States. The longer term goal of the study is to identify strategies that can be used for the improvement of international student services, increase international student enrollments, decrease the negative challenges these students, and come closer to fulfilling the expectations of international students attending American Colleges and Universities. To date, however, very few research study findings are available that highlight available programs and strategies employed to minimize international students’ concerns and attract or retain students in higher education. The study is focusing on the needs of international students and marketing strategies to attract international students to American educational institutions.  "International education is big business for all of the Anglophone countries, one million international student and twenty billion dollar business, American universities traditionally has dominated the market without having to try very hard," said Tim O'Brien, international development director at Nottingham Trent University in England. "Now Australia, the U.K., Ireland, New Zealand and Canada are competing for that dollar, and our lives have been made easier because of the difficulties that students are having getting into the United States of America. According to the Institute for International Education in Florida “ In 2009 international students contributed over ten billion U.S $ to the American economy; a decline of fifty percent in comparison to 2004, however two third of the top hundred universities reported a challenge in retention of international students or a decline of the number international students…” . U.S universities reporting not only a decline of enrollment of international students but a challenge in retaining international students in American higher education. Marketing and attracting international students is one challenge, and retaining international students is a challenge by itself. The Institute for International Education defines international students as those individuals who are enrolled for coursework at U.S. institutions of higher education under a temporary visa. Refugees, immigrants, and permanent residents are not included in this classification.  The education of International students has a long history in American higher education. Students from oftentimes less developed countries come to the United States to acquire knowledge and skills that they can use to improve their home countries and to foster personal growth through cross-cultural learning and exchange According to the Open Doors Report on International Exchange (2007) published by Higher Education Resources Group, a division of the Institute of International Education, there was a 6.4% increase in international enrollment in U.S. colleges and universities between 2005 and 2010—the lowest increase in the past twenty years. Foreign applications to American graduate schools declined 28 percent in “2004” (Dillon, 2005).  Actual foreign graduate student enrollments dropped 6 percent and enrollments of all foreign students, in undergraduate, graduate and postdoctoral programs, fell for the first time in three decades. Meanwhile, university enrollments have been surging in England, Germany, China and other countries.

 

Product Market Competition and CEO Entrenchment

Dr. Anwar Boumosleh, Lebanese American University, Beirut, Lebanon

 

ABSTRACT

 This paper examines the effect of product market competition on the CEO pay gap and job stability. We find that the pay gap between the CEO and other top executives in the firm increases as competition in the market increases. We also find that CEO pay over the pay of the second top executive in the firm is positively associated with the level of competition in the market. Overall the results of the paper suggest that on the one hand higher competition comes with greater responsibilities and allows the CEO to negotiate higher pay relative to other executives in the firm; on the other hand, it provides the CEO with the ability to eliminate the position of an immediate replacement.   Competitive markets are relatively efficient; characterized by transparent operations, thin profit margins, and high accessibility of resources. Indeed, the firm’s operating strategy and the strengths and weaknesses of this strategy are easily transmitted to outside markets. Obviously, operating in highly competitive environments puts immense pressure on firms to function efficiently and subsequently develop optimal organizational hierarchies in order to maximize value.  Optimal organizational structure in corporations is bound by the struggle of power between the CEO and the board of directors. Basically, the CEO negotiates larger compensation packages and greater job stability whereas the board prefers less pay and greater control over the CEO (Hermalin and Weisbach (1998)). Finkelstein (1992) suggests that pay differentials could be a reflection of the distribution of power within the firm. Further, previous literature postulates that the CEO’s private information is more valuable in highly competition markets and his job stability is lower with higher probability of liquidation and lower profit margins. All these factors increase the CEO’s negotiation power against the board. Therefore, in our paper we argue that in highly competitive markets CEOs are paid greater compensation packages reflecting their greater power within the firm.  Specifically, we argue that with greater competition the CEO will possess higher structural power reflected in higher compensation packages. First, we argue that the pay difference between the CEO and other managers in the firm will increase with competition. Second, the pay gap between the CEO and the second to the CEO increases with competition and third, the CEO has shorter tenure reflecting the riskiness involved in greater competition.

 

Measuring Performance By Means of Income and Cash Flows and the Life-Cycle Theory

Dr. Leonie Jooste, University of Wollongong in Dubai, Dubai, UAE and

Nelson Mandela Metropolitan University, SA

 

ABSTRACT

 The purpose of this article is to study the life-cycle theory and investigate income and cash flow patterns during the different life-cycles of an entity as performance measures. There is a general agreement that an entity passes through four life-cycles stages. These stages in the life-cycle of an entity reflect a set of financial characteristics that leads to different information on income and cash flows. The cash flow statement supplies information about both income and cash flows. Combining the life-cycle theory with an analysis of the cash flow statement may be useful as a performance measure and how the entity is managing their flow of funds.  The product life-cycle theory is a familiar concept in business and marketing. It describes the stages of a product's acceptance or idea for developing a new invention, from introduction (birth) to its decline (death). Similar to a product life-cycle, an entity moves through more or less the same stages as individual products, which are the introduction, growth, maturity and decline stages (McDaniel, Lamb & Hair 2006). Each stage in the life-cycle theory has a set of financial characteristics that will lead to different information on income and cash flows that may be used as a measure to value performance (Black 1998; Hertenstein & McKinnon 1997).  The income of an entity provides information about future cash flows and future growth opportunities, whereas cash flow information provides information about the ability to generate cash flows and the need of an entity to utilise the cash flows. Therefore, to make economic decisions about an entity requires an evaluation of the ability, timing and certainty to generate income and cash flows. Since the introduction of the cash flow statement its importance has been emphasized and cash flow ratios developed for analysis, but not enough is said about what truly useful information the cash flow statement may provide. This study suggests a framework for the evaluation of income and the cash flow statement. The purpose of this study is to explore the usefulness of the cash flow statement by combining the life-cycle theory with income and cash flow patterns and to use the income and cash flows of an entity during a life-cycle as a performance measure.  This study makes use of both a qualitative and quantitative analysis. As far as the qualitative analysis is concerned, a relevant literature review on the life-cycle theory, in particular income and cash flow patterns during the life-cycle stages, was conducted. Literature on the cash flow statement and the usefulness of income and cash flows as performance measures also were reviewed. The aim of the literature review is to suggest a framework of income and cash flow patterns during the life-cycle stages of an entity.

 

Impact of Leverage on Performance of Firms: Evidence From Pakistan

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

Dr. Safdar Ali Butt, Professor, Mohammad Ali Jinnah University Islamabad, Pakistan

 

ABSTRACT

 This study investigates with the influence of leverage on the financial performance of the firms, using security turnover rate and size of the companies as control variables. By using cluster analysis, piece wise linear regression and descriptive statistics following results appear. Firstly, the results obtained from a sample of Pakistani companies indicated that Leverage is negatively related to the performance of firms. Secondly, control variables, including size and stock-turnover, appear to be positively related to performance. These findings are consistent with Eric Severin (2001) and (Opler and Titman, 1994), who also found that debt level negatively influences performance, and Charreaux, 1997 who found that security turnover has a positive impact on performance. Finally, amongst internal variables, size of the firm is also positively related with the firm’s performance but only to the extent of Marris and return on equity. In brief, we find that ownership structure as well as internal and external variables affects the performance of firms in Pakistan.  Company is type of business in which funds are provided by set of persons (called financiers, fund providers or investors) but actually utilized by another set of persons (called managers). Financiers can be further classified into two broad groups: shareholders and lenders. Investors require a return on their investments which a company can provide only out of profits earned by its operations. In countries like Pakistan, the management of companies is often in the hands of the group that holds a controlling interest in the equity of the company. Hence, the interests of controlling shareholders and managers of firms are pretty much aligned. These two groups are therefore often treated as being on the same side. The other side is providers of debt, i.e. those who extend long or short term credit to the company.  Capital structure of a company refers to the proportion in which a company has raised its long term funds. As stated earlier, these come from shareholders (who provide the permanent funds called equity) and lenders (who provide refundable loans generally at a fixed rate of return). The percentage of debt to the total long term capital of the firm is often referred to as leverage level. Thus a company whose equity is Rs 240 million and a long term debt of Rs 160 million, will be said to be 40% leveraged as its debt (Rs 160 million) is 40% of its total long term capital (Rs 400 million). There are ways of measuring the leverage level and these are discussed later in this paper. The study primarily aims to explore the relationship leverage level has to the financial performance of a company.

 

A Study of the Relationships among Political Perception, Organizational Culture, and Job Performance in the International Tourist Hotel Industry

Dr. Chu Wu, National Penghu University of Science and Technology, Taiwan

Wei-Fang Chen, Ling Tung University, Taiwan

 

ABSTRACT

 Labor is the most important asset in the international tourist hotel industry. To create competitive strength, the international tourist hotel industry needs strong labor management. This study examines the question of whether the political perception and culture of an organization will affect its employees’ organizational commitment, work attitude, and job performance. This study used the questionnaire survey procedure to collect the empirical data. Seven hundred and fifty questionnaires were distributed, and 614 questionnaires were collected with 594 being valid—making the valid return rate 79.2.  SPSS statistic software was used to carry out descriptive statistical analysis, factor analysis, reliability analysis, t-test, one-way ANOVA, subsequent multiple comparisons. Correlation analysis was used to explore the relationships among the variables. Structural equation modeling (SEM) was used to explore the impact of various variables between the models.  Due to the implementation of the policies of the Taiwan government and the open door to  mainland Chinese tourists to travel to Taiwan, the Tourism Bureau has predicted that the hotel industry will need to build another 15,100 guest rooms. Therefore, the hotel has to upgrade the quality of the manpower and service in order to enhance the mission of the value of product (Tourism Bureau, 2009). The international tourist hotels in the world try to enhance quality service as a marketing niche to attract visitors; however, the key to quality service of the hotels depends on the employees’ commitment and professionalism. Human capital itself can not easily be imitated; hence, it can become a competitive advantage (Ulrich, 1998; Mello, 2002).  An employee plays an important role in the operation of a hotel. The variable of organizational political perception has a direct impact on the job performance of the employee. The main purpose of studying the organizational political perception is to explore how the employees feel about the organizational political behavior and how it can reduce the employee’s job input and job satisfaction (Ferris & Judge, 1991). Peters and Waterman (1982), and Robbins(1989) defined organizational culture as  the regulations employees accept and with which they comply and share value. The study of Van Scotter (2000) also points out that the employees’ organizational commitments can produce spontaneous acts and can enhance not only the job performance but also the benefit. In addition, employees’ work attitude must also be included in the discussions in order to scan completely the influence of the performance of the overall pattern of the relationships.

 

Factors Influencing Portfolio Flow in Malaysia

Dr. Tajul Ariffin Masron and Dr. Haslindar Ibrahim, University Sains Malaysia, Malaysia

Anuar Abd Wahhab,  University Teknologi Mara (Kedah), Malaysia

 

ABSTRACT

 One of the most important developments in the area of international capital market in recent years has been the rapid growth of cross-border portfolio investment and became the hallmark of the 21st century’s global economy. Malaysia began to liberalize its economy in 1973 by introducing floating exchange rate regime and thus, attracting further large private capital investment. However, the 1997 economic crisis that swept through the ASEAN region caught many people off guard and challenges the country’s economic policy in dealing with the flow of foreign capital, especially portfolio investment. Thus, created much interest in the study of the behavior of portfolio investment and this is the focus of this study.  One of the most important developments in the area of international capital market in recent years has been the rapid growth of international private investment.  It has happened together with the process of liberalization in many emerging markets.  Before the 1990’s, most countries in the Asian region imposed restrictions on international capital flows.  However, in the last 20 years, many of these restrictions have been removed.  This has caused global capital to flow to emerging markets, including Malaysia, in search for higher returns. The super bull run of 1993 pushed the Kuala Lumpur Composite Index (KLCI) to its all-time-high level of 1334 points in January 1994.  The ups and downs of the Kuala Lumpur Composite Index are nothing short of a phenomenon.  The rapid movement of portfolio investment is a hallmark of the 21st Century’s global economy (IMF, 2005).  However, the surge of private foreign capital is not without threat. As we can see few recent examples such as in 1994 for Mexican case as well as 1997 – 1998 financial crises that struck Asia, Brazil and Russia. This reversal of capital flows is evidence that emerging economies that rely on private capital flows for external financing are vulnerable to the turbulent nature of global capital markets. Thus, it is essential to understand the causes and the characteristics of capital flows so that economic policies can be formulated to achieve stability and reliability in capital flows (Baek, 2006).  Academic literatures have identified two basic theories (1) to explain the factors that drive net portfolio investment.  First, the classical efficient market theory which states that portfolio investment incorporates information on fundamental prospects.  Hence, expectations on future market returns are instantaneously factored into the pattern of cross-border portfolio investment by rational investors.  The market is assumed to act as an efficient utility maximization.  Thus, future changes in equity flows are difficult to predict. The free flows of external capital should be equilibrating and smoothing the country’s consumption and liberalization process (Fama, 1998; Singh, 2003).  Second alternative, the recent market behavioral theory which asserts that portfolio flows incorporate not fundamental but noise, making the impact of market returns on equity flows temporarily, since the fundamental prospects do not change.  Relevant information diffuses gradually into equity prices reflecting market inefficiency. Accordingly, the stock market under-reacts to information in short-term but over-reacts in the long-run.  Thus, the behavior of cross-border equity flows is predictable.  The flows are mainly driven by positive feedback traders who buy stocks following high previous returns on these stocks.  The return chasing activities may lead to overreaction and push stock prices away from equilibrium value. 

 

Factors Influencing Demand for Medical Care Among Urban Dwellers in Sarawak

Dr. Jamal Ali, Dr. Tan Phoi Tsze, and Dr. K. Kuperan Viswanathan

Universiti Utara Malaysia, Kedah, Malaysia

 

ABSTRACT

 Increase in income, changing role of women and family characteristics, rising life expectancy and the availability of health insurance have exerted significant impact on demand for medical care. The objective of the study is to examine the characteristics of demand for medical care services in Sarawak, Malaysia. Demand for medical care  services is determined by (a) price of medical care (b) opportunity cost of time (c) price of home care (d) externalities (e) health status (f) age (g) education and (h) income of the head of family. The medical care equations are estimated separately since outpatient and hospital care demand differs systematically. The units of the study consist of 394 families in the urban towns of Sarawak, namely Kuching, Sibu, Miri and Bintulu which are undergoing rapid urbanization. The results indicate that the changing role of women has resulted in  married men not being able to substitute home care for market care as readily as before. Increase in price of home care has lead to an increase in demand for market care. The number of children under six years old exert significant impact on the mother’s use of medical care rather than men. It is evidenced that a loss in women’s health is likely to have a greater impact on the family compared with the loss of the health of men. The study provides support to the believe that medical care is a necessity good. It also shows that insurance coverage often fails to include those who are poor and sick. Since medical demand is triggered by poor health status, public involvement is essential for the health of the population. The finding suggests that health reforms which reduce wastage and disparities between income groups, health status and source of care should be emphasized.  The health sector in Sarawak faces continuing pressures to contain cost in achieving the goal of optimizing the health of her population. In view of these, there arises a number of growing proposals such as proposals to place greater emphasis on private health sector, to introduce market pricing for the public health sector and to set up National Health Financing Scheme by the end of 2006. On the other hand, Sarawak is developing towards a modern economy characterized by (1) High and rising Gross Domestic Product, (2)  Shift from agriculture to manufactured sector, (3) Increase in women labor force participation, and (4) High and rising life expectancy of 70.6 for male and 76.4 for female in 2005. The changes that are taking place in Sarawak with the move towards a modern economy have particular relevance for health and medical policy (Fuchs, 1997). Higher standard of living as a result of higher income, social changes brought by greater women labor force participation rate, such as fewer children, rising number of single families, the substitution of market based health care as opposed to home based medical care increased the demand for medical care. The demand is further increased with the increase in the percentage of population of age 65 and above brought by higher life expectancy and lower fertility rate. These factors call for a better understanding of the determinants of medical care in Sarawak.  It is found that most of the empirical literature in determining the demand for medical care expenditure are based on the cross sectional aggregated data and majority of their findings revealed that the income elasticity of demand for medical care is at or around unity which implies that medical care is a luxury good (Newhouse, 1977; Gerdtham, 1992).

 

The Effect of Country Characteristics and Fiscal Variables on Economic Growth in the Asian and the Pacific Countries

Dr. Hussin Abdullah and Dr. Fauzi Hussin, Universiti Utara Malaysia, Kedah, Malaysia

Prof. Dr. Muzafar Shah Habibullah, Universiti Putra Malaysia, Selangor, Malaysia

 

ABSTRACT

 This paper examines the effect of country characteristics and fiscal variables on economic growth using panel data of 45 selected countries in the Asian and the Pacific countries. Fiscal positions vary significantly across countries and sub-regions. Large fiscal deficits and public debts are relatively new phenomena for most  Asian and  Pacific economies. However, with expenditure growth outpacing revenue growth, many of these economies face persistent budget deficits and high indebtedness. Weak fiscal positions had left little room for further fiscal expansion in most of the Asian and the Pacific economies during the economic slowdown. Moreover, measuring fiscal policy has always posed a difficult challenge. The resulting country characteristics and fiscal variables can be interpreted as a means to finance additional government expenditure. If this expenditure is growth enhancing, then a government deficit would contribute positively to the country’s long-run economic growth. Thus, this study attempts to analyse the impact of fiscal policy instruments on economic growth, in order to provide a synthesis of recent literature on growth and fiscal policy.  Fiscal policies have a benign role for economic growth in the Asian region, namely to provide a stable macro-environment for investment. The changed environment of liquidity constraints on external borrowing and the slowdown in output growth has led to new attention being directed towards the role and contribution of fiscal policies in reviving growth in the region (Gangopadhyay and Chatterji, 2005). In the debate on economic policy, fiscal policy is predominantly viewed as an instrument to mitigate short-run fluctuations of output and employment. By varying government spending or taxation, fiscal policy aims at altering aggregate demand in order to move the economy closer to potential output.   Fiscal policy was neither a cause of the crisis nor a critical determinant of economic growth. Nevertheless, its role in both the pre-crisis and the post-crisis period in Asian countries has been seen as crucial, primarily in terms of its contribution to economic growth.

 

The Dynamics of Consumption Patterns and Preferences of Comfort Foods in the UAE

Dr. Rubeena Cetin, Ajman University of Science and Technology Network, United Arab Emirates

 

ABSTRACT

 The present study provides an in-depth analysis and understanding of comfort food consumption in the UAE related to demographic variables such as: gender, age, nationality (can connote culture) compared to their preferences and consumption of comfort foods. Further, comfort foods consumption related to physiological and emotional eating is examined. Consumption timings are analyzed for these respondents as to when comfort foods are mostly preferred during which activities. Correspondingly, preferences of the consumption of comfort foods are also tested related to the variety of branded and unbranded comfort products available in the market. Statistical analysis are performed to test the hypotheses related to the consumption of comfort foods in relation to the reasons of consumption and the types of comfort foods preferred by the 250 respondents according to age, gender and nationality. The results give evidence and input to the marketing, branding, distribution and availing of media for companies to market comfort foods in the UAE.  The present paper provides insights into food marketing specially related to “comfort foods.” Food marketing relates to how traditional marketing strategies are implemented to influence consumer’s attitudes, preferences and behaviors towards consumers’ consumption of foods. Though the world comprises of different kinds of cuisines and foods that are primarily influenced by culture, this study concentrates on the universal understanding of comfort foods that comprises of ice creams, chocolates, cookies, chips, nuts, cakes, popcorn, crepes, doughnut, nachos and others. The significance of this study is that the market related to these above comfort foods comprises of billions of dollars and is generally has a universal liking, demand and consumption of these products. Due marketing of these products are relied on traditional marketing mix variables of product and brand management, pricing strategies, intensive distribution, shelf management, along with appropriate communication and promotion.  Though food is a necessity for human beings, but at the same time consumption of a great variety of foods and processed foods are seen worldwide. Merriam-Webster’s Collegiate Dictionary (2011) defines comfort food as “food prepared in a traditional style having a usually nostalgic or sentimental appeal.” The food science literature explains as many common comfort foods have high fat or sugar content and so provide a short term physiological boost (Bell et. al. 2002).

 

The Quality of Credit Rating and Bankruptcy Probability: Evidence from Post-SOX Restatements

Prof. Ya-Fang Wang, Providence University, Republic of China

 

ABSTRACT

 After a series of scandals (e.g., Enron, WorldCom, Global Crossing), the creditability and responsibilities of credit raters are openly challenged because the rating failure led many to question the competence of credit rating agencies and the value of their ratings. And, the consequences of the resultant regulatory changes on credit ratings agencies are yet to be systematically studied. Thus, this study examines whether rating agencies became more careful in their rating assessments after SOX. Based on my empirical results, credit raters in the post-SOX period are more likely to investigate and take into account companies’ restatement content before assigning credit ratings. My findings imply that SOX and public criticism have made a substantial positive impact on raters’ perception of accounting information, and have led raters to view the accounting information of financial restatements more discerningly.  A number of high-profile accounting scandals were brought to light during late 2001 and 2002, and caused many to question the integrity of accounting information provided to investors. Significant falls in investor confidence were reported. For example, the Enron scandal shook investors’ confidence and caused a downturn in the market. And, the Enron collapse alone accounted for $32 billion in lost stock market capitalization. These financial failures were highly publicized and ultimately led to the passage of the Sarbanes-Oxley Act (hereafter called SOX) and other reforms. The SOX is aimed to restore the eroded public trust and investor confidence in financial reports by reinforcing the corporate accountability, board governance, financial reporting, and audit functions of public companies (Oxley 2007). Although SOX proposed a series of regulations to improve the quality of corporate financial reporting, the consequences of the resultant regulatory changes are yet to be systematically studied.  Credit rating agencies provide opinions on the creditworthiness of entities and their financial obligations. Their ratings are closely related to cost of debt capital and significantly affect companies’ financing decisions (Standard and Poor’s 2006). However, in recent years, credit rating agencies have been sternly criticized due to a number of high-profile cases of corporate scandals. In particular the highly publicized failure of Enron led many to question their competence and the value of their ratings. In the Enron scandal, Enron restated its financial statements for 1997-2000, slashing $569 million from net income and $1.2 billion from shareholders’ equity to account for losses over a four-year period.

 

The Impact of Non-Oil Foreign Trade on Economic Growth in UAE

Dr. Rubeena Cetin and Dr. Srinivas Inguva

Ajman University of Science and Technology Network, United Arab Emirates

 

ABSTRACT

 The United Arab Emirates is a rapidly diversifying, highly developed economy, based on various socioeconomic indicators. There are various deviating estimates regarding the actual growth rate of the nation’s GDP 859.881 billion AED during 2010, however all available statistics indicate that the UAE currently has one of the fastest growing economies in the world. In the oil based economies although the economic growth is fully based on the oil exports but they have some important contribution from non-oil foreign trade also. The main objective of the present work is to study the impact of non-oil trade on the economic growth of UAE during and after recent recession on the basis of the given economic and policy variables. The imports, non-oil exports and re-exports of UAE are analyzed in order to determine the sustainable trade balance of UAE. The data for the study is collected from the National Bureau of Statistics, UAE.  The results of the study would be useful for policy making decisions and further research.  The UAE’s liberal climate towards foreign cooperation, investment and modernization has prompted extensive diplomatic and commercial relations with other countries. Regionally, the UAE has a very close relationship with other GCC members as well as most of the Arab countries. The UAE has an open economy with one of the highest per capita incomes in the world and a sizable annual trade surplus. In 2009, its GDP, as measured by purchasing power parity, stood at US$400.4 billion. The UAE has been spending billions of dollars on infrastructure and is the biggest projects market in the region, accounting for 37 percent of total project value within the construction, oil and gas, petrochemicals, power and water and waste sectors. Many huge investments have been poured into real estate, tourism and leisure.  Non-oil foreign trade of the United Arab Emirates (UAE) in 2010 witnessed significant growth of 14% year-on-year, according to Ministry of Foreign Trade in a new report.

 

Loan Loss Provisioning Methodology on Non-Performing Loans of Malaysia’s Commercial Banks: A Longitudinal Panel Data Analysis Using Econometric Modelling

Mohd Yaziz bin Mohd Isa, University Tun Razak, Kuala Lumpur

 

ABSTRACT

 The purpose of this paper is to research to come up with factors that determine loan loss provisions of non-performing loans of commercial banks in Malaysia, that is, factors reflecting the collectability of defaulted loans so that financial statements of banks reflect their true underlying risk conditions.  The results of research show among explanatory variables, bad debt recoveries as a factor to determine loan loss provisions that reflect the collectability of the defaulted loan, is rejected. The variable is a biased and inconsistent estimator. In the context of perceived credit risk - an estimate of recoveries has not fulfilled a perception of credit risk in the collectability of defaulted loans. On the other hand, non-performing loans as a factor to determine loan loss provisions that reflect the collectability of the defaulted loan, is not rejected. It is proven that it is not a biased estimator.  In giving out borrowings to borrowers, there is a chance that banks not able to collect back the loans as the borrowers may default in repayment. If it happens, part or full amount of the loans may not be able to be recovered. Therefore, banks are required by banking regulators to make appropriate provisions for losses from the defaulted loans. This is when not likelihood banks would be able to collect part or all amounts due - principal and interest - according to contractual terms of loan agreement. Loan loss provisions (LLP) is defined as “a method that banks use to recognise a reduction in the realizable value of their loans” Podder and Al Mamun (2004).  The guidance for loans that are in default status, its classification and the required provisions are often set by the supervisory body on banks and financial institutions in each country. In Malaysia, is set by the Bank Negara Malaysia. The supervisory body in the country, for “financial years beginning on and after 1 January, 2010 has issued new guidelines that set out the minimum requirements on the classification of impaired loans and provisioning for loans impairment” www.osk.com.my that is enforce on all commercial banks.

 

Understanding Credit Rating Surrounding a Financial Restatement: Evidence from Industry Membership and Auditor Switch

Cathy Zishang Liu, Louisiana Tech University and University of Houston Downtown, TX

Ya-Fang Wang, Providence University, Republic of China

 

ABSTRACT

 A financial restatement indicates a joint failure of a firm and its auditors in presenting the true financial position. It may consequently oblige a firm to commit in improving its governance and financial reporting quality under the spotlight, especially in the post-SOX era. Using a propensity-score match procedure and controlling firm characteristics, we find that industry membership and auditor switch play important roles in credit ratings. Restating firms experience downgrade, and those in the energy industry are assigned much lower ratings. Auditor switch marginally lowers the credit rating pre-SOX but not post-SOX. Further, auditor switch for restating firms in the energy industry is associated with more favorable credit ratings post-SOX, consistent with rating agencies view auditor switch as a more positive step in improving reporting integrity post-SOX.  We examine how industry membership and auditor switch contribute to actions of rating agencies to restating firms, and how Sarbanes-Oxley Act (SOX) influences rating agencies’ interpretations of these two factors for financial reporting. Restatement of past inaccurate, incomplete, and/or misleading disclosures usually wreaks havoc on a public company, which casts doubts on the financial and operational health and stability of the firm. Yet on the positive side, the wide variety of market responses due to restatements (e.g., negative publicity, difficulty in accessing capital markets, decrease in stock price, lawsuits, and potential investigation by the Securities and Exchange Commission) may cause the restating firm to improve corporate governance, reporting quality, and performance thereafter, all of which prior studies suggest reduce firms’ default risk. The creditworthiness of restating firms is of great concern to market participants, based on which they evaluate the prospect of restating firms and determine their required rate of return from these firms.  Credit rating agencies (i.e., Standard & Poor’s, Moody’s, and Fitch IBCA) presumably serve an imperative role in capital markets, whose ratings directly affect a firm’s cost of debt and financing decisions (Standard and Poor’s 2006).  However, regulators, investors, and academicians have questioned the competence and value of credit rating agencies in the wake of Enron collapse and the recent subprime mortgage crisis. For the Enron scandal, it restated its financial statements for 1997-2000, slashing $569 million from its net income and $1.2 billion from stockholders’ equity to account for losses over a four-year period.

 

Effect of Employee Stock Ownership Satisfaction on OCB

Dr. Ann Lin, Chang Gung Institute of Technology, Taoyuan, Taiwan

 

ABSTRACT

 As organizations world-wide implement strategies with the expectation that they will motivate employees and improve performance to sustain competitive advantage globally; there is an extensive interest of practice and research upon issue regarding employee stock ownership and positive organizational outcome in the recent decade. The study is anticipated to foster a greater understanding of employee ownership satisfaction influences formation of organizational citizenship behavior through moderation of individual’s need of achievement, affiliation and autonomy. The research is based on data derive from multinational high-tech firms with all-employee stock option program. The results indicated need of affiliation does have moderating effect between employee ownership satisfaction and organizational citizenship behavior (ΔR2 =.08, p>0.05).  In response to the newly emerged workplace, the concepts of employee ownership were undertaken by the organizations as it provides a frame work for a nontraditional paradigm of work motivation. The ability to motivate workers and retain talents is largely influenced by reward and compensation scheme deliberated by organizations’ human resource practices. The idea to motivate employee though compensation has founded on the basis that worker motivation will be improved though financial participation which would eventually link compensation more closely to employee performance. Contrasting from the traditional fix rate compensation, alternative compensation schemes include profit and value added sharing, employee share ownership, and productivity gain sharing. According previous researches, financial participation measures promise to exert fundamentally positive effects at workplace. It is the goal of this paper to understand how this alternative form of compensation that provided employee ownership work on individual employee in this new industrial era of contemporary work setting.

 

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