The growth-profitability relationship : strategic orientations as moderator

Principal Topic: In this study we investigate how strategic orientation moderates the impact of growth on profitability for a sample of Danish high growth (Gazelle) firms. ---------- Firm growth has been an essential part of both management research and entrepreneurship research for decades (e.g. Penrose 1959, Birch 1987, Storey 1994). From a societal point of view, firm growth has been perceived as economic generator and job creator. In entrepreneurship research, growth has been an important part of the field (Davidsson, Delmar and Wiklund 2006), and many have used growth as a measure of success. In strategic management, growth has been seen as an approach to achieve competitive advantages and a way of becoming increasing profitable (e.g. Russo and Fouts 1997, Cho and Pucic 2005). However, although firm growth used to be perceived as a natural pathway to profitability recently more skepticism has emerged due to both new theoretical development and new empirical insights. Empirically, studies show inconsistent and inconclusive empirical evidence regarding the impact of growth on profitability. Our review reveals that some studies find a substantial positive relationship, some find a weak positive relationship, some find no relationship and further some find a negative relationship. Overall, two dominant yet divergent theoretical positions can be identified. The first position, mainly focusing on the environmental fit, argues that firms are likely to become more profitable if they enter a market quickly and on a larger scale due to first mover advantages and economic of scale. The second position, mainly focusing the internal fit, argues that growth may lead to a range of internal challenges and difficulties, including rapid change in structure, reward systems, decision making, communication and management style. The inconsistent empirical results together with two divergent theoretical positions call for further investigations into the circumstances by which growth generate profitability and into the circumstances by which growth do not generate profitability. In this project, we investigate how strategic orientations influence the impact of growth on profitability by asking the following research question: How is the impact of growth on profitability moderated by strategic orientation? Based on a literature review of how growth impacts profitability in areas such as entrepreneurship, strategic management and strategic entrepreneurship we develop three hypotheses regarding the growth-profitability relationship and strategic orientation as a potential moderator. ---------- Methodology/Key Propositions: The three hypotheses are tested on data collected in 2008. All firms in Denmark, including all listed and non-listed (VAT-registered) firms who experienced a 100 % growth and had a positive sales or gross profit over a four years period (2004-2007) were surveyed. In total 2,475 fulfilled the requirements. Among those 1,107 firms returned usable questionnaires satisfactory giving us a response rate on 45 %. The financial data together with data on number of employees were obtained from D&B (previously Dun & Bradstreet). The remaining data were obtained through the survey. Hierarchical regression models with ROA (return on assets) as the dependent variable were used to test the hypotheses. In the first model control variables including region, industry, firm age, CEO age, CEO gender, CEO education and number of employees were entered. In the second model, growth measured as growth in employees was entered. Then strategic orientation (differentiation, cost leadership, focus differentiation and focus cost leadership) and then interaction effects of strategic orientation and growth were entered in the model. ---------- Results and Implications: The results show a positive impact of firm growth on profitability and further that this impact is moderated by strategic orientation. Specifically, it was found that growth has a larger impact on profitability when firms do not pursue a focus strategy including both focus differentiation and focus cost leadership. Our preliminary interpretation of the results suggests that the value of growth depends on the circumstances and more specifically 'how much is left to fight for'. It seems like those firms who target towards a narrow segment are less likely to gain value of growth. The remaining market shares to fight for to these firms are not large enough to compensate for the cost of growing. Based on our findings, it therefore seems like growth has a more positive relationship with profitability for those who approach a broad market segment. Furthermore we argue that firms pursuing af Focus strategy will have more specialized assets that decreases the possibilities of further profitable expansion. For firms, CEOs, board of directors etc., the study shows that high growth is not necessarily something worth aiming for. It is a trade-off between the cost of growing and the value of growing. For many firms, there might be better ways of generating profitability in the long run. It depends on the strategic orientation of the firm. For advisors and consultants, the conditional value of growth implies that in-depth knowledge on their clients' situation is necessary before any advice can be given. And finally, for policy makers, it means they have to be careful when initiating new policies to promote firm growth. They need to take into consideration firm strategy and industry conditions.

Trickle Down

This work expresses the complicated and cyclical sense of economic aspiration and ambivalence so prevalent in the lived experience of contemporary capitalism. The three-channel video animation depicts a single US dollar bill falling in a dark void-space. These fragments of negotiable value, evidence of a laborious hand-drawn process, tumble in slow-motion into and out of each video frame, towards an unseen ground and uncertain future, acting as an elegiac expression of a deep sense of economic precarity.

Rolling tachyons, random matrices, and Coulomb gas thermodynamics

Time-dependent backgrounds in string theory provide a natural testing ground for physics concerning dynamical phenomena which cannot be reliably addressed in usual quantum field theories and cosmology. A good, tractable example to study is the rolling tachyon background, which describes the decay of an unstable brane in bosonic and supersymmetric Type II string theories. In this thesis I use boundary conformal field theory along with random matrix theory and Coulomb gas thermodynamics techniques to study open and closed string scattering amplitudes off the decaying brane. The calculation of the simplest example, the tree-level amplitude of n open strings, would give us the emission rate of the open strings. However, even this has been unknown. I will organize the open string scattering computations in a more coherent manner and will argue how to make further progress.

NESP: Nonlinear enhancement and selection of plane for optimal segmentation and recognition of scene word images

In this paper, we report a breakthrough result on the difficult task of segmentation and recognition of coloured text from the word image dataset of ICDAR robust reading competition challenge 2: reading text in scene images. We split the word image into individual colour, gray and lightness planes and enhance the contrast of each of these planes independently by a power-law transform. The discrimination factor of each plane is computed as the maximum between-class variance used in Otsu thresholding. The plane that has maximum discrimination factor is selected for segmentation. The trial version of Omnipage OCR is then used on the binarized words for recognition. Our recognition results on ICDAR 2011 and ICDAR 2003 word datasets are compared with those reported in the literature. As baseline, the images binarized by simple global and local thresholding techniques were also recognized. The word recognition rate obtained by our non-linear enhancement and selection of plance method is 72.8% and 66.2% for ICDAR 2011 and 2003 word datasets, respectively. We have created ground-truth for each image at the pixel level to benchmark these datasets using a toolkit developed by us. The recognition rate of benchmarked images is 86.7% and 83.9% for ICDAR 2011 and 2003 datasets, respectively.

Colombia: compromise or containment?

The design, reformulation, and final signing of Plan Colombia by the then US President, Bill Clinton, on the 13 July 2000 initiated in a new era of the US State´s involvement in supposedly sovereign-territorial issues of Colombian politics. The implementation of Plan Colombia there-on-after brought about a major realignment of political-military scales and terrains of conflict that have renewed discourses concerning the contemporary imperialist interests of key US-based but transnationally-projected social forces, leading to arguments that stress the invigorated geo-political dimension of present-day strategies of capitalist accumulation. With the election of Álvaro Uribe Vélez as Colombian President in May 2002 and his pledge to strengthen the national military campaign aganist the region´s longest-surviving insurgency guerrilla group, Las FARC-EP, as well as other guerrilla factions, combined with a new focus on establishing the State project of “Democratic Security”; the military realm of governance and attempts to ensure property security and expanding capitalist investment have attained precedence in Colombia´s national political domains. This working paper examines the interrelated nature of Plan Colombia -as a binational and indeed regional security strategy- and Uribe´s Democratic Security project as a means of showing the manner in which they have worked to pave the way for the implementation of a new “total market” regime of accumulation, based on large-scale agro-industrial investment which is accelerated through processes of accumulation via dispossession. As such, the political and social reconfigurations involved manifest the multifarious scales of governance that become intertwined in incorporating neoliberalism in specific regions of the world economy. Furthermore, the militarisation-securitisation of such policies also illustrate the explicit contradictions of neoliberalism in a peripheral context, where coercion seems to prevail, something which leads to a profound questioning of the extent to which neoliberalism can be thought of as a hegemonic politico-economic project.

Bogotá Chirriadísima

Bogotá Chirriadísima nace al identificar la gran oportunidad que tienen los souvenirs como una propuesta alternativa dentro del sector artesanal; la falta de innovación y el crecimiento del turismo en la ciudad, han creado el campo de acción para los productos que ofrecen un concepto 100% Bogotano. Estos productos a parte de cumplir su función de recordar gratos momentos de la experiencias vividas, son un medio para trasmitir una imagen histórica de los atractivos turísticos de la ciudad como de los lugares poco visitados que aun guardan su magia natural. Buscamos ofrecer productos funcionales y diferentes a los convencionales, con la idea de que en diferentes actividades hagan parte de la vida del turista. Al contar con mercado turístico en crecimiento, siendo Bogotá la ciudad mas visitada del país, se determino el tamaño de mercado por más de 55 mil millones de pesos; sin embargo por las condiciones de inicio del proyecto nos enfocaremos en una pequeña parte del segmento. Para desarrollar el proyecto se requiere de una inversión inicial de 28,3 millones de pesos, con el objetivo de lograr para el primer año la venta de 5.510 unidades que representen ingresos por más de 160 millones de pesos, para el segundo año se incrementa la producción a 9.743 unidades con ingresos por mas de 288 millones de pesos, lo que equivale a un incremento del 72% con respecto al año anterior. Finalmente para el año 3, se prevé un incremento en las ventas del 84% con ingresos por más de 532 millones correspondientes a 17.503 unidades El flujo del proyecto para el periodo de tres años, arroja una TIR o rentabilidad anual promedio de 124,39% lo cual determina que es un proyecto viable y de bajo riesgo, en cuanto al Valor Presente Neto, el proyecto arroja 102 millones adicionales, es decir que es mas rentable invertir los recursos en este proyecto que en uno que rente al 20% anual, finalmente, como la suma de las utilidades del primer y segundo año es superior a la inversión inicial, se determina que el Periodo de Recuperación de la Inversión se da en el segundo año.

Monetary models of exchange rates and the random walk

Three alternative monetary models of exchange rate are tested using data on the Italian lira - US doIIar exchange rate. II is shown that up to the early 1990s these economic models perform better than the random walk model in out-of-sample forecasts.

Estimating Relative Risk Aversion, Risk-Neutral and Real-World Densities using Brazilian Real Currency Options

Building Risk-Neutral Densities (RND) from options data can provide market-implied expectations about the future behavior of a financial variable. And market expectations on financial variables may influence macroeconomic policy decisions. It can be useful also for corporate and financial institutions decision making. This paper uses the Liu et all (2007) approach to estimate the option-implied Risk-neutral densities from the Brazilian Real/US Dollar exchange rate distribution. We then compare the RND with actual exchange rates, on a monthly basis, in order to estimate the relative risk-aversion of investors and also obtain a Real-world density for the exchange rate. We are the first to calculate relative risk-aversion and the option-implied Real World Density for an emerging market currency. Our empirical application uses a sample of Brazilian Real/US Dollar options traded at BM&F-Bovespa from 1999 to 2011. The RND is estimated using a Mixture of Two Log-Normals distribution and then the real-world density is obtained by means of the Liu et al. (2007) parametric risktransformations. The relative risk aversion is calculated for the full sample. Our estimated value of the relative risk aversion parameter is around 2.7, which is in line with other articles that have estimated this parameter for the Brazilian Economy, such as Araújo (2005) and Issler and Piqueira (2000). Our out-of-sample evaluation results showed that the RND has some ability to forecast the Brazilian Real exchange rate. Abe et all (2007) found also mixed results in the out-of-sample analysis of the RND forecast ability for exchange rate options. However, when we incorporate the risk aversion into RND in order to obtain a Real-world density, the out-of-sample performance improves substantially, with satisfactory results in both Kolmogorov and Berkowitz tests. Therefore, we would suggest not using the “pure” RND, but rather taking into account risk aversion in order to forecast the Brazilian Real exchange rate.

O fator comum associado à dinâmica de preços das commodities : a relação de cointegração e o fator dinâmico

Este trabalho analisa a importância dos fatores comuns na evolução recente dos preços dos metais no período entre 1995 e 2013. Para isso, estimam-se modelos cointegrados de VAR e também um modelo de fator dinâmico bayesiano. Dado o efeito da financeirização das commodities, DFM pode capturar efeitos dinâmicos comuns a todas as commodities. Além disso, os dados em painel são aplicados para usar toda a heterogeneidade entre as commodities durante o período de análise. Nossos resultados mostram que a taxa de juros, taxa efetiva do dólar americano e também os dados de consumo têm efeito permanente nos preços das commodities. Observa-se ainda a existência de um fator dinâmico comum significativo para a maioria dos preços das commodities metálicas, que tornou-se recentemente mais importante na evolução dos preços das commodities.

Ultrasound measurements of the distance between acupuncture needle tip at P6 and the median nerve

BACKGROUND: Pericard 6 (P6) is one of the most frequently used acupuncture points, especially in preventing nausea and vomiting. At this point, the median nerve is located very superficially. OBJECTIVES: To investigate the distance between the needle tip and the median nerve during acupuncture at P6, we conducted a prospective observational ultrasound (US) imaging study. We tested the hypothesis that de qi (a sensation that is typical of acupuncture needling) is evoked when the needle comes into contact with the epineural tissue and thereby prevents nerve penetration. SETTINGS/LOCATION: The outpatient pain clinic of the Medical University of Vienna, Austria. SUBJECTS: Fifty (50) patients receiving acupuncture treatment including P6 bilaterally. INTERVENTIONS: Patients were examined at both forearms using US (a 10-MHz linear transducer) after insertion of the needle at P6. OUTCOME MEASURES: The distance between the needle tip and the median nerve, the number of nerve contacts and nerve penetrations, as well as the number of successfully elicited de qi sensations were recorded. RESULTS: Complete data could be obtained from 97 cases. The mean distance from the needle tip to the nerve was 1.8 mm (standard deviation 2.2; range 0-11.3). Nerve contacts were recorded in 52 cases, in 14 of which the nerve was penetrated by the needle. De qi was elicited in 85 cases. We found no association between the number of nerve contacts and de qi. The 1-week follow-up showed no complications or neurologic problems. CONCLUSIONS: This is the first investigation demonstrating the relationship between acupuncture needle placement and adjacent neural structures using US technology. The rate of median nerve penetrations by the acupuncture needle at P6 was surprisingly high, but these seemed to carry no risk of neurologic sequelae. De qi at P6 does not depend on median nerve contact, nor does it prevent median nerve penetration.

What will be the risk-free rate and benchmark yield curve following European monetary union?

Using a linear factor model, we study the behaviour of French, Germany, Italian and British sovereign yield curves in the run up to EMU. This allows us to determine which of these yield curves might best approximate a benchmark yield curve post EMU. We find that the best approximation for the risk free yield is the UK three month T-bill yield, followed by the German three month T-bill yield. As no one sovereign yield curve dominates all others, we find that a composite yield curve, consisting of French, Italian and UK bonds at different maturity points along the yield curve should be the benchmark post EMU.

A model of the Australia-US exchange rate

This paper develops a model of exchange rate determination within an error correction framework. The intention is to identify both long and short term determinants that can be used to forecast the AUD/US exchange rate. The paper identifies a set of significant variables associated with exchange rate movements over a twenty year period from 1984 to 2004. Specifically, the overnight interest rate differential, Australia's foreign trade-weighted exposure to commodity prices as well as exchange rate volatility are variables identified that are able explain movements in the AUDIUS dollar relationship. An error correction model is subsequently constructed that incorporates an equilibrium correction term, a short-term interest rate differential variable, a commodity price variable and a proxy for exchange rate volatility. The model is then used to forecast out of sample and is found to dominate a naIve random walk model based on three different metrics.

Modelling Fiji-US exchange rate volatility

In this article, we examine the Fiji-US exchange rate volatility using daily data for the period 2000 to 2006. Our modelling framework is based on the EGARCH model. We find robust evidence of conditional shocks having a positive effect on exchange rate volatility, shocks having asymmetric effects on exchange rate volatility and shocks having a transitory effect on exchange rate volatility.

Video evidence : what gestures tell us about students' understanding of rate of change

This paper reports on insights into students’ understanding of the concept of rate of change, provided by examining the gestures made, by 25 Year 10 students, in videorecorded interviews. Detailed analysis, of both the sound and images, illuminates the meaning of rate-related gestures. Findings indicate that students often use the symbols and metaphors of gesture to complement, supplement, or even contradict verbal descriptions. Many students demonstrated, by the combination of their words and gestures, a sound qualitative understanding of constant rate, with a few attempting to quantify rate. The interpretation of gestures may provide teachers with a better understanding of the progress in their students’ thinking.