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2020s

2024 working papers

WP542: Enterprise Law and the Eclipse of Corporate Law

Ewan McGaughey

View paper 542

The corporation is among the most important institutions of our age, and yet it is eclipsed by the enterprise. Corporate law theories have asserted that a corporation is a ‘person’, a ‘nexus of contracts’, that it has ‘proprietary foundations’, or is a ‘concession of the state’. These theories wander across every Roman law category – persons, obligations, property, and public body. None work, because corporations combine elements of each category, but are more. A better tradition sees the corporation as a ‘social institution’, and as one legal form of ‘enterprise’. Corporate law, traditionally confined, is not enough to understand corporations. We must integrate labour, competition, tax, tort, human rights, and public law, because this full body of enterprise law decisively changes corporate finance and governance. It also changes the rights that corporations distribute to investors, workers or service-users. In law, the concept of the ‘enterprise’ (or ‘undertaking’ or ‘group’) has become a dominant legal tool, because it adopts a functional understanding of firms that matches economic reality, eclipsing legal form. In that reality, most major listed corporations are under sector-specific regulation, including in banking, telecoms, big tech, or energy, as are corporations without shareholders such as hospitals or universities. Broadening our horizon enables us to teach how businesses, regulated industries, and public services – all major corporations – actually work. It lays the foundation for accurate empirical research. By shifting our vision to enterprise law, we may contemplate our entire economic constitution as it truly is.


WP541: You Really Never Had It So Good, Or Why Britain’s Post-War National Accounts Could Lead You Astray

Bill Martin

View paper 541

10 years ago, Britain’s main statistics agency revised the figures describing the history of the nation’s capital investment with results that, before 1997 and for many decades after the second world war, lack a coherent rationale and look wrong. The impact is still embedded in today’s official national accounts. The effects of the revision can be seen, for example, in an implausible uplift to Britain’s investment and growth record in the 1950s, the shifted scale and timing of the Barber Boom and Bust in the first half of the 1970s and in the improbable erasure of the post-war, 30-year decline in company profit share. A deep investigation of the official figures is attempted and estimates made, but the task is hampered by incomplete documentation. It is regrettable that the Office for National Statistics decided some time ago not to correct the suspect capital investment figures. Those wishing to draw lessons from Britain’s economic past are advised not to rely on the ‘historic’ national accounts.


WP540: Capitalism, Austerity and Fascism

Suzanne J Konzelmann

View paper 540

There is a strong resonance between events of the inter-war years and today. These include a questioning of laissez-faire capitalism and austerity, and the rise of so-called ‘populist’ parties on both the left and right. Clara Mattei’s (2022) ‘The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism’ thus makes an interesting contribution, by locating the key argument of her book in the febrile period of European history between the wars. According to Mattei, the First World War disrupted the pre-war capitalist system to such an extent that it created a crisis of capitalism, itself. As a result, following the end of hostilities, there was a conscious effort to restore the pre-war ‘capital order’ by means of a technocratic ‘austerity strategy’; and this was strongly linked to the rise of fascism. We argue that the inter-relationship between capitalism, austerity and fascism during the 1920s and 1930s was rather more complex, and that to make sense of this, it is necessary to broaden the focus beyond Italy and Great Britain and the international financial conferences at Brussels (1920) and Genoa (1922). Otherwise, we risk misunderstanding and mis-diagnosing our own times, as those inter-war politicians, financiers and economists discovered to their cost. We therefore also include Germany and the United States and base our analysis on the events of the entire inter-war period.


WP539: Economic Democracy: A Brief History and the Laws That Make It

Ewan McGaughey

View paper 539

How has our economic constitutional order developed, and which laws make our economy democratic? Democracy in politics is familiar and starts with ‘one person, one vote’, but economic democracy is less familiar. In its ideal, it means ‘3 stakeholders, one voice’. Workers, investors, and service-users make different contribution types in the economy, so rules to give them voice differ and are still evolving. This paper gives a brief history of how economic democracy developed, the evolving theories, and practices for democratic workplaces, capital, and public enterprise. It then unpacks the laws that make it. First, a board of directors will answer to an enterprise’s stakeholders, not simply appointing itself via so called ‘independent’ directors. Second, workers elect at least one-third or properly one-half of a board of directors, rather than shareholders monopolising all votes, and worker cooperatives are encouraged. Third, all capital fund directors, whether pensions or mutuals, are majority-elected by beneficiaries, and they set the shareholder voting policies, not allowing asset managers or banks to vote on other people’s money in what they deem to be the interests of the ultimate investor. Fourth, in public enterprises, where private competition fails and consumers cannot truly ‘vote with their feet’, service-users hold voting rights for representatives on the board, rather than appointments being monopolised by the state or board incumbents. These norms are spreading, and overcoming evidence-free theories that excuse illegitimate corporate power.

2010s

2019 working papers

WP516: Elucidating Limited Shareholder Engagement: Identifying Ethical and Epistemological Factors in the Fiduciary

Helen Mussell

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The legal concept of fiduciary, from the Latin fiducia meaning trust, plays a fundamental role in all financial and business organisations: it acts as a moral safeguard of the relationship between trustee and beneficiary, ensuring that the beneficiaries’ best interests are met. It is often referred to as a duty of care. This paper focuses on the ethics of the fiduciary, but from a unique and historical perspective, going back to the original formulation of the fiduciary within a familial context, to reveal not only why care plays a central role in the fiduciary, but to also uncover key foundational presuppositions regarding agential capabilities embedded in the trustee-beneficiary relationship. In doing so, the paper uncovers ethical issues of an epistemological kind at the core of the fiduciary. By using Miranda Fricker’s theory of pre-emptive testimonial injustice, the analysis helps shed light on shareholder activism and explains limited engagement to date.


WP515: Do Corporate Governance Ratings Change Investor Expectations? Evidence from Announcements by Institutional Shareholder Services

Paul M Guest and Marco Nerino

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This paper examines empirically the announcement effect of commercial corporate governance ratings on share returns. Rating downgrades by Institutional Shareholder Services (ISS) are associated with negative returns of –1.14% over a 3-day announcement window. The returns are highly correlated with the proprietary analysis of ISS and are decreasing in agency costs, consistent with ratings providing independent information on underlying corporate governance quality. We thus show that the influence and impact of ISS extends beyond proxy recommendations and subsequent voting outcomes. Our findings contrast with the insignificant price impact of Daines, Gow, and Larcker (2010), whose analysis we replicate and successfully reconcile to ours by pooling upgrades and downgrades together.


WP514: Resurrecting the UK Sector National Accounts after 1945

Bill Martin

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Building on the methodology explained in Martin (2009), this paper sets itself the task of backcasting the UK national sectoral accounts before 1987, the date prior to which fully comprehensive data are not provided by the Office for National Statistics. Backcast data cover the private, government and overseas sectors. Innovations compared with the earlier paper include the extension of the dataset to begin in 1946 rather than 1948, and, more importantly, an attempt to backcast financial balances for the household and corporate sectors. This attempt involves the backcasting of pension saving before 1963 and of major components of the household and corporate capital account before 1987. The household and corporate sector data are likely subject to greater measurement error than estimates for more aggregate sector balances, as shown in Martin (2009) and provisionally upheld in this paper by simple tests of stability across different data vintages. Subject to further verification and improvements, now in prospect, in official historic data, the derived postwar sectoral estimates may nevertheless enable more robust testing of a variety of long-run macroeconomic hypotheses.


WP513: Fiscal Policy in a Depressed Economy: A Comment

Robert Rowthorn

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In an influential article, Delong and Summers (2012) consider the implications of hysteresis for government debt. They derive an upper limit for the after-tax real interest rate. If the interest rate is below this limit, the debt incurred during a one-off fiscal stimulus will be automatically repaid without the need for higher taxes. Their analysis assumes that a one-off stimulus leaves an infinite legacy of future benefits (hysteresis effects) that increase through time. This note extends their analysis to situations where hysteresis effects remain constant or decay in the course of time. By highlighting the hysteresis time profile, it provides a more transparent treatment of debt dynamics.


WP512: Keynesian Economics – Back from the Dead? The Godley-Tobin Lecture

Robert Rowthorn

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This paper surveys some the main developments in macroeconomics since the anti-Keynesian counter-revolution 40 years ago. It covers both mainstream and heterodox economics. Amongst the topics discussed are: New Keynesian economics, Modern Monetary Theory (MMT), expansionary fiscal contraction, unconventional monetary policy, the Phillips curve, and hysteresis. The conclusion is that Keynesian economics is alive and well, and that there has been a degree of convergence between heterodox and mainstream economics.


WP511: Fiduciary – Asymmetrical Power, Asymmetrical Care

Helen Mussell

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The legal concept of fiduciary plays a fundamental role in all financial and business organisations. It acts as a moral safeguard of the relationship between trustee and beneficiary, ensuring that the beneficiaries’ best interests are met. It is often referred to as a duty of care. Originally formulated within familial law to protect property put into Trust, beneficiaries were women and children, allocated passive and subordinated roles. This paper investigates two aspects of the asymmetrical power relations central to the fiduciary. Firstly it reveals the gendered presuppositions regarding male and female agential capabilities on which the fiduciary is premised, drawing out the origins of the authority differential in the trustee-beneficiary relationship. Secondly, the paper engages with the ethical nature of the fiduciary relationship, arguing that Care Ethics offers a robust framework for explicating the history of the relationship, alongside delivering a morally-enhanced and future-fit fiduciary free of damaging gendered stereotypes.

2000s

2009 working papers

WP397: Systems Thinking, Market Failure & the Development of Innovation Policy: The Case of Australia

Marc Dodgson, John Foster, Alan Hughes and J S Metcalfe

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Innovation policy is increasingly informed from the perspective of a national innovation system (NIS), but, despite the fact that research findings emphasise the importance of national differences in the framing conditions for innovation, policy prescriptions tend to be uniform. Justifications for innovation policy by organisations such as the OECD generally relate to notions of market failure, and the USA, with its focus on the commercialisation of public sector research and entrepreneurship, is commonly portrayed as the best model for international emulation. In this paper we develop a broad framework for NIS analysis, involving free market, coordination and complex-evolutionary system approaches. We argue that empirical evidence supporting the hypothesis that the ‘free market’ can be relied upon to promote innovation is limited, even in the USA, and the global financial crisis provides us with new opportunities to consider alternatives. The case of Australia is particularly interesting: a successful economy, but one that faces continuing productivity and innovation challenges. Drawing on information and analysis collected for a major review of Australia’s NIS, and the government’s 10-year plan in response to it, we show how the free market trajectory of policy-making of past decades is being extended, complemented and refocused by new approaches to coordination and complex-evolutionary system thinking. These approaches are shown to emphasise the importance of systemic connectivity, evolving institutions and organisational capabilities. Nonetheless, despite the fact that there has been much progress in this direction in the Australian debate, the predominant logic behind policy choices still remains one of addressing market failure, and the primary focus of policy attention continues to be science and research rather than demand-led approaches. We discuss how the development and elaboration of notions of systems failure, rather than just market failure, can further improve policy-making in the future.


WP396: Models of Technology Development in Intermediate Research Organisations

Andrea Mina, David Connell and Alan Hughes

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The development and exploitation of new scientific and technological know-how is a prime engine of economic growth. Different innovation systems have developed different approaches to this problem and have built upon varying combinations of public and private support for R&D over time. In this context, research and technology intermediaries play an important brokering and entrepreneurial role. This paper contains a comparative institutional analysis of the policy and business models of the Fraunhofer Society (Germany), IMEC (Belgium), the Holst Centre (the Netherlands), ITRI (Taiwan) and ETRI (South Korea). It includes an investigation and discussion of their main features, modus operandi, opportunities/risks and trade-offs. The study responds to the need to gain better understanding of possible ways to strengthen the capacity of the UK economy to generate value from its science and technology base. The case studies presented in this paper offer a number of useful lessons for the development of new innovation policy instruments of great potential benefit to the UK plc.


WP395: University & Business Relations: Connecting the Knowledge Economy

J Stanley Metcalfe

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The old question ‘How is wealth created from knowledge?’ captures with great force and clarity one of the most important problems in any economy, but it subsumes a far more particular and very modern instantiation, a simpler and more direct question, ‘How should universities interact with business in the promotion of economic progress?’ Like many seemingly simple questions they preclude any simple answers, yet it turns out that by focusing on the role of universities in the innovation process we can identify some of the deeper complexities of our knowledge based economies. In so doing, we may better understand the design of university-business relationships in pursuit of economic progress and provide surer guidance for policy initiatives in this area. The discussion is centred on three interrelated ideas: the division of labour in the production and use of knowledge; processes of knowledge accumulation; and, innovation systems. We conclude that, critics of the role of universities and firms in respect to their performance in supporting wealth creation should reflect first on the fact that the division of labour between profit seeking business corporations and universities reflects both the quite distinct roles that these organisations fulfil, and, the complementarity between those roles. We can all understand that it would be as unwise to expect firms to behave like universities as it would be to expect universities to behave like firms. The division of labour is there for a purpose, it should be respected.


WP394: Prospects for the UK Balance of Payments

Ken Coutts and Bob Rowthorn

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This paper presents disaggregated projections for the UK balance of payments up to 2020. Under conservative assumptions about underlying trends it is projected that the current account deficit will increase from 2% of GDP in 2009 to almost 5% of GDP by the end of the period. Empirical evidence indicates that a deficit of this magnitude is not sustainable and, if unchecked, will lead to a painful adjustment involving lost output and higher unemployment. The paper calls for industrial and other policies to improve UK trade performance, above all in manufacturing, but also in knowledge-intensive services (communications, consultancy, R&D, media etc). It also points out the need to safeguard London’s role as a global financial centre.


WP393: The Evolution of Ownership Disclosure Rules across Countries

Mathias M Siems and Michael C Schouten

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Over recent years, a number of regulators have launched proposals to expand the obligation to disclose major share ownership in listed companies. This article shows that these are not stand-alone developments. Using a unique dataset comprising data from 25 countries over 11 years (1995-2005) and collected by the Centre for Business Research of the University of Cambridge, we empirically study the evolution of ownership disclosure rules across countries. The analysis demonstrates that these rules have become more stringent over time, in the sense that disclosure thresholds have been lowered, and that there has been convergence. A breakdown of the results suggests that the degree of countries’ economic development is a relevant factor in explaining the differences between countries. The analysis also suggests a positive correlation between ownership disclosure and other variables that protect minority shareholders, as well as a positive correlation between the stringency of countries’ ownership disclosure rules and the degree of dispersed ownership. In the article, we offer various possible explanations for these results. Going forward, while it appears unlikely that disclosure thresholds will be lowered much further, ownership disclosure rules can be expected to continue to evolve in other dimensions. Regulators are likely to broaden the definition of the stake that triggers disclosure, so as to ensure that the ultimate owner is reached. In addition, regulators may require more information be disclosed when the notification is made, so as to enable other investors and issuers to adequately assess the implications of major share ownership.


WP392: Governance, Regulation & Financial Market Instability: The Implications for Policy

Sue Konzelmann, Frank Wilkinson, Marc Fovargue-Davies and Duncan Sankey

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Just as the 1929 Stock Market Crash discredited Classical economic theory and policy and opened the way for Keynesianism, a consequence of the collapse of confidence in financial markets and the banking system – and the effect that this has had on the global macro economy – is currently discrediting the ‘conventional wisdom’ of neo-liberalism. This paper argues that at the heart of the crisis is a breakdown in governance that has its roots in the co-evolution of political and economic developments and of economic theory and policy since the 1929 Stock Market Crash and the Great Depression that followed. However, while many are looking back to the Great Depression and to the theories and policies that seemed to contribute to recovery during the first part of the twentieth century, we argue that the current context is different from the earlier one; and there are more recent events that may provide better insight into the causes and contributing factors giving rise to the present crisis and to the implications for theory and policy that follow.


WP391: System & Evolution in Corporate Governance

Simon Deakin and Fabio Carvalho

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We explore the relevance of systems theory for an understanding of legal evolution, with specific reference to the law and practice of corporate governance. The legal system can be understood as a cognitive resource which, by stabilising normative expectations, reduces transaction costs and enhances contractual cooperation. However, the cognitive capacity of the legal system is not simply a function of its adaptability to external economic conditions. Because of the need to ensure legal continuity and certainty, there is a trade-off between innovation and stabilisation in the production of legal rules. Legal change is discontinuous, asynchronic, and imperfectly matched with developments in the economy. We discuss the relevance of this model for understanding and evaluating corporate governance default rules.


WP390: Acquisition, Insolvency & Managers in UK Small Companies

Natalia Isachenkova and Melvyn Weeks

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This paper investigates the importance of managerial capital to involuntary insolvency and acquisition in UK small and medium-sized companies. Given that small businesses are informationally opaque and lack detailed financial data, the role of non-financial factors such as managerial capital has been emphasised. Although the role of managers in determining small firms’ longevity has received considerable attention, much of what has been written is concerned with businesses trading as either sole proprietors or partnerships. In this study we draw attention to the effect of managerial human capital and whether these findings generalise to incorporated small firms. In addition, we examine whether the determinants of exit exhibit significant differences across acquisition and insolvency. Using data from the survey database of the ESRC CBR at the University of Cambridge our results indicate that firms run by managers with higher human capital and intentions to pursue a strategy of growth have greater survival prospects and are less likely to be forced into insolvency or become acquired. In addition, the relevance to exit of firm age, firm size, and financial variables is confirmed.


WP389: Applying ‘Comply-or-Explain’: Conformance with Codes of Corporate Governance in the UK & Germany

David Seidl, Paul Sanderson and John Roberts

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The comply-or-explain principle is a central element of most codes of corporate governance. Originally put forward by the Cadbury Committee in the UK as a practical means of establishing a code of corporate governance whilst avoiding an inflexible ‘one size fits all’ approach, it has since been incorporated into code regimes around the world. Despite its wide application very little is known about the ways in which managers apply the principle – in particular, how they make use of the option to ‘explain’ deviations. To address this we analysed the compliance statements and reports of 257 listed companies in the UK and Germany, producing some 708 records of deviations, which we used to generate our empirically derived taxonomy of forms of ‘explanation’. We find these varied forms of ‘explanation’ are based in part on different logics of argumentation. This leads to a broader use of the option to ‘explain’ than envisaged by the Cadbury Committee. In addition our country comparison shows significant divergence in compliance patterns in the UK and Germany which may be explained by differences in experience, culture and legal system.


WP388: How a Social Capital Approach Can Help Multinationals Show Ethical Leadership

Peter Heslam, Ian Jones and Michael Pollitt

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In this paper we explore how social capital concepts can guide multinational firms’ decision making in developing countries. From a survey of recent research, we identify four types of social capital: institutional, relational, moral and spiritual. Because these capitals overlap and yet are distinctive, they are individually and collectively useful in assessing how firms contribute to society beyond the generation and accumulation of financial capital. In each case we discuss examples of how particular multinationals have sought to build the different elements of social capital. Our examples include Intel, Anglo American, Merck and ServiceMaster. We suggest that a consideration of the impact of decisions on each of these elements of social capital provides an important ‘moral compass’ for these firms. We also suggest further work that needs to be done in understanding the impact that multinationals have on the social capital of the countries in which they operate.


WP387: Law, Finance & Development Further Analyses of Longitudinal Data

Prabirjit Sarkar and Ajit Singh

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This paper analyses a longitudinal dataset on legal protection of shareholders over a 36 year period, 1970-2005 for four advanced countries, UK, France, Germany and the US. It examines two aspects of the legal origin hypothesis – whether shareholder protection is higher in the common law countries (UK and USA) than in the civil law countries (France and Germany) and whether shareholder protection matters for stock market development in the short and long runs. It also examines the ‘causation’ issue and the ‘endogeneity’ problem- whether greater shareholder protection leads to stock market development or whether stock market development leads to changes in law. The paper casts serious doubt on the validity of the basic theses of the Anglo Saxon legal and developmental model.


WP386: Networks of Learning within the English Wine Industry: Communitarian, Distanciated, Organisational & Redundant

Simon Turner

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The literature on industrial districts (also referred to as business clusters) has grown out of recognition that spatial proximity among firms supports the formation and exchange of knowledge within an industry and is therefore a source of competitive advantage. While such a ‘territorial’ perspective on interfirm relationships is valuable in highlighting the informal means through which firms can gain access to innovative knowledge, localised perspectives have received criticism from a number of quarters. This paper aims to evaluate the relevance of ‘territorial’ processes – untraded, informal, and localised relationships – for producing learning in industrial districts, when situated within a ‘relational’ perspective that also recognises the role of firm-specific strategies in shaping the learning practices that take place within industrial districts. The research explores the role of both territorial and non-territorial interfirm relationships within industrial districts using empirical evidence drawn from interviews with small enterprises working within the English wine industry of southern England. The findings suggest that the development of non-local knowledge links and formal interfirm arrangements by leading firms within the industrial district are starting to displace the extant communitarian logic of learning within the English wine industry


WP385: A Third Way: Regional Restructuring & the Societas Europaea

Jodie A Kirshner

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The Societas Europaea (SE) harmonised minimal amounts of company law and assigned employee representation to a supplementary negotiation process. Commentators predicted that it would introduce cross-border regulatory competition within the EU. Others suggested that companies would choose the SE over other national corporate structures, in order to mitigate the requirements of mandatory codetermination. This paper reports case-study evidence to argue that companies are utilising the SE in a third, more significant way: to facilitate within-group restructurings that enable them to submit to a simplified, integrated regulation at the level of the parent company. This generates pressure for the unification of additional areas of law and more national-level regulation. Empowering the SE therefore represents a first step towards streamlining the regulation of European companies.


WP384: An Augmented UK Private Expenditure Function

Bill Martin

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This paper re-examines the UK private sector expenditure function invented in the 1970s by the ‘New Cambridge’ School of economists led by Wynne Godley. Evidence is found that helps to justify the New Cambridge focus on a private sector aggregate. More problematic is the School’s basic axiom that posits a simple long-run target norm for private financial wealth in relation to income. The wealth to income ratio is instead subject to shifting trends and persistent oscillations.


WP383: Horse, Cow, Sheep, or ‘Thing-in-Itself’? The Cognitive Origins of Corporate Governance in Switzerland, Germany & the US, 1910s-1930s

Martin Lüpold and Gerhard Schnyder

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This paper investigates the origins of the shareholder-orientated corporate governance (CG) model of the US and the stakeholder-orientated model prevailing in continental Europe (exemplified by Switzerland and Germany) for most of the 20th century. We reject the most common theories, which explain cross-national differences in CG models either as the result of a natural evolution, different legal origins, social democratic political power, or openness to trade. We show instead that – starting from fairly similar corporate governance structures in the US and continental European countries during the late 19th century – the crucial period for the emergence of two different corporate governance models was the period from the 1910s to the 1930s. We stress in particular the importance that legal experts and the ideas that they produced played in this process. In fact, during this period, the increasing size of firms and the professionalisation of their management led to new problems, which increasingly challenged existing corporate governance structures and the related individualistic theory of the firm. The diagnoses of this situation and possible remedies formulated by legal scholars informed political decision-makers in times of uncertainty and contributed, in important ways to shaping the different ‘paths’, which the different countries went down subsequently. While the scholarly debates in all three countries were surprisingly similar, different solutions were finally institutionalised due to differences in the political context.


WP382: How Do Legal Roles Evolve? Evidence from a Cross-country Comparison of Shareholder, Creditor & Worker Protection

John Armour, Simon Deakin, Priya Lele and Mathias M Siems

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Much attention has been devoted in recent literature to the claim that a country’s ‘legal origin’ may make a difference to its pattern of financial development and more generally to its economic growth path. Proponents of this view assert that the ‘family’ within which a country’s legal system originated-be it common law, or one of the varieties of civil law-has a significant impact upon the quality of its legal protection of shareholders, which in turn impacts upon economic growth, through the channel of firms’ access to external finance. Complementary studies of creditors’ rights and labour regulation have buttressed the core claim that different legal families have different dynamic properties. Specifically, common law systems are thought to be better able to respond to the changing needs of a market economy than are civilian systems. This literature has, however, largely been based upon cross-sectional studies of the quality of corporate, insolvency and labour law at particular points in the late 1990s. In this paper, we report findings based on newly constructed indices which track legal change over time in the areas of shareholder, creditor and worker protection. The indices cover five systems for the period 1970-2005: three ‘parent’ systems, the UK, France and Germany; the world’s most developed economy, the US; and its largest democracy, India. The results cast doubt on the legal origin hypothesis in so far as they show that civil law systems have seen substantial increases in shareholder protection over the period in question. The pattern of change differs depending on the area which is being examined, with the law on creditor and worker protection demonstrating more divergence and heterogeneity than that relation to shareholders. The results for worker protection are more consistent with the legal origin claim than in the other two cases, but this overall result conceals significant diversity within the two ‘legal families’, with different countries relying on different institutional mechanisms to regulate labour. Until the late 1980s the law of the five countries was diverging, but in the last 10-15 years there has been some convergence, particularly in relation to shareholder protection.


WP381: Shareholder, Creditor & Worker Protection: Time Series Evidence about the Differences between French, German, Indian, UK & US Law

Mathias M Siems

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This paper uses a new quantitative methodology (“numerical comparative law”, “leximetrics”) in order to answer the questions whether there has been convergence, divergence or persistence of legal rules, and how this relates to the Common Law/Civil Law distinction. It is based on indices for shareholder, creditor, and worker protection which code the legal development of France, Germany, India, the UK and the US from 1970 to 2005. The main result is that one has to distinguish between different areas of law: the laws have converged in shareholder protection, they have diverged in worker protection and in creditor protection converging and diverging trends even out. These results do not depend on the distinction between Civil Law and Common Law countries because there have been a number of instances where countries of different legal families have converged and countries of the same legal family have diverged.


WP380: New Business Formation: An Important Element of Ireland’s Rapid Growth Experience?

Michael Anyadike-Danes, Helena Lenihan and Mike Hart

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The extraordinary growth of the Irish economy – the ‘Celtic Tiger’ – since the mid-1990s has attracted a great deal of interest, commentary and research. Indeed, many countries are now looking to Ireland as an economic development role model, and The Sapir Report (2003) has suggested that Ireland should be seen as providing key lessons for other EU countries with regards to realising the objectives set out in the Lisbon Agenda.

1990s

1999 working papers

WP152: Systemic Risk in International Settlements

Rahul Dhumale

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Examines the extent to which different settlement systems affect the nature and potential vulnerability of the financial system to systemic risks, and considers whether externalities can be reduced if individual institutions fully internalise the costs of their actions.


WP151: The Development of Ethical Issues Facing Boards of Directors: A Model with Implications

Ian Jones and Michael Pollitt

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Outlines a model of how ethical issues develop over time using an ethical issue life cycle with three phases. Illustrates the model with reference to ethical issues currently facing UK boards of directors, and uses the Bible to further develop the model to suggest how company boards might respond to ethical issues as they progress.


WP150: Financing Firm Start-up & Restructuring in Transition Countries: Evidence from Belarus, the Ukraine & Russia

Valentijn Bilsen and Elena Mitina

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Investigates how entrepreneurs in Belarus, Russia and Ukraine finance start-up and restructuring. Data from 600 de novo, privatised or state-owned firms shows the critical importance of the personal funds of the main owner(s), with a limited level of support being giving by the state.


WP149: The Impact of Home Countries on the Competitiveness of Advertising TNCs

Lilach Nachum

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The findings of this study suggest that the competitive advantages of US, UK and French advertising TNCs are only partly shaped by the conditions in their country of origin, and that the impact of home countries weakens as agencies expand their international activity.


WP148: Share Capital & Creditor Protection: Efficient Rules for a Modern Company Law?

John Armour

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Examines the economic case for rules of company law which regulate the raising and maintenance of share capital by companies. Argues that the current rules are unlikely to enhance the efficiency of the markets which they regulate, and makes a tentative conclusion.


WP147: Innovation, Investment & International Trade Performance of Russian Enterprises: A Study of St. Petersburg-Based Companies

Vadim Kapustkin

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Investigates and compares the innovation, investment and international trade performance of Russian firms using questionnaire survey data of 150 enterprises in the St.-Petersburg area, half newly set-up private firms and half state-owned and privatised enterprises. Shows that the former performed better in terms of introducing new products, investment growth, international trade, etc.


WP146: The Transformation of the Soviet Enterprise & Its Management: A Literature Review

Kari Liuhto

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This article reviews literature on the transformation of the Soviet enterprise and its management. It shows that Soviet management was much more multidimensional than previously assumed on the basis of official management descriptions, and that some previous empirical studies suffer from an inadequate methodology, studying enterprises and their management only at one point in time. Such studies tend to be based on a certain ‘commonly accepted’ view of Soviet management, instead of truly analysing the transformation taking place in post-Soviet companies. As previous studies have not reached an unambiguous conclusion on how successful transformation might be achieved, the article proposes some essential themes which could increase understanding of the organisational and managerial transformation, and hence support the overall economic transformation process in the former USSR.


WP145: Company Law as an Instrument of Inclusion: Re-regulating Stakeholder Relations in the Context of Takeovers

Giles Slinger and Simon Deakin

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This paper considers a number of potential justifications for regulatory intervention aimed at overcoming “contractual failure” in stakeholder relations. Two distinct functions of stakeholding are identified, in terms of “contract” and “innovation” respectively. These conceptions are linked to two distinct approaches to the regulation of stakeholder relations, one based on “rights” and the other on “cooperation”. The implications of an innovation-based approach for reform of the law relating to hostile takeovers in the UK are considered. The paper concludes by suggesting that the effectiveness of regulation will depend on the capacity of legal rules and procedures to promote cooperation within stakeholder relations, in particular by generating markets for information.


WP144: Foreign Direct Investment & Enterprise Performance in Transition Countries: Evidence from Russia & Ukraine

Valentijn Bilsen and Peter Van Maldegem

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This study compares the performance of foreign and domestic firms in Russia and Ukraine, using recent survey data of 450 enterprises. We find that foreign owned firms are less prone to inter-enterprise and wage arrears, have a better export performance, and use more sophisticated competition strategies. Foreign investment appears to enhance entrepreneurial know-how. In the case of de novo firms foreign investment has often led to a “jump start” of the enterprise, rather than a gradual adjustment over time. Foreign firms have a positive spill-over effect. They introduce healthy financial management methods, and proliferate badly needed market oriented entrepreneurial know-how through the managerial market.


WP143: The Use & Impact of Business Advice by SMEs in Britain: An Empirical Assessment Using Logit & Ordered Logit Models

Paul Robson and Robert Bennett

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This paper assesses the effect of differences in types of client on the use and impact of business advice by SMEs in Britain using data from the 1997 CBR national SME survey. It uses multivariate logit models to show that size of firm, rate of growth and innovation appear to be the main variables influencing the likelihood of firms seeking external advice, both from different sources and from different fields. Ordered logit models of the impact of the advice demonstrate that there are significant differences between clients’ perceived impact of advice and the sources of advice they use, chiefly as a result of firm size, and to a lesser extent for growth, innovation and export levels.


WP142: Intensity of Interaction in Supply of Business Advice & Client Impact: A Comparison of Consultancy, Business Associations & Government Support Initiatives for SMEs

Robert Bennett and Paul Robson

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This paper assesses the supply of business advice to British SMEs using new empirical evidence from the 1997 CBR national SME survey. It compares interaction intensity with suppliers operating in different environments of regulation, contract and reputation, using site visits and/or a written brief/contract as interaction intensity indicators. Although these measures have limitations, the paper demonstrates clear and significant differences between suppliers in interaction intensity, use of contracts and impact in three broad categories: private sector consultancy (low trust, high intensity, high impact), business associations (high trust, low intensity, moderate impact) and government support agencies (moderate trust, moderate to high intensity, moderate or low impact).


WP141: Learning New Productivity Criteria in Transition Economies: Evidence from 450 CIS Companies

Kari Liuhto

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This analysis suggests that the ownership structure of the CIS firms studied did not determine productivity improvements during the years 1995-97. Rather, these reflected the transition path, with privatised companies undergoing organisational revolution, whereas new private start-ups have experienced organisational evolution in a revolutionary business environment.The empirical data also reveals a significant relationship between top manager age (youthfulness) and productivity improvement. This suggests that adapting Soviet management culture to the post-Soviet environment is a more complex task than merely learning new organisational practices.


WP140: Rethinking Innovation Comparisons between Manufacturing & Services: The Experience of the CBR SME Surveys in the UK

Alan Hughes and Eric Wood

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Previous research comparing innovation in manufacturing and services has taken insufficient account of variations in the intensity and nature of innovation activity within these sectors. Analysis of the CBR’s SME surveys reveal that in some respects there is greater variation in innovation within manufacturing and business services than between them. There is also strong similarity between corresponding groupings in each sector, with a considerable depth of technological innovation capability within each. These results imply that differences in innovation between manufacturing and services may have been exaggerated in earlier research.


WP139: Automatic Certification or Mandatory Representation Votes? How the Choice of Union Recognition Procedure Affects Union Certification Success

Susan Johnson

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Union recognition procedures are about to be reformed in the UK. Current legislative reform proposes automatic certification. Business prefers mandatory representation votes. Will the choice of union recognition procedure affect certification success? This paper provides empirical evidence on this issue, using cross-section time-series analysis of nine Canadian jurisdictions over nineteen years. The results indicate that mandatory votes reduce certification success rates by 6 to 9 percentage points below what they would have been under automatic certification. This result is robust and significant at the 99% level.


WP138: Neo-Marshallian Nodes, Global Networks & Firm Competitiveness: The Media Cluster of Central London (Out of Print)

Lilach Nachum and David Keeble

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Based on an original interview survey of indigenous and foreign-owned companies, this paper investigates the interplay between global and local influences on the competitiveness of the cluster of film production and media firms in the Soho area of Central London. While local processes are vitally important in influencing the capabilities of these firms, the cluster is also bound tightly into world-wide webs of interdependence, with TNCs playing a major role in mediating between local and global linkages. The latter are essential for the ability of the firms studied to compete successfully in international markets.


WP137: The Fragility of Functional Work Systems in American Steel

Suzanne Konzelmann and William Barnes

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This detailed case study of the development and crises experienced by an American steel company (I/N) in implementing functional work systems demonstrates that a high road approach provides positive benefits for stakeholders’ workers, production efficiency, and local and macro-level economies and societies. However, broader external forces can conspire to make it very difficult for firms to sustain such systems despite initial successes: high road systems are fragile in national frameworks that subject them to low road pressures without a forum for resolving the difficulties that arise from opposing market pressures and responses.


WP136: Changing Midwifery: Working Conditions & the Quality of Care

David Ladipo, Hannah Reed and Frank Wilkinson

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This paper examines the links between the employment conditions of midwives and the ability of maternity units to improve quality and continuity of care for women, in line with government policy. The study found that advances in quality of care have been made within existing resource constraints. This progress has mainly been achieved by drawing on the professionalism and vocational commitment of midwives, and at the expense of their working conditions and sense of well being. Increasing problems of recruitment, retention and falling morale among midwives suggest that improvements in quality are not sustainable without additional resources, improved working conditions and more effective systems of communication in NHS trusts.


WP135: Can We Measure & Communicate the Benefits of Work-Life Policies More Effectively?

Fiona Scheibl

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The paper reviews the methodologies adopted by a range of recent academic and business studies of work-life policies in investigating whether the use of control groups or other rigorous measurement techniques have become more widespread. It finds that studies have used five different research designs – multivariate modelling; control groups; action research; business case calculations; and social surveys – to measure and evaluate the impact of work-life practices. Control group methods have not been more widely used, but the “action research” approach is encouraging better inter-disciplinary understanding of work-life conflict.


WP134: Reinventing the Market? Competition & Regulatory Change in Broadcasting

Simon Deakin and Stephen Pratten

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The Broadcasting Act 1990 led to a period of turbulence and upheaval within British broadcasting with results that were at best unintended and, at worst, seriously undermined the ideal of public service broadcasting. A Hayekian economic perspective would suggest that the reforms failed because they did not go far enough in the direction of full “marketisation”. This paper develops an alternative perspective, based on an adaptation of systems theory within the context of law and economics, which offers a broader methodological foundation for the understanding of “economic law” and a different normative perspective on the broadcasting reforms. It argues that the difficulty with these reforms was not their failure to go further in marketisation, but rather their lack of clarity in articulating a clear alternative to the market as the basis for the organisation of television production.


WP133: Economic Efficiency & the Proceduralisation of Company Law

Simon Deakin and Alan Hughes

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This paper extends the analysis carried out by the authors for the UK Law Commissions (published as Part 3 of the Consultation Paper on Directors, Duties, September 1998). After considering some of the potential uses of economics in company law, it develops a theoretical framework which relates company law to wider corporate governance mechanisms which operate to mitigate risk and uncertainty in contractual relations. This framework is then applied to provisions relating to self-dealing and conflicts of interests under Part X of the Companies Act 1985. It is argued that in this context, the economic role of company law should be promote cooperation and the sharing of information and risk between corporate actors, a function described in terms of the “proceduralisation” of company law.


WP132: Transcending the Flexibility Debate? Deregulation & Employment in Britain 1979-1997

Simon Deakin and Hannah Reed

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The debate on labour market flexibility has become polarised between two distinctive and potentially irreconcilable viewpoints. One sees the “European social model” based on social protection and collective employee representation as obstructing the operation of efficient labour markets, while the other criticises deregulation because of its social risks and questions whether it does bring increased flexibility. This paper assesses the case for and against labour market deregulation by evaluating recent British experience with specific reference to the economic impact of changes in employment law and social security. This suggests that the link between flexibility and efficiency is itself open to doubt, and that under-regulation may involve under-investment in vital “capabilities” associated with training, labour mobility and job security.


WP131: The Determinants of Firm Innovative Behaviour: The Roles of Rivalry & Persistence

Suma Athreye

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This study investigates the determinants of firm innovative activity using an analytical framework that synthesises different theoretical approaches, and empirical tests based upon a detailed firm-level dataset of UK computer businesses. It suggests that competition or rivalry can be defined both in terms of market power and of the distribution of competencies, and relates this to innovation incidence and persistence. The empirical analysis finds that determinants and dynamics of innovation and market structure differ between software and hardware firms, as does the role of persistence. However, persistence is important when it is the resources and costs of innovation that explain innovative behaviour. Rivalry as a determinant of innovation does not favour persistence.


WP130: Why Are UK Banks’ Overseas Assets & Liabilities So Large?

David Chaundy

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Overseas assets and liabilities of UK banks account for high proportions of overseas assets and liabilities of all UK residents and of UK banks total assets and liabilities. This paper adopts an institutional, theoretical and empirical approach to explain this phenomenon. We find that over 80% of these assets and liabilities are accounted for by foreign-owned UK banks and their large size may be traced to the development of the Euro-currency markets in London in the late 1950s and 1960s. In an attempt to explain gross overseas bank assets simple empirical hypotheses are tested but rejected. We conclude that while an institutional and theoretical approach reveals the nature of UK banks overseas assets and liabilities and suggests some of their determinants, developing a satisfactory empirical model is difficult.


WP129: Trust, Power & Control in Trans-Organizational Relations

Reinhard Bachmann

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Using ideas from Structuration Theory and System Theory, the paper analyses trust and power as means of co-ordinating trans-organisational (inter-firm) relationships. It argues that, depending on the institutional environment, there are two distinct patterns of controlling relationships, where trust and power are interrelated in quite different ways. First, both mechanisms are generated at the inter-personal level and either trust or power dominates the relationship. Second, power occurs at the level of the structural framework of relationships and is highly conducive to developing trust between individual organisations. Specific forms of trust and power are identified and the institutional environment is viewed as playing a crucial role in shaping the quality of trans-organisational relations.


WP128: FDI, the Location Advantages of Countries & the Competitiveness of TNCs: US FDI in Professional Service Industries

Lilach Nachum

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This paper examines the impact of the foreign activities of firms on their international competitiveness, with particular reference to selected US professional service industries. It investigates to what extent and under what conditions firms may compensate for deteriorating home country location advantages through investment in foreign countries, and under what conditions firms may reap the benefits of a locationally advantageous foreign country. The findings suggest that FDI weakens the link between the location advantages of home countries and firm ownership advantages, but that this impact is very moderate and indirect. The ownership advantages which firms develop in their home countries are the most critical determinants of their competitiveness.


WP127: Competitiveness Policy & Economic Organisation: The Case of the British Film Industry

Stephen Pratten and Simon Deakin

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Traditional government policy support for the British film industry was reversed in the 1980s through deregulation and the exposure of the industry to market forces. More recently, a new policy preoccupation with the film industry has emerged, with the industry characterised as possessing inherent but unrealised potential which it is the role of government, operating in tandem with the market, to unlock. This paper examines the nature of this emerging “competitiveness policy” towards the British film industry, and argues that policy should operate through identifying the distinctive capabilities of British film producers and by promoting “structural” change involving forms of contractual cooperation which can allow for the effective management of risk and uncertainty.


WP126: Earnings Distribution, Corporate Governance & CEO Pay

Frederick Guy

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Using econometric modelling techniques, this paper investigates the relationship between earnings differentials and the pay of Chief Executive Officers (CEOs) of 186 British companies between 1970 and 1990. It finds that prior to 1984, top executive pay was a stable function of both firm size and earnings differentials lower on the administrative ladder, consistent with a hypothesis advanced by Herbert Simon in 1957; but that the use of share options from 1984 onward represents not simply a change in the mode of top executive compensation, but a structural break in the relationship between the pay of top executives and that of their subordinates.


WP125: Entrepreneurs as Co-Operative Capitalists: High Tech CEOs in the UK

Hugh Whittaker

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This paper presents the findings of a survey of CEOs in the UK high tech SME sector. Based on 510 responses, it builds up a picture of personal backgrounds, careers, reasons for starting or acquiring the business(es) and business objectives. A typology is developed, based on business objectives, of ‘co-operative capitalists’, ‘capitalists’, ‘co-operatists’ and ‘coasters’. Participants’ own comments show the importance of lessons learned in past employment, a cautious approach to business development, and an orientation to satisfying customer needs through employee involvement, often as part of a ‘stakeholder’ and/or ethical orientation.


WP124: Evaluating the Impact of Business Service Expertise & Business Links on the Performance of SMEs in England

John Bryson, David Ingram and Peter Daniels

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This paper explores the impact on the performance, profitability and competitiveness of SMEs of business service expertise provided via government-sponsored local Business Link organisations. It uses data from a unique survey of SMEs in England as well as case studies of individual firms. It is possible to identify a positive impact of business service expertise on client performance, but isolating such impacts from other variables is very difficult, while use of both employment and profitability indicators is problematic. There is a danger that DTI evaluation of Business Link companies may determine the way in which Business Links identify and deal with clients.


WP123: The Market for External Business Advice Services in Britain

Robert Bennett and Paul Robson

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Analyses the extent of use of external business advice by SMEs in Britain using new survey evidence from the Cambridge ESRC Centre for Business Research SME Survey of 1997. The most important fields of advice sought are taxation and financial management, computer services, advertising, staff training and development, new technology, staff recruitment and marketing. The main differences between firms in choice of advice source relate to their size and growth history. Impacts of advice received are generally only “moderate”, but highest in computer services, product and service design, taxation and financial management and staff training and development. Impacts are most strongly related to SME growth and size.


WP122: What is the Accommodating Item in the Balance of Payments?

David Chaundy

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Balance of payments accounts are constructed using a double-entry accounting principle such that total credits equal total debits. Modelling each entry independently will not guarantee this equality. It is therefore important to identify the counterpart entries or “accommodating” items that ensure that total credits equal total debits. This paper identifies the accommodating item for the UK by presenting institutional evidence on the means of payment for international transactions. Its conclusions are likely to apply to any developed country with a well-developed banking system.


WP121: Putting Values into Action in Business: A Study of the Development of an ‘Integrity’ Value at SmithKline Beecham

Ian Jones and Michael Pollitt

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This paper is a case study of the implementation of an ‘integrity’ value at the Anglo-American healthcare firm, SmithKline Beecham (SB). SB was established as a result of a merger in 1989 following which the new company deliberately sought to design a new corporate culture based on a set of values which included ‘integrity’. The case study charts the development of the integrity value as part of the new culture and how this particular value has been put into action. We show that the new value was accompanied by detailed codification and inclusion in employee evaluation and training programmes. The case highlights the difficulties in implementing high level values at the grass roots of a large corporation. An appendix demonstrates how the lessons from the case have parallels in biblical teaching.


WP120: Measuring the Productivity of Professional Services: A Case Study of Swedish Management Consulting Firms

Lilach Nachum

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Existing productivity measures are inadequate for measuring the productivity of professional services, which employ intangible and specialised factors of production. This paper develops a more adequate measure of productivity in these industries, which is tested against different performance indicators of a sample of Swedish management consulting firms. The findings illustrate the inadequacy of manufacturing-based measurement procedures and suggest that a measure which acknowledges the unique characteristics of professional services correlates better with firm performance. The study concludes that much more research is needed on this important issue.


WP119: A Marshallian Approach to the Eclectic Paradigm of Foreign Investment: The Clustering of Film TNCs in Central London

Lilach Nachum and David Keeble

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Using the eclectic paradigm as a theoretical framework, this study explores how geographically-localised agglomeration economies may affect the ownership advantages of transnational corporations, influence their choice of modality to serve foreign markets and form part of the location advantages of a given locality. It shows how the clustering of film, TV and video production and post-production firms in the Soho area of central London has afforded considerable benefits to foreign TNCs locating here. However, these benefits vary considerably by the type of investment involved (distribution, financing or production), and influence the ownership advantages of the TNCs to varying degrees.


WP118: The Origin of Organizational Species

Ugo Pagano

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The paper argues that some of the issues examined by Darwin and modern biologists concerning natural selection in the case of speciation may be of relevance to the competitive selection of organisational species in capitalist economic development. In biology the laws of structure and change that characterise the selection among species are very different from those that characterise the selection of the member of the same species. These ideas are applied to understanding the “Second Industrial Revolution” and the development of the new species of “managerial capitalism” in the United States and Germany, in contrast to Britain, whose firms and entrepreneurs failed to keep pace with organisational change.


WP117: Post-War Institutional Shocks: The Divergence of Italian & Japanese Corporate Governance Models

Fabrizio Barca, Katsuhito Iwai, Ugo Pagano and Sandro Trento

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Family capitalism in Italy and Japan has faced major problems since 1945. This paper examines some of these problems, contrasts corporate governance patterns in these countries and stresses the different role of the American occupation in influencing them. In Italy it involved the reinforcement of both the State-owned corporations and family controlled pyramidal groups that had emerged during the fascist period, whereas in Japan it caused the end of the power of the great zaibatsu families. We also consider how inter-firm share holding can promote (Japan) or inhibit (Italy) the expansion of large corporations and the mechanisms that have made each model self-sustaining after initial institutional shocks.


WP116: Can Domestic Liabilities Explain the Home Bias in UK Investment Portfolios?

David Chaundy

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It has been suggested that domestic liabilities may be an important factor in explaining the existence of a home bias in international investment portfolios. This paper provides a theoretical justification for this claim in a mean-variance framework. However, an empirical analysis for the UK does not find this effect to be large. Mean-variance efficient portfolios already exhibit significant home bias relative to the world market portfolio. Further, the predicted portfolios differ considerably from the actual portfolios of UK life assurance companies and pension funds. Possible reasons for this include weaknesses in the mean-variance approach and the role of peer pressure.


WP115: Institutional Restructuring in the Japanese Economy 1985-1996

Kazuyoshi Matsuura, Michael Pollitt, Ryoji Takada and Satoru Tanaka

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Examines the effect of economic turbulence since 1985 on three of the institutional foundations of post-war Japanese industrial success. These are the Japanese ‘main bank’ system, whereby a main bank is involved in a special type of long-term relationship with client firms, the tradition of close inter-corporate relationships between main manufacturing firms and their suppliers, and the nature of Japanese industrial policy and the roles of the Ministry of International Trade and Industry (MITI) and the Japan Fair Trade Commission (JFTC). In each case, evidence suggests that these institutional foundations of the post-war Japanese economy have been fundamentally weakened over the period.

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