True versus spurious state dependence in firm performance

In this paper we develop a general class of dynamic brand choice models, called Lightning Bolt (LB) models, which are consistent with the theory of random utility maximization of consumer choice behavior. The underlying random utility process is Markov, and the inter-temporal evolution of the (utility-maximizing) brand choice process is also Markov. The models permit parsimonious parameterizations of the random utility process in brand choices with the resulting switching probabilities being functionally related to explanatory variables. The model allows for structural state dependence (feedback), habit persistence (inertia), and unobserved heterogeneity. The theoretical development shows that several well known stochastic brand choice models can be deduced from random utility maximization theory. From a managerial perspective, the usefulness of the proposed model stems from its ability to separate out the effects of habits, state dependence and heterogeneity. Strong state dependence effects imply incentives for inducing trial of a brand (e.g., product sampling). In contrast with state dependence, a strong habit persistence effect may be indicative of buyer behavior where inducement of trial of a different brand may not be sufficient to maintain a (sustained) defection of the consumer from the habitually purchased brand to the trial brand. Failure to distinguish between these two effects has important implications. For example, a model that only accounts for state dependence effects would, in the presence of only habit persistence, incorrectly attribute it to state dependence. Based on this the manager could decide to embark on an expensive sampling program that might prove ineffective due to the absence of state dependence. It is also important to distinguish between the effects of unobserved heterogeneity and state dependence. In the absence of true state dependence, failing to account for unobservable variations across households (such as differences in price sensitivities), results in the temporally persistent unobservable elements showing up as state dependence in the model. Hence, a manager may incorrectly opt for sampling as the appropriate marketing action, whereas, a couponing or price promotion strategy should have been preferred. We estimate the model parameters using the AC Nielsen household scanner panel data set on catsup purchases. Further, we investigate empirical techniques for overcoming the “initial conditions” problem that affects many dynamic models of brand choice. Through simulation analysis using the estimated parameters, we show that the calculated profitability of a promotion must take into account the multi-period impact due to state dependence. Further, we demonstrate how ignoring heterogeneity can result in spurious state dependence, thereby making marketing tactics such as product sampling appear far more attractive than they actually are. Specifically, the model that accounts only for habit persistence and state dependence effects predicts a share increase of 2.4% points through sampling for one of the brands in the empirical analysis. Once the effects of unobserved heterogeneity are accounted for, however, this number drops precipitously to 0.3%. While even this low number might fulfill the objectives of the brand manager, it ensures that expectations are not eight times that number. It is important to note that this paper is a first attempt at analyzing the three fundamental dimensions of dynamic brand choice behavior. Our formulation represents a “reduced form” approach as opposed to a “structural” approach. Other limitations of the model include our focus on time-invariant choice sets. Extensions of the model to situations where choice sets vary over time are possible, but are difficult. Another limitation is the dependence on multivariate extreme value distributions. An alternative would be to use multivariate normal distributions, i.e., a probit-like structure which has certain useful properties. A comparison of the two approaches would be useful. Empirical extensions of the model to allow for higher-order processes and nested logit type model structures could also be fruitful. Explicitly incorporating variety-seeking behavior in the model would further enrich the theoretical framework proposed in this paper.

In many advanced welfare states, welfare recipients often receive benefits for long periods. This persistence of welfare receipt can be caused by two distinct mechanisms: genuine or spurious state dependence. Knowledge of which of the two mechanisms drives the observed state dependence is important because the policy implications are different. Most of the empirical evidence on state dependence relies on survey data. However, survey data on welfare receipt are subject to substantial measurement error (i.e., misreporting of welfare benefit receipt), which may also bias state dependence estimates. This paper uses rich linked survey and administrative data to measure the effect of misreporting in the survey data on the estimated state dependence in welfare receipt in Germany. We find a rate of underreporting of welfare benefits of 8.6%. Recipients with relatively good labour market chances tend to underreport benefits more frequently. Overreporting benefits is less pronounced with a rate of 1.6%. Within the survey data, we observe more transitions into and out of the welfare system. However, our estimates of state dependence in welfare receipt based on a dynamic random effects model reveal that the effect of misreporting on estimated state dependence is small, even when we distinguish between working and non-working recipients in the model.

This paper examines the role of state dependence in explaining the retirement status of older men. Following from the work of James Heckman and others, apparent and true state dependence are distinguished in a dynamic retirement model. Using a two year longitudinal sample of men aged 58 to 62 in 1969, apparent and true state dependence are controlled for through estimation of an error- components model and a retirement-transition model. The results indicate substantial evidence of state dependence. Copyright 1987 by University of Chicago Press.

Does Ownership Structure Influence Firm Value? Evidence from India

Recently, DuWors and Haines (1990) developed a new measure of brand loyalty based on event history analysis. They measure brand loyalty as the time until a consumer switches to another brand for the first time. This measure is an improvement since it can be applied for either static or timedependent loyalty. However, there are also problems. The measure does not consider competing-risks although their data contain multiple brands. More importantly, heterogeneity is not allowed for, which may lead to biased results and spurious state dependence (Heckman and Singer 1984). What appears as time-dependent loyalty may be an artifact due to aggregating consumers with heterogeneous purchase probabilities. In addition, they only consider the time until the first switch. This may provide a deceptive picture of loyalty if brand switching is frequent in a product category.

A theory of entry into and exit from export markets

We present a density matrix based time dependent projection operator formalism to calculate the beyond mean-field dynamics of systems with non-Markovian local baths and one-to-all interactions. Such models encapsulate the physics of condensed phase systems immersed in optical cavities. We use this method, combined with tensor network influence functionals, to study the dynamics of the Dicke model coupled to non-Markovian local dephasing baths at zero temperature, which has a superradiant phase transition in the mean-field limit. The method corrects a spurious initial state dependence found in the mean-field dynamics and describes the emergence of new time scales which are absent in the mean-field dynamics. Our formalism, based on density matrices, is applicable to other quantum optical systems with one-to-all interactions at finite temperatures.

This study develops new insights into the spillover effects of foreign multinational enterprises (MNEs) on local firms’ export market entry, using the case of Vietnam—a notable global manufacturing hub located in Southeast Asia. The empirical analysis is based on a disaggregated firm‐level panel dataset of 25,032 observations of Vietnamese food processing firms during the period 2011–2016. The food processing industry is an essential part of the country's thriving manufacturing sector, with enormous potential for exports. The random‐effects Probit estimation results suggest that the presence of foreign MNEs significantly raises the likelihood that private local firms become exporters and thereby start integrating into global value chains. Further regressions reveal that foreign presence is also linked to higher export intensity among domestic firms, and that the magnitude of the estimated spillover effects is conditional on the specific measures of foreign MNE presence, the ownership structure in local industry, and the size of local firms. The findings highlight the considerable potential for foreign MNEs to influence local firms’ export prospects and validate the policy efforts to attract foreign direct investment inflows to the examined industry.

Dynamics of Export Market Entry and Exit

We investigate the factors underlying poverty transitions in Nairobi’s slums focusing on whether differences in characteristics make people more prone to enter poverty and persist in, or whether past experience of poverty matters on future states. Understanding these issues is essential for the design of effective policy programs aimed at enhancing the lives of the poor. The paper uses an endogenous switching model, which accounts for initial conditions, non-random attrition, and unobserved heterogeneity.Estimations are based on a panel dataset from the Nairobi Demographic Surveillance System. Results indicate that true state dependence (TSD) constitutes the major factor driving poverty persistence. There are little heterogeneity effects. Even when household and individual observed characteristics differ notably, the TSD size remains very large. Active anti-poverty programs aimed at breaking the cycle of poverty constitute then the most appropriate policies for taking people out of poverty and preventing them to fall back in.

Rapidly growing trade literature has highlighted the importance of firm-level analysis. Building on recent empirical results, this paper examines export behaviour of Turkish manufacturing firms for the period of 1989–2010 from survival analysis perspective. This contributes to the existing empirical literature using Turkish data. Moreover, it provides additional new insight about the exporting behaviour of the firms since this is the first and unique application for the Turkish manufacturing sector. Using duration models, we found that export market entry and exit dynamics differ considerably for the Turkish manufacturing firms. Duration to become exporter is found to be shortening with size, productivity, financing and capital intensity. Domestic market profitability, on the other hand, is found to decrease export incentive which is characterized as risk-averse properties of the Turkish firms. Export market survival is found to depend mainly on size, productivity, external financing and quality production. In order to increase export market survival probability and duration, export starters have to invest for increasing their quality competition power.

The purposes of this research are to propose and test the parsimonious model of the impacts of intangible and nontradable firm-specific resources on various aspects of export performance and to examine whether the assumption of resource heterogeneity holds between firms with different performance level. In this research, the focus is on firm's strategy implementation ability, purchasing capability, and export market orientation. This set of variables, allowing firms to have competitive advantage, is hypothesized to be positively related to firm export performance. The sample data was derived from questionnaires answered by 281 exporters in food processing industry. Resource-based theory serves as the theoretical foundation of this research. It suggests that superior firm performance can be explained by possession and utilization of superior firms resources. To test the hypothesis, structural equation modeling technique was employed. In general, the findings, congruent with the theoretical notion, showed that level of strategy implementation ability, and purchasing capability were significantly and positively related to all aspects of export performance measures including export sales growth, export profitability, and export customer retention. Export market orientation was found to be significantly and positively related the two export performance measures of export sales growth, and export customer retention. The significant and positive relationship between export market orientation and export profitability was, however, not found. Possibly, this could be due to the firms' priority in meeting the goals of export sales growth and retaining customers rather than trying to achieve high profitability level at the expense of the former two goals. In addition, customers may be price sensitive to the differences in price among manufacturers, making charging higher price difficult. This research also performed subgroup analysis to statistically compare level of firm resources between firms in high performance group and those in low performance group. Empirical findings revealed that firms in high performance group possessed significantly higher level of firm resources than the firms in the other group. Based on the findings, it was found that companies who treasured the importance of developing their strategy implementation ability, purchasing capability, and export market orientation would have competitive advantage and enjoy superior performance over their rivals. In addition, this research also made a comparison of performance between groups. The two grouping variables are number of export years (high vs. low experience) and number of employees (large vs. small firm). The results revealed no significant difference of performance between groups. The findings thus confirm previous conclusion that it is the difference in firm resources, rather than in experience of firm size, that explains performance differences among firms.

Despite various studies into the relationship between performance and the ex­port market orientation, researchers still argue that the current findings remain mixed and inconclusive. In this study, the authors use meta-analytic techniques to examine the relationship between the export market orientation and performance, and the impact of firm-level, industry-level and country-level moderators using a total sample of 10,758 firms in 51 manuscripts from 19 countries. In particular, this study focuses on the nature of incongruent findings across studies conducted in different contexts around the globe. The results reveal that market orientation has a positive overall relationship with export­ers’ revenue-based and profit-based performance. Moreover, the moderated regression analysis results indicate that the type of construct (general versus export-specific) and firm size moderate the relationship between the export market orientation and perfor­mance. The results also reveal that market turbulence, competitive intensity, and techno­logical turbulence are significant industry-level moderators of the relationship between the market orientation and performance. This study contributes to the body of knowledge by aggregating the empirical evidence from the past literature and providing conclusive results that are beneficial for practitioners and researchers.

In Search of Synergy Effects: Mergers and Productivity

PurposeThis paper investigates the employment dynamics of Greek married women.Design/methodology/approachLongitudinal/panel data for the period 1995‐2001 and dynamic discrete choice models are used for estimation purposes.FindingsIt is found that the probability of being employed is influenced by observed individual characteristics (e.g. human capital, fertility and unearned income), while genuine state dependence and unobserved heterogeneity constitute major sources of observed serial persistence. The results show that lagged employment affects current employment decisions in a systematic way, and that the non‐contemporaneous effects of unearned income and fertility correlate with unobserved heterogeneity. The estimated average partial effects reveal that an employed woman in t−1 has a probability of being employed in t that is almost 50 percentage points higher than for a non‐employed woman.Practical implicationsThe presence of state dependence and unobserved heterogeneity imply that the bridging of the female employment gap between Greece and its EU partners is expected to follow a slow, long‐term course.Originality/valueGreek female labour force participation has been studied only under a static analytical framework. This is the first study to investigate employment decisions of Greek married women in an inter‐temporal setting.