This paper investigates the relationship between divestitures and firm value in family firms. Usi... more This paper investigates the relationship between divestitures and firm value in family firms. Using handcollected data on a sample of over 30,000 firm-year observations, we find that family firms are less likely than non-family firms to undertake divestitures, especially when these companies are managed by family rather than non-family-CEOs. However, we then establish that the divestitures undertaken by family firms, predominantly those run by family-CEOs, are associated with higher post-divestiture performance than their non-family counterparts. These findings indicate that family firms may fail to fully exploit available economic opportunities, potentially because they pursue multiple objectives beyond the maximization of shareholder value. These results also elucidate how the characteristics of corporate owners and managers can influence the value that firms derive from their corporate strategies.
Managers and designers of innovative business models that are enabled by emerging technologies ne... more Managers and designers of innovative business models that are enabled by emerging technologies need to build legitimacy with ecosystem participants. Yet increasing legitimacy within the ecosystem raises competitors’ incentives to imitate the business model innovators, thereby adversely affecting the innovators’ ability to appropriate value. We refer to this trade-off as the appropriation dilemma. We draw on institutional and resource-based perspectives to develop propositions about mitigating the appropriation dilemma and provide illustrations with a range of cases. Our theory development contributes to the technology management and business model innovation literatures by delineating how business model innovators can create value for all stakeholders and at the same time appropriate value through strategic business model design, a task that is particularly salient in the context of emerging technologies. We also strengthen the theoretical foundations of business model innovation re...
It is not only products or services that are becoming obsolete but also organizational processes ... more It is not only products or services that are becoming obsolete but also organizational processes and systems because they simply no longer create enough value. To seamlessly account for the digitalization of the business and the customer side, new ideas are mandatory, and the whole business model is increasingly becoming the new source of innovation. A new, smartly designed business model can increase the total value created for all stakeholders, including customers, partners and suppliers. The three design elements that characterize a company’s activity system are content, structure and governance. Changing one or more of these elements means changing the entire model, and if the new business model is “new to the world” and not just “new to the company” it can be considered real business model innovation. Content, structure and governance can be highly interdependent; they need to be in line with value creation and capture the goals of the company, such as its revenue model.
Single family offices (SFOs) are professional organizations dedicated to managing family wealth a... more Single family offices (SFOs) are professional organizations dedicated to managing family wealth and family matters. Despite the substantial and growing importance of SFOs, however, there is little systematic knowledge of how they are structured and what services they deliver to families. Because SFOs typically focus on the private affairs of one family, there is little comparative information available about the range of SFO types and the key differentiators among the variety of SFOs existing today. This chapter begins to fill this gap by presenting the results of an international pilot study based on over 40 personal interviews and 138 follow-up surveys with the heads of SFOs managing US $100m or more in investable assets across the United States, Europe and Asia. The project reveals several learning points on how to run an SFO effectively across continents and generations. 1 We are grateful to Josep Tapies for inviting us to contribute a chapter to this book, which is being published to celebrate the 50th Anniversary of IESE. We would like to thank the team at IESE's Center for Family-Owned Business and Entrepreneurship (CEFIE), particularly Netta Etzion, and the Wharton Global Family Alliance (WGFA) team, particularly Sagit Stern, for their support during the project. Results presented in this chapter are based on an ongoing research project on Wealth and Family carried out under the auspices of the Wharton Global Family Alliance. We appreciate the involvement of the other partners in the WGFA, SDA Bocconi, Singapore Management University, and CCC Alliance. We would like to thank our collaborators from the following European organizations: Institute for Family Business-IFB (UK), Association Française du Family Office-AFFO (France), Campden (International, with HQ in the UK), Family Office Circle run by Aeris Capital
The purpose of this paper is to present and test a method for quantitatively measuring the effect... more The purpose of this paper is to present and test a method for quantitatively measuring the effects of legislative acts, some of which may conflict with each other, on coal production and prices, and measuring quantitatively the implications over time of government regulations. A quantitative analysis of the impact of two pieces of legislation on production and prices is provided. 5 refs.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this p... more The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.
El origen de la innovación parece haberse desplazado desde el producto y el proceso hasta la orga... more El origen de la innovación parece haberse desplazado desde el producto y el proceso hasta la organización de las actividades de una empresa. Si se considera esto, ¿qué debe tener en cuenta un directivo para abordar una innovación en el modelo de negocio?
Two major diversification strategies of firms are examined: diversification into related business... more Two major diversification strategies of firms are examined: diversification into related businesses and diversification into unrelated businesses. The first strategy attempts to exploit operating synergies. In the second, the firm attempts to gain financial benefits from its ability to increase leverage due to a greater stability of cash flows.The study utilizes a large sample affirms to assess empirically the benefits and costs of these two diversification strategies by developing a new measure of diversification across business cycles and economic sectors. This new measure is compared with Berry—Herfindahl type measures of total diversification and recent measures of diversification into related businesses.The results indicate that pure financial diversification is associated with (a) more stable cash flows, i.e. lower operating risk; (b) increased levels of leverage; and (c) lower profitability. These observations are in accord with the theory. We also reaffirm that firms which d...
Investing in cost leadership by rapidly riding down the experience curve is a common way to estab... more Investing in cost leadership by rapidly riding down the experience curve is a common way to establish a firm's competitive advantage. Its success depends, in part, on the factors that underlie the experience curve. In this paper we make the distinction between cost declines that occur at any point in time and cost declines that may occur over time. This leads us to consider a revised experience concept in which the dynamic interrelationship between a firm's production rate, cumulative production and unit cost is explicitly considered. We provide a detailed analysis of various scale‐learning relationships and their strategic implications for establishing competitive advantage through an investment in cost leadership. We also prove analytically that such investment should take place only in the presence of learning.
This study investigates empirically the underlying motives for selecting the mode of corporate di... more This study investigates empirically the underlying motives for selecting the mode of corporate diversification and attempts to match the form of capital investments with a corresponding theoretical rationale for diversification. The empirical results seem to support both the transaction‐costs rationale for diversification and the motive that arises from a firm's prior experience with each form of capital investment. However, the empirical findings are inconsistent with the explanation that is based on the owner‐manager conflict of interest.
A number of issues that relate to the desirability and implications of new venture financing are ... more A number of issues that relate to the desirability and implications of new venture financing are examined within a principal-agent framework that captures the essence of the relationship between entrepreneurs and venture capitalists. The model suggests: (1) As long as the skill levels of entrepreneurs are common knowledge, all will choose to involve venture capital investors, since the risk sharing provided by outside participation dominates the agency relationship that is created. (2) The less able entrepreneurs will choose to involve venture capitalists, whereas the more profitable ventures will be developed without external participation because of the adverse selection problem associated with asymmetric information. (3) If a costly signal is available that conveys the entrepreneur's ability, some entrepreneurs will invest in such a signal and then sell to investors; these entrepreneurs, however, need not be the more able ones. The implications for new venture financing of th...
We provide empirical support for the hypothesis that the lower the EXECUTIVE opportunity costs of... more We provide empirical support for the hypothesis that the lower the EXECUTIVE opportunity costs of individuals, the more likely they are to undertake SUMMARY entrepreneurial activity. This prediction emerged from earlier theoretical work in which we modeled the decision of individuals to develop new ventures on their own, seek the backing of a venture capitalist, or remain as paid employees. We use a large sample, drawn from the 1992 Canadian Labor Market Activity Survey. We find that paid employees who choose to leave their employment to become entrepreneurs earned, prior to leaving, substantially less on average then those whose employment status did not change and who remained paid employees throughout the survey period. Specifically, we establish that the wages of those workers who chose to remain paid employees throughout the survey period were, on average, 12% higher than the wages of those who left their employment to become entrepreneurs. To obtain this result, we performed a multivariate regression analysis in which we isolated the effect of employment status by controlling for gender, age, education, marital status, and region of the country. The employment-status coefficient was 2349
The desire to attain personal wealth has long been regarded as the foremost motive for entreprene... more The desire to attain personal wealth has long been regarded as the foremost motive for entrepreneurship. Other goals and values, however, may also contribute to entrepreneurial motivation. Thus, the extent to which money matters relative to other motives is an empirical question. In this study we examine the role of wealth as the motive for the decision to found new ventures. Three focal questions guide our research: 1) does money matter more relative to other decision dimensions in deciding to start a new high-technology venture? 2) does money matter more to entrepreneurs compared to non-entrepreneurs? and 3) does money matter in absolute terms, that is, does a decision model that focuses solely on the motive of wealth attainment parsimoniously predict entrepreneurs' start-up decisions? We conducted in-depth interviews with 51 entrepreneurs and a control group of 28 senior managers who decided not to start ventures (non-entrepreneurs) in the high-technology industry in British Columbia to address our research questions. The motives we examined are wealth attainment and an aggregate of
Journal of Business Finance & Accounting, 1990
The practice of ratio analysis has been used by financial market participants and managers of fir... more The practice of ratio analysis has been used by financial market participants and managers of firms for almost a century. Horrigan (1968) reviews the developments of financial ratio analysis in the USA (and briefly in other countries) since the turn of the century. He shows that the current ratio was used in credit decisions since the 1890s, while other ratios, which were compiled by Wall (1919) for a large sample, were used in comparisons of a firm's financial ratios with those of other firms in the same industry and geographical location. At about the same time, the du Pont Company began to use its ratio triangle system for managerial decision making (Kline and Hessier, 1955). The prevalent use of ratio analysis is manifested in Gibson's 1982 study, and by the sources that publish financial ratio statistics for industries and various firms' sizes in the USA, the UK, and elsewhere. Barnes (1987) opens his review article about financial ratios with the following statement: 'Financial ratios are used for all kinds of purposes. These include the assessment of the ability of a firm to pay its debt, the evaluation of business and managerial success and even the statutory regulation of a firm's performance. Not surprisingly they become norms and actually affect performance. The traditional textbooks of financial analysis also emphasize the need for a firm to use industry-wide averages as targets (Foulke, 1968), and there is evidence that firms do adjust their financial ratios to such targets' (p.449). Barnes also argues that, implicitly or explicitly, financial ratios are used for predictive purposes where analysts try to predict some event of interest, for example, financial distress, bond ratings, takeover candidates, and risk parameters. Practical applications of ratio analysis require the comparisons of a firm's financial ratios to some norms, or prespecified benchmark^.^ Lev (1969) hypothesized that firms attempt to adjust their performance to their industry 'The authors are respectively from the J.L.
This paper investigates strategies for value creation of e-commerce companies. Our main assumptio... more This paper investigates strategies for value creation of e-commerce companies. Our main assumption is that e-commerce fundamentally affects the way business is conducted across many industries. To support this insight, we discuss the unique characteristics of 'virtual markets' brought on by the Internet. Based on a survey of 30 European e-commerce companies, we then identify two main strategies for value creation in e-commerce-the efficiency that e-commerce business models exhibit, and the degree to which they create 'stickiness.' To illustrate these two strategies, we give examples of European companies that can be considered 'best practice' companies.
Two empirical tests designed to disentangle firms' motives for reducing business risk were perfor... more Two empirical tests designed to disentangle firms' motives for reducing business risk were performed. Results suggest that low business risk allows firms to acquire factors of production at lower costs, to operate more efficiently, or both. These findings are consistent with theories assuming both value maximization and efficient capital markets.
This paper investigates the relationship between divestitures and firm value in family firms. Usi... more This paper investigates the relationship between divestitures and firm value in family firms. Using handcollected data on a sample of over 30,000 firm-year observations, we find that family firms are less likely than non-family firms to undertake divestitures, especially when these companies are managed by family rather than non-family-CEOs. However, we then establish that the divestitures undertaken by family firms, predominantly those run by family-CEOs, are associated with higher post-divestiture performance than their non-family counterparts. These findings indicate that family firms may fail to fully exploit available economic opportunities, potentially because they pursue multiple objectives beyond the maximization of shareholder value. These results also elucidate how the characteristics of corporate owners and managers can influence the value that firms derive from their corporate strategies.
Managers and designers of innovative business models that are enabled by emerging technologies ne... more Managers and designers of innovative business models that are enabled by emerging technologies need to build legitimacy with ecosystem participants. Yet increasing legitimacy within the ecosystem raises competitors’ incentives to imitate the business model innovators, thereby adversely affecting the innovators’ ability to appropriate value. We refer to this trade-off as the appropriation dilemma. We draw on institutional and resource-based perspectives to develop propositions about mitigating the appropriation dilemma and provide illustrations with a range of cases. Our theory development contributes to the technology management and business model innovation literatures by delineating how business model innovators can create value for all stakeholders and at the same time appropriate value through strategic business model design, a task that is particularly salient in the context of emerging technologies. We also strengthen the theoretical foundations of business model innovation re...
It is not only products or services that are becoming obsolete but also organizational processes ... more It is not only products or services that are becoming obsolete but also organizational processes and systems because they simply no longer create enough value. To seamlessly account for the digitalization of the business and the customer side, new ideas are mandatory, and the whole business model is increasingly becoming the new source of innovation. A new, smartly designed business model can increase the total value created for all stakeholders, including customers, partners and suppliers. The three design elements that characterize a company’s activity system are content, structure and governance. Changing one or more of these elements means changing the entire model, and if the new business model is “new to the world” and not just “new to the company” it can be considered real business model innovation. Content, structure and governance can be highly interdependent; they need to be in line with value creation and capture the goals of the company, such as its revenue model.
Single family offices (SFOs) are professional organizations dedicated to managing family wealth a... more Single family offices (SFOs) are professional organizations dedicated to managing family wealth and family matters. Despite the substantial and growing importance of SFOs, however, there is little systematic knowledge of how they are structured and what services they deliver to families. Because SFOs typically focus on the private affairs of one family, there is little comparative information available about the range of SFO types and the key differentiators among the variety of SFOs existing today. This chapter begins to fill this gap by presenting the results of an international pilot study based on over 40 personal interviews and 138 follow-up surveys with the heads of SFOs managing US $100m or more in investable assets across the United States, Europe and Asia. The project reveals several learning points on how to run an SFO effectively across continents and generations. 1 We are grateful to Josep Tapies for inviting us to contribute a chapter to this book, which is being published to celebrate the 50th Anniversary of IESE. We would like to thank the team at IESE's Center for Family-Owned Business and Entrepreneurship (CEFIE), particularly Netta Etzion, and the Wharton Global Family Alliance (WGFA) team, particularly Sagit Stern, for their support during the project. Results presented in this chapter are based on an ongoing research project on Wealth and Family carried out under the auspices of the Wharton Global Family Alliance. We appreciate the involvement of the other partners in the WGFA, SDA Bocconi, Singapore Management University, and CCC Alliance. We would like to thank our collaborators from the following European organizations: Institute for Family Business-IFB (UK), Association Française du Family Office-AFFO (France), Campden (International, with HQ in the UK), Family Office Circle run by Aeris Capital
The purpose of this paper is to present and test a method for quantitatively measuring the effect... more The purpose of this paper is to present and test a method for quantitatively measuring the effects of legislative acts, some of which may conflict with each other, on coal production and prices, and measuring quantitatively the implications over time of government regulations. A quantitative analysis of the impact of two pieces of legislation on production and prices is provided. 5 refs.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this p... more The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.
El origen de la innovación parece haberse desplazado desde el producto y el proceso hasta la orga... more El origen de la innovación parece haberse desplazado desde el producto y el proceso hasta la organización de las actividades de una empresa. Si se considera esto, ¿qué debe tener en cuenta un directivo para abordar una innovación en el modelo de negocio?
Two major diversification strategies of firms are examined: diversification into related business... more Two major diversification strategies of firms are examined: diversification into related businesses and diversification into unrelated businesses. The first strategy attempts to exploit operating synergies. In the second, the firm attempts to gain financial benefits from its ability to increase leverage due to a greater stability of cash flows.The study utilizes a large sample affirms to assess empirically the benefits and costs of these two diversification strategies by developing a new measure of diversification across business cycles and economic sectors. This new measure is compared with Berry—Herfindahl type measures of total diversification and recent measures of diversification into related businesses.The results indicate that pure financial diversification is associated with (a) more stable cash flows, i.e. lower operating risk; (b) increased levels of leverage; and (c) lower profitability. These observations are in accord with the theory. We also reaffirm that firms which d...
Investing in cost leadership by rapidly riding down the experience curve is a common way to estab... more Investing in cost leadership by rapidly riding down the experience curve is a common way to establish a firm's competitive advantage. Its success depends, in part, on the factors that underlie the experience curve. In this paper we make the distinction between cost declines that occur at any point in time and cost declines that may occur over time. This leads us to consider a revised experience concept in which the dynamic interrelationship between a firm's production rate, cumulative production and unit cost is explicitly considered. We provide a detailed analysis of various scale‐learning relationships and their strategic implications for establishing competitive advantage through an investment in cost leadership. We also prove analytically that such investment should take place only in the presence of learning.
This study investigates empirically the underlying motives for selecting the mode of corporate di... more This study investigates empirically the underlying motives for selecting the mode of corporate diversification and attempts to match the form of capital investments with a corresponding theoretical rationale for diversification. The empirical results seem to support both the transaction‐costs rationale for diversification and the motive that arises from a firm's prior experience with each form of capital investment. However, the empirical findings are inconsistent with the explanation that is based on the owner‐manager conflict of interest.
A number of issues that relate to the desirability and implications of new venture financing are ... more A number of issues that relate to the desirability and implications of new venture financing are examined within a principal-agent framework that captures the essence of the relationship between entrepreneurs and venture capitalists. The model suggests: (1) As long as the skill levels of entrepreneurs are common knowledge, all will choose to involve venture capital investors, since the risk sharing provided by outside participation dominates the agency relationship that is created. (2) The less able entrepreneurs will choose to involve venture capitalists, whereas the more profitable ventures will be developed without external participation because of the adverse selection problem associated with asymmetric information. (3) If a costly signal is available that conveys the entrepreneur's ability, some entrepreneurs will invest in such a signal and then sell to investors; these entrepreneurs, however, need not be the more able ones. The implications for new venture financing of th...
We provide empirical support for the hypothesis that the lower the EXECUTIVE opportunity costs of... more We provide empirical support for the hypothesis that the lower the EXECUTIVE opportunity costs of individuals, the more likely they are to undertake SUMMARY entrepreneurial activity. This prediction emerged from earlier theoretical work in which we modeled the decision of individuals to develop new ventures on their own, seek the backing of a venture capitalist, or remain as paid employees. We use a large sample, drawn from the 1992 Canadian Labor Market Activity Survey. We find that paid employees who choose to leave their employment to become entrepreneurs earned, prior to leaving, substantially less on average then those whose employment status did not change and who remained paid employees throughout the survey period. Specifically, we establish that the wages of those workers who chose to remain paid employees throughout the survey period were, on average, 12% higher than the wages of those who left their employment to become entrepreneurs. To obtain this result, we performed a multivariate regression analysis in which we isolated the effect of employment status by controlling for gender, age, education, marital status, and region of the country. The employment-status coefficient was 2349
The desire to attain personal wealth has long been regarded as the foremost motive for entreprene... more The desire to attain personal wealth has long been regarded as the foremost motive for entrepreneurship. Other goals and values, however, may also contribute to entrepreneurial motivation. Thus, the extent to which money matters relative to other motives is an empirical question. In this study we examine the role of wealth as the motive for the decision to found new ventures. Three focal questions guide our research: 1) does money matter more relative to other decision dimensions in deciding to start a new high-technology venture? 2) does money matter more to entrepreneurs compared to non-entrepreneurs? and 3) does money matter in absolute terms, that is, does a decision model that focuses solely on the motive of wealth attainment parsimoniously predict entrepreneurs' start-up decisions? We conducted in-depth interviews with 51 entrepreneurs and a control group of 28 senior managers who decided not to start ventures (non-entrepreneurs) in the high-technology industry in British Columbia to address our research questions. The motives we examined are wealth attainment and an aggregate of
Journal of Business Finance & Accounting, 1990
The practice of ratio analysis has been used by financial market participants and managers of fir... more The practice of ratio analysis has been used by financial market participants and managers of firms for almost a century. Horrigan (1968) reviews the developments of financial ratio analysis in the USA (and briefly in other countries) since the turn of the century. He shows that the current ratio was used in credit decisions since the 1890s, while other ratios, which were compiled by Wall (1919) for a large sample, were used in comparisons of a firm's financial ratios with those of other firms in the same industry and geographical location. At about the same time, the du Pont Company began to use its ratio triangle system for managerial decision making (Kline and Hessier, 1955). The prevalent use of ratio analysis is manifested in Gibson's 1982 study, and by the sources that publish financial ratio statistics for industries and various firms' sizes in the USA, the UK, and elsewhere. Barnes (1987) opens his review article about financial ratios with the following statement: 'Financial ratios are used for all kinds of purposes. These include the assessment of the ability of a firm to pay its debt, the evaluation of business and managerial success and even the statutory regulation of a firm's performance. Not surprisingly they become norms and actually affect performance. The traditional textbooks of financial analysis also emphasize the need for a firm to use industry-wide averages as targets (Foulke, 1968), and there is evidence that firms do adjust their financial ratios to such targets' (p.449). Barnes also argues that, implicitly or explicitly, financial ratios are used for predictive purposes where analysts try to predict some event of interest, for example, financial distress, bond ratings, takeover candidates, and risk parameters. Practical applications of ratio analysis require the comparisons of a firm's financial ratios to some norms, or prespecified benchmark^.^ Lev (1969) hypothesized that firms attempt to adjust their performance to their industry 'The authors are respectively from the J.L.
This paper investigates strategies for value creation of e-commerce companies. Our main assumptio... more This paper investigates strategies for value creation of e-commerce companies. Our main assumption is that e-commerce fundamentally affects the way business is conducted across many industries. To support this insight, we discuss the unique characteristics of 'virtual markets' brought on by the Internet. Based on a survey of 30 European e-commerce companies, we then identify two main strategies for value creation in e-commerce-the efficiency that e-commerce business models exhibit, and the degree to which they create 'stickiness.' To illustrate these two strategies, we give examples of European companies that can be considered 'best practice' companies.
Two empirical tests designed to disentangle firms' motives for reducing business risk were perfor... more Two empirical tests designed to disentangle firms' motives for reducing business risk were performed. Results suggest that low business risk allows firms to acquire factors of production at lower costs, to operate more efficiently, or both. These findings are consistent with theories assuming both value maximization and efficient capital markets.
Uploads
Papers by Raffi Amit