Relationship Marketing: Various Schools of thought and Future Research Agenda

Corporate Governance and Business Conference 14-15th July 2011

Holiday Inn at Beacon Hill, 5 Blossom St, Boston MA 02114 USA

Co-hosted by the

Academy of Business & Retail Management (ABRM) Journal of Business & Retail management Research (JBRMR)

And London College of Management Studies

Executive Board members

Dr P R Datta, Executive Chair Professor P R Banerjee, Head of Research & Development, ABRMR

Mark T Jones, Conference Coordinator & Director of External Affairs, JBRMR Prof. G. Dixon, Review Editor

Professor Gairik Das, Review-Editor Dr Joel Osarcar Barima, Review Editor

Dr Soumitra N.Deb, Review Editor

Editorial Advisory Board

Prof. Ogenyi Omar, Prof. G. Dixon, Dr. Charles Blankson, Professor N.P Makarkin, Dr.

Sudaporn Sawmong, Dr. John Dung-Gwom, Dr P R Datta, Professor N.D Gooskova, Professor P

R Banerjee, Prof. Dr. Hayri Ulgen, Dr. Saumitra N. Deb, Professor Gairik Das, Professor A.C

Pande, Dr Nripendra Singh, Dr R Soomro

Session Chairs

Finance, Institutional Structure & Accounting Mechanism Professor Cathy Ning

Consumer Behaviour & International retailing Dr P.R.Datta

Corporate Governance & Business Ethics Dr Laurence J. Stybel

Miscellaneous

Dr. M Ravindar Reddy



Dear Conference Participants,

It is both heartening and telling that there has been such interest in this international

academic conference. The fall-out from the recent world economic crisis has been such that the

issue of governance has moved centre stage. For many of you this will be your first visit to

Boston, a city which itself is redolent with enterprise and scholarly endeavour. This Conference

affords an opportunity to explore pressing issues in an environment conducive to robust

discussion and debate. CGBC – Boston 2011 seeks to address the need to share ideas on

accountability, financial safeguards and transparency. As academics we have a duty to engage

with others and I trust that that you will find your time in Boston both beneficial and

enlightening.

I extend to you my every good wish,

Professor P.R Banerjee Head of Research and Development Academy of Business and Retail Management.



Dear Conference Participants,

Firstly, I am delighted to welcome you to Boston and more especially to international

academic on Corporate Governance and Business. Recent events have forced governments,

shareholders and Boards of Directors to reappraise their respective relationships. No one can

afford to ignore the importance of governance and yet there is considerable room for discussion

concerning the choice of appropriate mechanisms. Some nations are undergoing a period of

unprecedented economic growth, whilst other countries and economic blocks are enduring

minimal growth, and in some cases stagnation. These challenging times are helping concentrate

all our minds, none more so than academics in emerging economies as they endeavour to draw

parallels across various sectors and anticipate change and its ramifications. The turmoil in

international financial markets that we have witnessed in recent times has led many to question

existing economic models and even the booming economies are fearful of the unforeseen

consequences of such rapid and unprecedented growth.

The aim of this conference is to further facilitate the exchange of knowledge between

academics and to consolidate the established network of scholars currently undertaking research

in and around this theme. The Conference sponsors believe that during these few days there

will be an opportunity for academic from across the world to network, to question and gain

insights into some remarkable areas of academic study. It is our earnest wish that our time spent

here will be one of personal growth, and that when we leave here we will all seek to capitalise

and build on the relationships begun during our time in Boston.

Wishing you every success with all your future endeavours.

Mark T Jones Director of External Affairs Academy of Business and Retail Management



SCHEDULE FOR THE CONFERENCE 2011

Tuesday 12th July, 2011 thru Wednesday, July 13, 2011 Arrival and Independent traveling days in Boston, USA THURSDAY, JULY 14, 2011 8.00AM -9.00AM Registration THURSDAY, JULY 14, 2011 9.00AM-9.15AM OPENING ADDRESS & WELCOME 9.15AM-13.00AM Track: Finance, Institutional Structures & Accounting

Session Chair: Professor Cathy Ning I. Asymmetric Dependence in US Financial Risk Factors? Loran Chollete, University of Stavanger, Stavanger, Norway and Cathy Ning Ryerson University, Toronto, Canada II. Manipulation of Security Prices and its Impact on the market

Yu Chuan Huang and Yao Jen Cheng, Department of Risk Management and Insurance, National Kaohsiung First University of Science and Technology, Taiwan.

III Role of rate of Return, Inflation & Deposits on Loan Supply: an Empirical Study of Banking

Sector in Pakistan Mian Sajid Nazir, Imran Haider Naqvi and Muhammad Musarrat Nawaz, COMSATS

Lahor, Pakistan. IV. Board Composition and Value: The Case of Quality Excellence

Charitou, A., Aston Business School Aston University, Georgiou, I. and Soteriou, A, Department of Public and Business Administration University of Cyprus.

V The Impact of Corporate Financial Structure on Operating and Market Performance-An

Empirical Study of Chinese Public Firms

Mohsin Habib and Raymond Liu, University of Massachusetts, USA

13.00-14.00

BREAK FOR LUNCH TUESDAY, JULY 14, 2011 14.00PM-14.30PM

KEY NOTE SPEAKER Shantanu Bhagwat, Udbhav Associates

An engineer by training, Shantanu Bhagwat is a one-time diplomat turned venture investor and now advisor, to start-ups. These days he divides his time between the UK and India working with early stage companies and on ideas to improve political systems and governance in India. In a career spanning two decades, Mr. Bhagwat has worked across geographies and industries, including several years in Japan and in the UK. Until recently a Partner at a venture capital firm, Mr. Bhagwat has also worked at Monitor Co. in London. Prior to that, he spent several years as a fast-track career diplomat with the Indian Foreign Service, working in New Delhi and Tokyo. Over the last few years, he has spent quite a lot of time thinking about and commenting on globalization, innovation and entrepreneurship both internationally and across sectors, with a particular emphasis on India. A graduate in computer engineering, Shantanu holds an MBA from the London Business School, where he was a Chevening Scholar. He is a Chartered Member of TiE – a global non-profit network of entrepreneurs and professionals. He also sits on the Advisory board of Asia-Silicon Valley connection and the UK India Business Angel Network and is a frequent speaker and panelist at conferences on Venture Capital, Innovation, Asia and India. 14.30PM – 17.25 Track: Consumer Behaviour & International Retailing

Session Chair: Dr P R Datta I an Empirical Study on Design Strategy of Beauty Spa Industry from Perspective of Experiential

Marketing

Jui-Che, Tu and Shu-Ping Chiu, National Yunlin University of Science and echnology, Yunlin, Taiwan, ROC, Wei-Cheng Chu, Shu-Te University of Science and Technology, Taiwan, ROC.

II Determinant Attributes of Dissatisfiers of Store Brands in Food and Grocery Retailing-An

Empirical Analysis in India.

M. Ravindar Reddy and T. Naga Sai Kumar, School of Management, National Institute of Technology, Warangal, India.

III Manufacture Owned Brand Vs Private Label Brand: Where Does the Buying Wind Blow?

Isita Lahiri, University of Kalyani, Kalyani, India, Gairik Das, IISWBM, Kolkata, India. IV Managing Risk in CRM System Implementation for Hotel Services: An Action Research

Pei-Ju Chao and Shu-Chuan Chi, Graduate School of Management, National Kaohsiung First University of Science and Technology, Taiwan, Szu-Yuan Sun, Department of Information Management, National Kaohsiung First University of Science and Technology, Taiwan.

V The Impact of Trust Formation and Transference on Online Group Buying Behavior

Meng-Hsiang Hsu, Department of Information Management, National Kaohsiung First University of Science and Technology, Taiwan, R.O.C,

Li-Wen Chuang and Cheng-Se Hsu, Graduate School of Management, National Kaohsiung First University of Science and Technology, Taiwan, R.O.C.

VI Manufacturing and Distribution Strategies, Distribution Channels, and Transaction Costs: The

case of Parallel Imports in Automobiles

Godfrey Yeung, Department of Geography National University of Singapore, Vincent

Mok, School of Accounting and Finance, Hong Kong Polytechnic University, Hong Kong.

VII Constructing a Research Model in Building Customer Trust to Enhance the Shopping Intention

in Mobile Commerce

Chang-Yao Wu and Szu-Yuan Sun, National Kaohsiung First University of Science and Technology, Taiwan.

VIII The Impact of Conformity, Group Efficacy and Trusting Beliefs on Online Group Buying

Behavior

Meng-Hsiang Hsu and Cheng-Se Hsu, National Kaohsiung First University of Science and Technology, Taiwan.

IX Relationship Marketing: various schools of Thought and Future Research Agenda

Palto Ranjan Datta & Omar Ogenyi, University of Hertfordshire, UK and G Dixon, Manchester Metropolitan University, UK.

17.25PM CLOSING SPEECH FOR THE CONFERENCE FRIDAY, JULY 15, 2011 9.30AM-9.45AM OPENING ADDRESS FOR DAY 2 FRIDAY, JULY 15, 2011 9.45AM -12.30AM Track: Corporate Governance & Business Ethics Session Chair: Dr Laurence J. Stybel I Have firms with better corporate governance fared better during the recent financial crisis in

Russia? Farrukh Suvankulov and Fatma Ogucu, Zirve University, Turkey II Corporate Governance and Market Liquidity: An Empirical Analysis.

Pawan Jain and Mohamed Mekhaimer, the University of Memphis, USA III Linking Remuneration to Directors' Performance During the Global Financial Crisis.

Mohammad Istiaq Azim and Joyce Chua Ai Mei, Faculty of Business and Enterprise Swinburne University of Technology, Hawthorn, Australia

IV The Board’s Role During Final Phases of M&A Deal Making.

Laurence J. Stybel, Suffolk University, USA. V Studying The Relationships Among Institutional Investors As One Criterion For Corporate

Governance And Accounting Parameters On The Dividend Ration.

Zahra Lashgari and Mohammad Javad Heidari, Islamic Azad University Central Tehran Branch, Tehran Iran.

VI Profits, Financial Leverage and Corporate Governance

Umar R Butt, MacMaster University, Hamilton, Canada. 12.30 PM -13.00AM

Key Note Speaker Mark T Jones

Having spent much of his career in education Mark has invested a considerable amount of time helping others to maximise their potential. He is a fervent internationalist, who is widely travelled. During his career to date as well as having worked in Jordan for two years, he has spent a considerable amount of time in West Africa. He initiated and oversaw a major humanitarian venture into war-torn Sierra Leone in 1999 and his logistical and regional knowledge is in considerable demand. He writes and lectures on a variety of subjects ranging from international trade to women‘s health in the developing world. In 1994 he was elected a Freeman of the City of London in recognition of his voluntary work with the homeless. As well as being an orator of distinction, he believes that it is essential that we articulate our convictions with passion; in this regard he is ever eager to help the voice of others to be heard. He is a Corporate and Legislative Leadership Training specialist and advises a variety of industries including the sericulture sector. Mark is a member of the Fawcett Society and is a champion of greater female representation in leadership roles. An accomplished writer, he had two books published in 2010 and is currently researching and writing a book about the Lomé Peace Accord (1999).

BREAK FOR LUNCH FRIDAY, JULY 15, 2011 14.00PM – 16.55 Track: Miscellaneous

Session Chair: Dr. M Ravindar Reddy I The impacts of cross-docking on supply chain management: Cost reduction through consolidation.

Shaolong Tang, Business and Management Division,Beijing Normal University-Hong Kong Baptist University United International College, Hong Kong, Jacqueline W. Wang,

School of Accounting and Finance , The Hong Kong Polytechnic University. II Planning of Long Term Care Services to Elderly at the Hashemite Kingdom of Jordan; Its reality

and challenges. Hasan Salih Suliman Al-Qudah, Philadelphia University, Jordan.

III Business Policies, Strategies and Performance

S E Zamani, Head of Centre for International Researches, Tehran, Iran. IV The impact of non-tariff barriers on imports in Malaysia’s manufacturing sector Azlina Hanif,

Faculty of Business Management, UiTM Shah Alam, Malaysia, Rokiah Alavi, Jarita

Duasa & Gairuzazmi Mat Ghani, Kulliyyah of Economics and Management Sciences, International Islamic University, Gombak, Malaysia.

V Relational value, service mechanisms, and realized performance: An empirical study of ASP in

Taiwan.

Shi-Wei Chou, Department of Information Management, National Kaohsiung First University of Science of Technology, Taiwan, Yu-Chieh Chang, Department of marketing department, Shu-Te University, Taiwan

VI Relations between States and International Economic Institutions

Abdulrahim Soomro, Birbeck, University of London, UK VII Special Economic Zone: Initiation and Inhibition

M. Ravinder Reddy and P. Ramlal, School of Management, National Institute of Technology, Warangal, India, Surendar Gade, Department of Management Studies, S R Engineering College, Warangal, India.

VIII Strategies and Performance of New Mexican Emerging Multinational Enterprises.

José G. Vargas-Hernández, Centro Universitario de Ciencias Económico Administrativas U de G, Mexico.

16.55PM CLOSING SPEECH FOR THE CONFERENCE 16th July 2011 There will be no session or function scheduled for today. Please take this opportunity to explore Boston.

We wish you have a safe trip home

Asymmetric Dependence in US Financial Risk Factors? Loran Chollete

University of Stavanger, Stavanger, Norway

Cathy Ning Ryerson University, Toronto, Canada

Keywords: Asymmetric Dependence; Copulas; Diversification Failure; Risk Factors; Systemic Risk; Time-Varying Downside Risk; Systemic Risk

Abstract When assets exhibit asymmetric dependence or joint downside risk, diversification can fail and financial markets may be prone to systemic risk. We analyze the dependence structure of risk factors in the US economy, using both correlations and a parsimonious set of copulas. We find evidence of downside risk in several risk factors. Interestingly for research on systemic risk, the pairs with downside risk include consumption with the Dow Jones, as well as consumption with market and size factors. Of these pairs, only the size factor exhibits an offsetting upside co-movement with consumption during good periods. We also discover significant dynamic behavior in dependence for several risk factors, in particular between consumption and the size factor. Thus, financial markets exhibit time variation in downside risk. Our result provide quantitative evidence on the susceptibility of financial markets to diversification failure and systemic risk.

Have firms with better corporate governance fared better during the recent financial crisis in Russia?

Farrukh Suvankulov, Department of Economics, Zirve University, Turkey

Fatma Ogucu,

PhD Candidate, Zirve University, Turkey

Key words Corporate governance, Russia, financial crisis, stock value, stock price

Abstract We assess whether during the recent (2008-2009) financial crisis in Russia firms with better corporate governance have experienced a milder decline in stock prices and market value as well as lower stock price volatility. Using a structural break analysis, OLS and IV techniques, we find that firms that had better corporate governance prior to the crisis suffered a smaller decline both in stock prices and market value. We report no evidence of statistically significant relationship between corporate governance and volatility of stock prices.

I. Introduction

While economies all over the world encountered significant financial crisis, Russia's downfall appeared to be especially harsh compared with other emerging markets (Figure 1). A sharp decline of oil prices in 2008, a series of corporate conflicts, and the war in Georgia exacerbated the negative impact of the global financial crisis (e.g. Gaddy and Ickes, 2010). We argue that yet another factor that led to the distinct nature of the Russian crisis was the quality of corporate governance.

In the wake of 1998 financial crisis, some Russian companies managed to gradually improve their corporate governance practices. However, the progress in corporate governance had been largely limited to a handful of big firms. In a typical Russian firm, corporate environment remained inferior. It was characterized by high ownership concentration (Guriev & Rachinsky, 2004), insider dominant ownership and excessive state intervention (Lazareva et al., 2007). In 2007, AllianceBerstein rated the overall quality of corporate governance in Russia as ―C‖ placing it alongside Philippines and Peru. As the global financial crisis unfolded in its full swing, the weaknesses in corporate governance emerged faltering performance of Russian firms.

The past few decades have witnessed significant amount of research investigating the effect of overall corporate governance on firm value and stock performance. Conventionally, better corporate governance is believed to lead to enhanced firm performance by ensuring more optimal decision-making process and transparent corporate environment. Klapper and Love (2004) and Durnev and Kim (2005) report a positive relationship between governance and market value using cross-country data. Studies by Black et al. (2001, 2006a, 2006b), Gompers et al., (2003) produce similar results in a single country settings. For instance, Black (2001) finds a strong correlation between a corporate governance index and the share prices of 21 Russian firms. A more limited body of research (e.g. Baek et al., 2004) investigates the governance-performance link during 1998 financial crisis in Asia. They find a positive relationship between selected ingredients of corporate governance and stock performance. With the notable exception of Black et al. (2006b) that used 2001 cross-sectional data from Korea, all mentioned studies assume that variation in corporate governance is exogenous. If the assumption is violated, the regression coefficients of the OLS and panel models are biased. In fact, endogeneity of corporate governance has been discussed in most recent studies by Schultz et al. (2010) and Love (2011). These papers argue that the level of corporate governance is endogenously selected by firms and apparently significant relations produced by OLS and panel models by previous research are the result of spurious correlations. We contribute to the limited literature on the recent financial crisis in Russia by offering supplementary explanation of the stock performance that has been rarely discussed so far. The study also successfully implements the IV approach using two variables that have not been applied in the previous literature. This allows us to tackle the problem of endogeneity and explore whether the pre-crisis level of corporate governance had an impact on decline of stock price and firm value as well as on volatility of stock prices measured by normalized standard deviation. II. Data and Estimation Framework

To measure a pre-crisis quality of corporate governance we use the most recent, publicly available rating of corporate governance practices in a sample of 117 Russian firms. The rating was released in 2007 by the Russian Institute of Directors (RID), a non-profit research institution. It captures the state of corporate governance as of early 2007 and late 2006. RID relies on public information and regularly administered surveys that assess the shareholder rights, work of governance and control bodies, disclosure of information, and corporate social responsibility.

As shown in Figure 2, the rating ranges between ―C‖ and ―A++‖. The distribution of the scores takes a ―bell‖ shape with adequate variation and clustering around ―B+‖.

Stock prices were obtained from the RTS stock exchange. We use mean of closing bid and ask prices for a common stock. Firm value is measured by the simple version of the Tobin‘s Q1. To generate control variables we extracted the data listed in Table 1 from annual reports, balance sheets and income statements for 2007, 2008 and 2009. Table 1. Data extracted from the annual reports, balance sheets and income statements

The assessment of the performance of the Russian firms in the 2008-2009 crisis is sensitive to a timeframe of the analysis (Gaddy and Ickes, 2010). We chose January 15, 2007, as a starting point of the timeframe for two reasons. While the most dramatic events in Russia occurred in late 2008, the housing bubble in the U.S. peaked as early as 2006. By incorporating data since the beginning2 of 2007, we aim to capture spillover effects from the U.S. as well as pre-crisis behavior of the stocks. Also, as mentioned earlier for most of the firms in our sample the corporate governance were evaluated as of beginning of 2007. To identify the timing of the end of Russian downfall, we apply a structural break analysis to the RTSI 50 index, the main composite index in Russia. The idea is that once the stock market hits the bottom of the downfall we would observe a structural change in the trend of the RTSI. We follow Bai and Perron (1998) and conduct a simultaneous estimation of multiple break dates. Figure 3 displays the trend of Quandt statistic between January 2007 and December 2010. Based on this evidence, there appears to be a major structural break on Mar 2, 2009.

1calculated as (market cap + BV of current liabilities+ BV of long term liabilities)/BV of total assets.

2In Russia, first 10-11 days of January are non-working days due to extended celebration of New Year and Orthodox Christmas. Thus, January 15

is conventionally regarded as a start of business year.

Given the timeframe of the analysis we investigate three dependent variables: price decline rate measured as percentage decline of price between 15.01.2007 and 02.03.2009; Tobin's Q decline rate measured as percentage decline of Tobin‘s Q between 15.01.2007 and 02.03.2009; and price volatility defined as normalized standard deviation of price between 15.01.2007 and 02.03.2009. Table 2. Mean values for dependent variables by corporate governance scores

Between 15.01.2007 and 02.03.2009, on average stock prices fell by 59 percent, Tobin‘s Q - by 54.7 percent; the coefficient of variation of the stock price was equal to 0.49 (Table 2). ―B‖ firms registered the greatest stock price decline rate of 64 percent. Volatility seems to be smaller for better governed firms although we observe that firms with score ―A‖ have higher coefficient of variation than firms with the score of ―B++‖ We use OLS and the IV framework by introducing two instrumental variables CEO MBA and Big 4 Audit. The first one takes the value of one if the CEO as of 01.01.2008 had completed MBA or executive MBA program. The idea here is that managers who have such training are more likely to be exposed to modern principles of corporate governance. The second instrumental variable takes the value of one if an external audit for 2007 was conducted by Deloitte, PwC, Ernst & Young, or KPMG. The intuition is that firms with higher quality of external audit are likely to receive and implement better recommendations on corporate governance. We believe that CEO MBA and Big 4 Audit do not directly affect outcome variables. Rather the impact is channeled via corporate governance. For example, it is very unlikely that during sharp stock prices movements in 2008 investors bothered to check the CEO‘s autobiography or the name of the external auditor in 2007.

III. Results We find that a unit increase in corporate governance score was associated with 9.0 percent smaller decline in stock price in the OLS model and 13.7 percent – in the IV model (Table 3).

Table 3. OLS and IV results

Notes: Robust standard errors in parentheses. All model specifications include sector dummies and the intercept not shown in the table. *** p<0.01, ** p<0.05, * p<0.1. Both CEO MBA and Big 4 Audit turned out to have a correlation with the corporate governance score. The adjusted R-square in the first stage regression is 0.686. The instruments comfortably pass the test of over identifying restrictions (Sargan, 1958). Thus, we fail to reject that the joint null hypothesis that the excluded instruments are valid instruments, i.e., the instruments are uncorrelated with the error term and correctly excluded from the estimated equation. For Tobin‘s Q the effect is - 9.4 percent in the OLS model and -16.4 percent in the IV framework. We find no evidence that pre-crisis level of corporate governance was associated with stock price volatility between 15.01.2007 and 02.03.2009. IV. Conclusion

Russian firms with better corporate governance have experienced a milder decline in stock prices and market value during 2008-2009 financial crisis. Although the findings are in line with most of the previous literature, we contribute by confronting the issue of endogeneity of corporate governance. We report a unit increase in pre-crisis level of corporate governance score was associated with 9.0 percent smaller decline in stock price in the OLS model and 13.7 percent – in the IV model between 15.01.2007 and 02.03.2009. For Tobin‘s q the effect is – 9.4 percent in OLS model and -16.4 percent in the IV model. The study finds no evidence of statistically significant relationship between corporate governance and volatility of stock prices. References Baek, J., Kang, J., Park, K. (2004). Corporate governance and firm value: Evidence from the Korean financial crisis, Journal of Financial Economics, 71, 265– 313.

Bai, P., Perron, P, (1998). Estimating and Testing Linear Models with Multiple Structural Changes, Econometrica, Econometric Society, 66:1, 47-78. Black, B. (2001), The Corporate Governance Behavior and Market Value of Russian Firms. Emerging Markets Review, 2, 89-108.

Black, B., Love, I., Rachinsky, A. (2006a) Corporate Governance and Firms' Market Values: Time Series Evidence from Russia, Emerging Markets Review, 7:4, 361-379.

Black, B., Jang, H., Kim, W. (2006b) Does Corporate Governance Predict Firms' Market Values? Evidence from Korea, Journal of Law, Economics and Organization, Oxford University Press, 22:2, 366-413. Durnev, A., Kim, E. (2005) To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation, The Journal of Finance, 60, 1461–1493 Guriev, S., Rachinsky, A. (2004) Ownership concentration in Russian industry, Working Papers w0045, Center for Economic and Financial Research (CEFIR). Gaddy, C., Ickes, B. (2010) Russia After the Global Financial Crisis, Eurasian Geography and Economics, 51:

3, 281-311. Klapper, L., Love, I. (2004) Corporate governance, investor protection, and performance in emerging markets, Journal of Corporate Finance, 10:5, 703-728. Lazareva, O., Rachinsky, A., Stepanov, S. (2007) A Survey of Corporate Governance in Russia, Working Papers w0103, Center for Economic and Financial Research (CEFIR). Love, I. (2011) Empirical Analysis of Corporate Savings in Egypt, World Bank Policy Research Working Paper Series. Gompers, P., Ishii, J., Metrick, A. (2003) Corporate Governance And Equity Prices, The Quarterly Journal of Economics, MIT Press, 118: 1, 107-155. Sargan, J. D. (1958). ―The estimation of economic relationships using instrumental variables, Econometrica, 26, 393—415. Schultz, E., Tan, D., Walsh, K. (2010) Endogeneity and the Corporate Governance-Performance Relation, Australian Journal of Management, 35:2, 145-163.

http://ideas.repec.org/s/cfr/cefirw.html

http://ideas.repec.org/p/cfr/cefirw/w0103.html



Corporate Governance and Market Liquidity: An Empirical Analysis Pawan Jain

Doctoral Student, The University of Memphis

Mohamed Mekhaimer

Doctoral Student, The University of Memphis

Abstract We provide a comprehensive analysis of three different perspectives of corporate governance (Pure External, External/ Internal blend and Pure Internal) and their relationship with Market liquidity. The paper also introduces an empirical test of the internal governance based on ―Rolling Partnership‖ argument. We use the average relative age differences among top executives and CEO as a proxy of internal governance and Rolling Partnership argument. Our results show that, all things being equal, firms withlarger age difference between CEO and subordinate managers are more liquid than others. The relationship between the level of internal monitoring and liquidity holds even after controlling for the level of internal/external monitoring (governance index) and the level of external monitoring (number of block holders

and number of analysts following).

Introduction Corporate governance deals with the set of mechanisms designed to mitigate the agency problem that arise from the separation of ownership and control in a firm.It provides different ways in which investors or suppliers of finance assure that the agents or managers act for their investors‘ ultimate benefits (Shlelifer and Vishny, 1997, La porta et al 2000, Lin et al 2009). Corporate governance is important as it influences firm valuation (Gomper, Ishii, and Metrick 2003, Danies 2001, Morck and Yang 2001 and Bhagat and Bolton 2008), capital structure (Skaife et al 2004, Novaes and zingales 1999), and liquidity (Goh, et al 2008, Chung et al 2010). In this paper we provide a comprehensive analysis of different levels of corporate governance and their relation with Market liquidity. The three different layers reflect pure External, External/ Internal blend and the pure internal perspectives of corporate governance. The paper also introduces the first empirical test of internal governance perspective based on the ―Rolling Partnership‖ argument of Acharya, Myers and Rajan (2011). Rolling Partnership argument suggests that subordinate managers are important stakeholders in the firm, who care about its future. Because of their power to withdraw their contributions to the firm, these stakeholders can force the CEO to act in a more public-spirited and far-sighted way, even if the CEO acts in his or her own short-term self interest and shareholders are dispersed and powerless. In this paper we use the average relative age differences among top executives and CEO as a proxy to test the Rolling Partnership argument. Acharya et al (2011) depart from the traditional view of governance by introducing internal governance or rolling partnership model. The main distinction in their model is that they see the firm as a composition of diverse agents with different horizons, different interests and different opportunities for misappropriation and growth and the best way to administer the agency cost and the diverse ways of managing the firm is the internal governance. The authors‘ further states that the three ingredients go into producing the firm‘s cash flow include the firm‘s capital stock; the CEO‘s ability to manage the firm, which depends on his skill and firm-specific knowledge; and the young subordinate manager‘s effort, which allows them to learn and prepare for promotion. Hence, Acharya et al. (2011) model (see also Prendergast (1993)) suggests that the rewards to learning may be prospective control rents from promotion in the firm, which, in turn, make employees far more effective in exerting internal governance. However,

they do not do this by asserting ―voice‖ in Hirschman‘s terminology (probably an easy way to get fired), but by reducing effort. None of this needs any coordination on the part of employees or any appeal to the board of directors, nor does it require external governance. In addition to the Rolling Partnership model of Acharya et al, (2011) we also investigate the relationship between pure External (the number of block holders and analyst coverage) and External/Internal governance (Gomper et al (2003) governance index) levels with market liquidity. The relationship between the corporate governance and liquidity is not unique to our paper (seeGoh, et al 2008, chung et al 2010, Dumitrescu 2010). However, to the best of our knowledge this paper provides the first empirical test based on the cumulative as well as the individual effects of three different layers of corporate governance on market liquidity. The results show a significant positive relation between liquidity (measured by quoted spread, Amihud illiquidity and turnover) and Acharya, et al, (2011) internal monitoring as measured by the relative age difference between CEO and top subordinates‘ managers. Results are robust across the whole sample of both NYSE/AMEX firms and NASDAQ firms with respect to different liquidity measures. The results is consistent with Acharya et al (2010), in the sense that subordinates managers, who cares about firm‘s future, act in more public spirited to compete for the next CEO position. In addition, we find the coefficients on G-Index are significantly negative for the quoted spread and Amihud illiquidity for the individual and combined samples of NYSE/AMEX and NASDAQ firms. The results also show that external governance, as measured by the number of block holder and the number of analyst following, has a significant positive relationship with the different measures of liquidity. This result is consistent with the conclusions in Coffee (1991) and Bhide (1993), who found that more liquid shares might encourage block holders to sell their shares if they are not happy with the firm performance. The results are robust for a pooled analysis of the incremental effect of the three different layers of monitoring discussed before. Prior studies examined how external corporate governance (e.g., the institutional ownership, analyst following, legal/regulatory environments and markets for corporate control) and internal corporate governance (e.g. managerial compensation, director independence and charter provisions) affect firm value, cost of capital, stock returns and liquidity. However, we provide individual as well as a cumulative analysis of the various channels through which the corporate governance impacts the stock market liquidity of a firm. Liquidity is a very important aspect of financial markets. Kyle (1985) notes that ‗‗Liquidity encompasses a number of transactional properties of markets, including tightness, depth, and resiliency‖(p. 1316). Liquid market provide block holders with the mechanism by which they can easily to intervene more effectively to correct managers‘ actions (Maug, 1998), control management compensations (Holmstrom and Tirole, 1993), decrease the information asymmetry of stock price through stimulating trades of informed investors (Subrahmanyam and Titman, 2001; Khanna and Sonti, 2004)and lessen executives opportunism (Edmans, 2009; Admati and Pfleiderer, 2009). There are various theoretical models that examine the potential trade-off between liquidity and Internal control. Coffee (1991) argues that large investors have increasingly supported measures that improve internal corporate governance because such measures also improve stock market liquidity (which makes their exit less costly). Bhide (1993) holds that high stock market liquidity discourages internal monitoring (by active stockholders) and the benefits of market liquidity must be weighed against the cost of impaired shareholder activism. In contrast, Faure-Grimaud and Gromb (2004) show that information generated by liquid markets increases the large shareholder‘s incentive to undertake value-enhancing activities, such as monitoring. Using an alternative definition of liquidity (i.e., the ability to trade anonymously) several authors also

show that liquidity increases the incentive to monitor by lowering the cost of acquiring large positions [see Kahn and Winton (1998), Maug (2002), and Noe (2002)]. More recently, Chung, Elder and Kim (2011) analyzed the relationship between internal corporate governance (based on governance index) and stock market liquidity. They find that firms with better corporate governance have narrower spread and higher market quality index. Goh, Ng and Yong (2008) also study the effect of internal governance (based on the institutional ownership and board independence) through mediating factors on the market liquidity. However, considering the rolling partnership model presented byAcharya (2011), we argue that Chung et al 2010 and Goh et al 2008 measures of internal liquidity do not truly measures the construct. Prior literature also shows that external corporate governance is linked to various capital market consequences. We use two widely accepted external corporate governance measures found in previous literature- the number of block holders and analyst coverage. There are various incentives- mainly their own stake- for the block holders to engage inactivities that will increase firm value and enhance its performance in the capital market. Since the block holder participates in a value increase in proportion to his equity stake, a larger stake increases the benefit to him from the firm value being high (Faure-Grimaud and Gromb, 2004). The view that large shareholders affect firm value is indeed widespread (Shleifer and Vishny, 1997) as they alleviate the free-rider problem pervasive in firms with passive dispersed investors, unable or unwilling to affect the firm's operations, that is, outsiders. The market for corporate control can provide some discipline, but it is hard to see it as effective in controlling operational decisions (Acharya et al, 2011). Institutional holding reflect the extent of external monitoring imposed by the outsiders to reduce the agency cost and divergence among investors and firm managers benefits. The effect of analyst coverage on the firm behavior has two competing effects (Knyazeva, 2007). The first perspective argues that the analyst have incentive to build their own reputation to increase the compensation. To achieve a better reputation and higher compensation, they try to obtain private information to reduce the information asymmetry among market participants. Lang, lins and Miller (2003) reported that analyst are more likely to follow poor governed firms and the value of analyst coverage is much higher in the countries with weak investor rights protection. While the second perspective considers firms that are widely followed by analysts may be pressured to adopt better corporate governance (Chung, et. al., 2011). Also, there exist possible behavioral biases in analyst coverage such as herding, anti-herding, investment banking affiliation and optimism (Clarke and Subramanian 2006, Hong et al 2000). Kenyazeva (2007) reported that analyst following serve as a partial substitute for the corporate governance mechanisms. Poor governance implies poor financial and operational transparency (Chung, et al, 2011), which increases information asymmetries between insiders and outside investors (e.g., outside owners and liquidity providers), as well as among outside investors. Poor transparency insulates management, which can expropriate firm value through shirking, empire building, risk aversion, and perquisites [see Gompers, Ishii, and Metrick (2003) and Bebchuk, Cohen, and Ferrell (2005)]. Diamond (1985) shows that such information asymmetries betweenmanagement and traders increase the latter‘s incentive to acquire private information, leading to greaterheterogeneity among trader beliefs and larger speculative positions among informed traders. Liquidityproviders may therefore post wider spreads and smaller depths for stocks of poorly governed companiesbecause they face greater adverse selection problems in these stocks (Glosten and Milgrom, 1985).

Theory therefore suggests that poor corporate governance may impair stock market liquidity tothe extent that poor governance is associated with low transparency and poor investor protection. In thisbroad context, we examine the effect of corporate governance on liquidity. We propose 3 levels of corporate governance: pure internal, internal/external and pure external and analyze how each level affects stock market liquidity. Monitoring is costly and hence, any organizational structure that promotes internal monitoring would be very beneficial for the institutional investors or block holders and will improve the efficiency of the capital markets. Also, internal governance can be effective when there is a breakdown of external governance. Corporate Governance and Liquidity Measures An index of corporate governance that is relevant for stock market liquidity requires data ongovernance standards that would, in theory, improve financial/operational transparency and investorprotection. Existing metrics of corporate governance are not completely adequate in this regard. We intend to use the following three measures of corporate governance. Internal Governance Relative Age of top executives to CEO: The Relative age difference is the average difference between the CEO‘s ageand subordinate managers‘ ages in each company.If the CEO believes that undertaking future-oriented actions will increase current cash flows, and thus his welfare, then she would require key stakeholders like customers and employees (see Hirschman (1970), Titman (1984)) to be interested in the future, even if the CEO is not. Customers are, however, typically at a distance, and leaving aside the purchase of high-value durable goods, are unlikely to be appropriately informed or concerned about a seller‘s future health. This then leaves employees, particularly early- or mid-career managers, as the stakeholders most concerned, informed, and able to act against short-sighted CEOs (Acharya, et al, 2011). However, they do not do this by asserting ―voice‖ in Hirschman‘s terminology (probably an easy way to get fired), but by reducing effort. None of this needs any coordination on the part of employees or any appeal to the board of directors, nor does it require external governance. CEO Tenure: The tenure is measured number of years CEO holds her office.The longer the tenure, the more influence the CEO can have on directors and internal pay practices (Core, Holthausen, and Larcker (1999); Cyert, Kang, and Kumar (2002); and Harford and Lie (2007)) Internal/External Monitoring We use the governance index created by Gomper et al (2003) as a measure of internal/external monitoring (GIM hereafter). The 24 governance standards provided by Gompers et al (2003) can be influenced by both insiders and outsiders. For e.g. standard related to the independence of the audit committee (to capture the extent to whichgovernance may improve financial and operational transparency as well as protect shareholder interests) can be changed either by the firm insiders or by outside investors. The GIM index is commonly used in to measure corporate governance (Chung et al 2011, Bhagat and Bolton 2008, Venkatachalam 2005). The index construction is straightforward: for every firm (GIM) adds one point for every provision that restricts shareholder rights. The 24 governance standards are equally weighted in the index construction. External Monitoring Number of block holders: Since the block holder participates in a value increase in proportion to his equity stake, a larger stake increases the benefit to him from the firm value being high (Faure-Grimaud and Gromb, 2004). The view that large shareholders affect firm value is indeed widespread (Shleifer and Vishny, 1997). We also have used the number of analyst following to proxy the external governance of the firm. Lang, Lins and Miller (2003) reported that analysts

are more likely to follow poor governed firms and Kenyazeva (2007) reported that analyst following serve as a partial substitute for the corporate governance mechanisms. Liquidity Measures Liquidity is difficult to define and even more difficult to estimate. Kyle (1985) notes that ‗‗liquidity is a slippery and elusive concept, in part because it encompasses a number of transactional properties of markets, these include tightness, depth, and resiliency,‘‘ (p. 1316). Empirical liquidity definitions span direct trading costs (tightness), measured by the bid–ask spread (quoted or effective), to indirect trading costs (depth and resiliency), measured by price impact. The literature provides a menu of measures and proxies to consider for estimating liquidity. The first class of liquidity estimators measures trading costs directly. Proportional bid-ask spread is commonly measured as the differences between the best ask quote and the best bid quote as a percentage of bid-ask midpoints.

where Aski,τ is the ask price for stock i at time τ, Bidi,τ is the bid price for stock i at time τ, and Mi,τis the mean of Aski,τ and Bidi,τ. Our next measure of liquidity is the one provided by Amihud (2002), which is the ratio of the absolute stock return to its dollar volume:

It can be interpreted as the daily price response associated with one dollar of trading volume, thus serving as a rough measure of price impact (Lipson and Mortal, 2009). Finally, we use share turnover as our final liquidity measure. Turnover is simply the dollar volume as a percentage of shares outstanding.

Data sources Our sample includes 6 years of data on all firms listed on NYSE, AMEX and Nasdaq for the period 1996 to 2001. Stock prices, closing bid and ask prices, trading volume, shares outstanding, exchange information are provided from the Center for Research in Stock Prices (CRSP) database. The Data on number of analyst following is extracted from the Institutional Brokers' Estimate System (I/B/E/S) dataset whilethe number of Institutional ownersis provided by the Blockholders database. Block holder‘s data is available only for 1996-2001 period. Risk metrics database provide the GIM index or the Governance index (G-Index). Finally, we obtain financial and accounting data such as total assets, intangible assets, dividend information, and R & D expenses from Compustat database. The trading data included some trades with zero trading prices and bid and ask quotes for the locked and crossed markets (bid price less than/equal to ask price). These observations are removed from the final sample and the cleaned data included observations for 14,475 firm years, with 5007 being NYSE/AMEX firm years and the remaining 9,468 being the Nasdaq firm years. Results DescriptiveStatistics

Table 1 reports the descriptive statistics on Governance- Index (g-index), liquidity measures, CEO age and other stock and CEO attributes for the sample firms included in the study. Given

the differences in both the market structure and the governance standards for listing, we report our results separately for NYSE/AMEX and NASDAQ firms as well. For the NYSE/AMEX firms in our sample, the mean value of g-index is 9.32, while for Nasdaq firms the mean g-index is 7.91, indicating that, on average; Nasdaq firms meet about one-third of the governance standards. Average age of a CEO of a typical firm is about 55 years and a CEO typically holds the office for 9.21 years. The average age and tenure for CEO of NYSE/AMEX firms is higher than the Nasdaq firms. The average age gap between the CEO and subordinate managers is 6.89 years for NYSE/AMEX firms which is much lower than the mean age gap of 9.54 years for Nasdaq firms. Hence, based on the argument presented by Acharya et al. (2011), the internal governance should be more visible in Nasdaq firms than the NYSE/AMEX firms. The descriptive statistics also show that NYSE/AMEX firms in our sample tend to be larger in size as measured by total assets, have greater trading volume, and exhibit lower return volatility than NASDAQ firms. NYSE/AMEX firms tend to be more liquid with lower quoted spreads and exhibit smaller Amihud illiquidity than NASDAQ firms. In addition, NYSE/AMEX firms are followed by more analysts, and exhibit higher institutional ownership. For example, the mean number of analysts (4.90) for the NYSE/AMEX sample is significantly greater than the corresponding figure (3.67) for the NASDAQ sample. Total intangible assets, R&D expenditure and dividend yield are much larger for the NYSE/AMEX firms in comparison with the Nasdaq firms. Regression Results

In this section, we examine how our liquidity measures are related to corporate governance after controlling for other possible determinants of stock market liquidity. To examine the relation between liquidity and corporate governance, we regress the liquidity measures: quoted spreads, Amihud‘s illiquidity and turnover, on the different layers of monitoring and a number of control variables using the pooled cross-sectional and time-series data. Prior studies show that a significant portion of cross-sectional and time-series variation in spreads can be explained by select stock attributes such as dollar trading volume, share price, return volatility and dividend yield (McInish and Wood, 1992; Chung, Van Ness, and Van Ness, 1999; and Stoll, 2000). To isolate the effect of corporate governance on liquidity, we include stock price (in log), return volatility, dollar trading volume (in log) and dividend yield in the regression model as control variables. We note that level of monitoring and our measures of market liquidity could be spuriously correlated because they are related to a common set of variables. Including the variables that are related to both level of monitoring and market liquidity in the regression model reduces the possibility that any estimated relation between level of monitoring and market liquidity is spurious. For example, larger firms may simultaneously exhibit better governance structure due to higher investor interest and lower spreads due to smaller adverse selection risks (e.g., more information is available on largerfirms). To examine whether corporate governance has an independent, direct impact on liquidity, we include firm size (as measured by the book value of total assets) in the regression model. For the same reason, we also include asset tangibility and R&D expenditure as additional control variables. Asset tangibility could reduce asymmetric information problemsaspayoffs on tangible assets‘ are easier to observe. In contrast, high R&D intensity may increase asymmetric information problems because payoffs from R&D are difficult to predict. Based on these considerations, we estimate the following regression model for our study sample ofNYSE/AMEX firms, NASDAQ firms, and the combined sample of NYSE/AMEX and NASDAQ firms, respectively:

Quoted Spreadi,torAmihudilliquidityi,torTurnoveri,t= β0 + β1Level of Monitoringi,t + β2Log(Price) + β3Return Volatilityi,t+ β4Log(Trading Volumei,t) + β5Log(Assetsi,t)(1)+ β6AssetIntangibilityi,t+ β7R&D Expenditurei,t+ β8DividendYieldi,t + εi,t; where Quoted Spreadi,tis the proportionate quoted percentage spread of stock i in year t, Amihud illiquidityi,t is return per dollar volume, Turnoveri,t is average daily volume per share

outstanding, Level of Monitoring is internal governance (measured by CEO‘s age relative to subordinate managers‘ age, CEO age and CEO tenure) for the first regression, internal/external governance (G-Indexi,t) for the second regression, external governance (measured by number of block holders and number of analysts following) for the third regression, Pricei,t is the mean stock price, Return Volatilityi,t is the standard deviation of daily returns, Trading Volumei,t is the mean daily dollar trading volume, Assetsi,t is the book value of total assets, Intangibilityi,t is the

book value of total intangible assets, Dividend Yieldi,t is the ratio of dividend paid per share to the share price, and εi,t is the error term. We calculate t-statistics using White‘s (1980) standard errors and report them in parentheses. Internal monitoring and liquidity Table 2 summarizes the results explaining the relationship between liquidity and internal governance as measured by the difference between CEO‘s age and subordinate manager‘s ages (Relative age). The results show that the coefficients on relative age in the quoted spread model, Amihud illiquidity model are all negative and significant for NASDAQ firms, and the combined sample of NYSE/AMEX and NASDAQ firms. We obtain qualitatively similar results for the turnover. Hence, the larger the age difference between the CEO and subordinate managers, the higher is the firm‘s liquidity. Our regression models capture a large fraction of the variation in liquidityas shown by the high R2value for the regressions. Consistent with the finding of prior research, liquidity is significantly and positively related to log price, firm size, asset intangibility and return volatility, and negatively to trading volume in both markets. R & D expenses are negatively related to liquidity and this result is consistent with Chung et al. (2011). High R&D expenditure may increase asymmetric information problems because payoffs from R&D are difficult to predict. These results are remarkably robust across our sample of both NYSE/AMEX firms and NASDAQ firms and with respect to different variable measurement methods. Our empirical results thus far support the hypothesis that better internal corporate governance is associated with higher stock market liquidity. Internal/external monitoring and liquidity Table 3 summarizes the results explaining the relationship between liquidity and internal/external governance as measured by the Gompers, Ishii and Metrick (2003) (g-index). The results show that the coefficients on G-index in the quoted spread model, and Amihud illiquidity model are all negative and significant for NYSE/AMEX firms, NASDAQ firms, and the combined sample of NYSE/AMEX and NASDAQ firms. We obtain qualitatively similar results for the turnover. Our regression models capture a large fraction of the variation in liquidity, with the R2of greater than 0.65 for the Nasdaq firms. Hence, the higher the G-index, the higher is the stock market liquidity. The results on control variable are consistent with prior literature. External monitoring and liquidity Table 4 summarizes the results explaining the relationship between liquidity and external governance as measured by the number of block holders and number of analysts following. The results show that the coefficients on block holders and number of analysts following in the

quoted spread model, and Amihud illiquidity model are mostly negative and significant for NYSE/AMEX firms, NASDAQ firms, and the combined sample of NYSE/AMEX and NASDAQ firms. Results are not significant for the number of block holders forturnover model. The results on control variable are consistent with prior literature. Our empirical results thus far support the hypothesis that better external corporate governance is associated with higher stock market liquidity.

Liquidity and different levels of monitoring For our final analysis, we run a pooled regression by including all three layers of monitoring in one regression model. We analyze the incremental effect of different layers of monitoring on liquidity. Results from this analysis are summarized in table 5. CEO age is significantly negatively related to liquidity as measured by quoted spread or Amihud‘s illiquidity. Our measure of internal monitoring, relative age difference between CEO and subordinate managers is significantly positively related to liquidity, even after controlling for the other measure of corporate governance. This result is robust across different model specifications and across firms listed on NYSE/AMEX or Nasdaq. We also find a significantly positive relationship between liquidity and both, the internal/external governance (G-index) and the external governance (number of block holders) for NYSE/AMEX firms. Based on these results we can conclude that better corporate governance is associated with higher liquidity. We also find that internal governance significantly impacts stock market liquidity beyond the traditional governance measures. Acharya, et al. (2011) argues that subordinate managers are important stakeholders in the firm, who care about its future. Because of their power to withdraw their contributions to the firm, these stakeholders can force the CEO to act in a more public-spirited and far-sighted way, even if the CEO acts in his or her own short-term self interest and shareholders are dispersed and powerless. The authors further states that the Three ingredients go into producing the firm‘s cash flow include the firm‘s capital stock; the CEO‘s ability to manage the firm, which depends on his skill and firm-specific knowledge; and the young subordinate manager‘s effort, which allows her to learn and prepare for promotion. Hence, Acharya et al. (2011) model (see also Prendergast (1993)) suggests that the rewards to learning may be prospective control rents from promotion in the firm, which, in turn, make employees far more effective in exerting internal governance. Based on the above argument, we can hypothesize that the relationship between internal monitoring, as measured by difference between CEO‘s age and Subordinate managers‘ ages, and liquidity should be visible for firms that emphasizes internal promotions. To test the above hypothesis, we analyze a subsample of the firms for which the information about the internal promotions or external hiring could be extracted. To derive the internal promotion information, we compare the names of new CEO with the already existing pool of subordinated managers and if we find a match, that firm is considered to be emphasizing internal promotions. We also compare the date when there is a change in CEO with the date the new CEO joins the firm. If the two dates are identical, the firm is classified as the one hiring the CEO externally. Table 6 presents the descriptive statistics about the number of CEO changes for a given firm and how the new CEO is hired. The statistics show that about 82% of the new CEOs are appointed from the top non-CEO executives in the firm in the previous year. Larger NYSE/AMEX firms

emphasize more on internal promotions than the smaller Nasdaq firms. So, if the level of internal promotions is the driving force behind the relative age difference and liquidity relationship, then the relative age-liquidity relationship should be stronger for the NYSE/AMEX firms but that is not observed in the results summarized in earlier sections. Liquidity and different levels of monitoring For our final analysis, we run a pooled regression by including data on internal promotions and all three layers of monitoring in one regression model. If the level of internal promotions is the driving force behind the relative age difference and liquidity relationship, then we should observe a significantly positive coefficient for the internal promotion variable. Results from this analysis are summarized in table 7. First thing to note is that the relative age difference between CEO and subordinate managers is significantly positively related to liquidity, even after controlling for the other measure of corporate governance and level of internal promotions. This result is robust across different model specifications and across firms listed on NYSE/AMEX or Nasdaq. Level of internal promotions is not significant predictor for most of the quoted spreads and Amihud illiquidity regression models. Level of internal promotions is significantly positively related to the liquidity for smaller Nasdaq firms. For NYSE/AMEX firms for turnover model we get counter-intuitive results, we find that level of internal promotions is negatively related to liquidity. We also find a significantly positive relationship between liquidity and both, the internal/external governance (G-index) and the external governance (number of block holders) for NYSE/AMEX firms. Based on these results we can conclude that better corporate governance is associated with higher liquidity. The most robust result across all regression models is that internal governance significantly positively impacts stock market liquidity beyond the traditional governance measures. This relationship holds even after controlling for level of internal promotions. Robustness tests We re-analyze the results by deleting the banking and utility firms and firms with stock price less than $5, we find similar results as reported in the previous sections. However, results for internal monitoring were weaker for the turnover model. We reanalyze the model using the maximum likelihood estimation technique and the results were qualitatively similar to the ones reported in the previous section using the regular OLS estimation method Conclusion

Companies with good corporate governance are likely to have liquid secondary markets for their shares because good governance improves financial and operational transparency, which ultimatelyreduces information asymmetries between the insiders and outside owners/liquidity providers. Liquidity providers are therefore likely to post smaller spreads and larger depths for stocks of these companies. Whether these effects on liquidity are discernable and economically significant is an empirical question, and our study addresses this question. We also analyze if the existence of internal monitoring, as defined by Acharya et al. (2011), serves as a self-disciplining mechanism and improves the stock market liquidity.

Our empirical results show that companies with better corporate governance generallyhave greater stock market liquidity as measured by narrower quoted spreads, lower Amihud illiquidity, and higher turnover.Our results are robust to alternative estimation methods, across different markets, and different measures ofliquidity.Although the results of our study suggest that good governance could enhance firm value through its effect on stock market liquidity, whether companies choose to adopt additional governance standards remains a question. As suggested by Aggarwal et al. (2008), governance standards may be selected bythe controlling shareholder to maximize his private value of the firm. The controlling shareholder‘sdecision of whether to adopt additional governance standards therefore involves weighing the benefits ofgreater liquidity and lower cost of equity capital against the cost associated with, for example, thediminished ability of the controlling shareholder to expropriate firm value. Hence, we look at the different layers of monitoring to understand if the self-governing mechanism as proposed by Acharya et al. (2011) impacts liquidity. Our resultsdocument that, all things being equal, firms with larger age difference between CEO and subordinate managers are more liquid than others. The relationship between the level of internal monitoring and liquidity holds even after controlling for the level of internal/external monitoring (governance index) and the level of external monitoring (number of block holders and number of analysts following). In this perspective, a firm should hire younger subordinate managers, which in turn, lowers the cost of external and internal/external monitoring and improves the stock market liquidity. Based on these results we can conclude that better corporate governance is associated with higher liquidity. The most robust result across all regression models is that internal governance significantly positively impacts stock market liquidity beyond the traditional governance measures. Acharya et al. (2011) assert that the level of internal promotions is the driving force behind the relative age difference and liquidity relationship. We do not find support for this assertion rather for NYSE/AMEX firms we find contradicting evidence.Future research can focus on explaining the channel through which internal governance affects liquidity. Table 1. Descriptive statistics We present statistics for all firms for the period 1 January 1996 to 31 December 2001. Quoted Spread is the proportionate quoted spread, Amihud‘s illiquidity is the ratio of absolute return to the daily volume, Turnover is the ratio of dollar volume to the shares outstanding, Age is the CEO‘s present age, Relative age is the difference between CEO‘s age and subordinate managers‘ ages, Tenure is the CEO tenure, G-index is the governance index. Analysts is the mean number of analysts following a firm, Blockholders is the number of block holders in a firm, Price is the mean stock price, Return Volatility is the standard deviation of daily returns, Trading Volume is the mean daily dollar trading volume, Assets is the book value of total assets, Intangibility is the book value of total intangible assets, R&D Expenditure is the annual R&D expenditure and Dividend is the amount of dividend per share per year. We present the statistics for each variable for all firms together, and for firms listed on NYSE/AMEX and Nasdaq.

Full Sample (14,475) NYSE/AMEX (5,007) Nasdaq (9,468) Variable Mean Standard

Deviation Mean Standard

Deviation Mean Standard

Deviation

Liquidity Quoted Spread 0.043 0.059 0.039 0.066 0.046 0.054 Turnover 6.90 40.10 8.26 55.12 5.01 24.13 Amihud Illiquidity 8.00E-6 1.71E-4 3.22E-6 1.01E-4 1.14E-5 2.07E-4

Internal Monitoring CEO Age 54.64 8.33 55.75 7.97 52.22 8.59 Relative Age 8.71 9.69 6.89 9.60 9.54 9.61 Tenure 9.21 7.85 9.35 7.94 9.16 7.81

Internal/ External Monitoring G-index 8.93 2.76 9.32 2.72 7.91 2.58

External Monitoring Number of Analysts 4.25 4.93 4.90 5.50 3.67 4.27 Number of Blockholders 2.67 1.74 2.85 1.75 2.62 1.69

Control Variables Price 21.68 293.04 31.47 453.43 14.70 17.50 Return Volatility 0.045 0.038 0.029 0.024 0.057 0.041 Volume (in‘000) 10,825 71,655 13,517 57,808 8,903 80,033 Assets (in millions) 5,124 31,863 11,520 49,028 711 3114 Intangible (in millions) 354 2,794 775 4,256 56 559 R & D 5.50 65.97 7.32 83.67 3.25 32.40 Dividend 0.34 2.36 0.61 3.42 0.13 0.71

Table 2. Liquidity and Internal governance This table shows the OLS results of the following regression model: QuotedSpreadi,t

orAmihudilliquidityi,torTurnoveri,t= β0 + β1Level of Monitoringi,t + β2Log(Pricei,t) + β3Return Volatilityi,t+ β4Log(Trading Volumei,t) + β5Log(Assetsi,t) + β6AssetIntangibilityi,t+ β7R&D Expenditurei,t+ β8Dividendi,t + εi,t; where Quoted Spreadi,tis the proportionate quoted percentage spread of stock i in year t, Amihudilliquidityi,t is return per dollar volume, Turnoveri,t is average daily volume per share outstanding,AGEi,t is CEO‘s present age, Level of Monitoring is internal governance as measured by CEO‘s age relative to subordinate managers‘ age and CEO tenure,Pricei,t is the mean stock price, Return Volatilityi,t is the standard deviation of daily returns, Trading Volumei,t is the mean daily dollar trading volume, Assetsi,t is the book value of total assets, Intangibilityi,tis the book value of total intangible assets, Dividendi,t is the amount of dividend paid per share per year and εi,t is the error term. We calculate t-statistics using White‘s (1980) standard errors and report them in parentheses.

Quoted Spread Amihud Illiquidity Turnover

All Firms

NYSE/ AMEX

Nasdaq All Firms

NYSE/ AMEX

Nasdaq

All Firms

NYSE/ AMEX

Nasdaq

CEO Age 0.03 (1.55)

0.01 (0.62)

-0.01 (-0.50)

0.03* (2.31)

0.03** (1.69)

0.05 (1.22)

-0.03* (-2.87)

-0.02 (-1.50)

-0.04 (-1.50)

Rel. Age -0.04* (-2.49)

0.02 (1.56)

-0.05* (-2.01)

-0.02* (-1.96)

0.02 (0.76)

-0.06* (-1.98)

0.03* (2.80)

0.02 (1.05)

0.07* (2.86)

Tenure -0.01 (-0.13)

0.01 (0.90)

-0.02 (-0.83)

0.02 (1.43)

0.02 (0.88)

0.04 (1.13)

-0.01 (-1.39)

0.01 (0.87)

-0.04** (-1.87)

Log volume

-0.58* (-4.47)

-0.43* (-3.40)

-0.87* (-8.08)

-0.37 (-11.5)

-0.35* (-9.66)

-0.62* (-8.00)

0.51* (16.91)

0.62* (15.12)

0.64* (10.25)

Log intangible

-0.03 (-0.95)

-0.01 (-0.56)

-0.07* (-2.02)

-0.07* (-2.56)

-0.06* (-2.17)

-0.09** (-1.67)

0.05* (2.69)

0.10* (4.28)

0.01 (0.24)

Log assets

-0.43* (-4.19)

-0.24* (-2.88)

-0.18* (-2.56)

-0.29* (-8.36)

-0.23* (-6.34)

-0.26* (-3.90)

0.34* (11.73)

0.32* (8.41)

0.21* (4.45)

R & D Expense

0.03* (3.30)

0.03* (3.97)

0.11* (3.73)

0.12 (0.69)

0.01 (0.45)

0.07** (1.84)

-0.01 (-0.92)

-0.04* (4.77)

-0.01 (-0.35)

Volatility .

0.32* (2.69)

0.44* (3.28)

0.23* (5.73)

0.32* (13.7)

0.34* (13.76)

0.32* (6.89)

-0.52* (-17.3)

-0.51* (-13.3)

-0.36* (-9.16)

Log Price

-0.24* (-4.29)

-0.23* (-3.09)

-0.10 (-1.56)

-0.09* (-3.51)

-0.15* (-4.87)

0.08 (1.37)

0.11* (5.01)

0.03 (0.92)

0.03 (0.81)

Dividends .

0.01 (0.47)

0.04 (1.30)

-0.04 (-1.12)

0.02 (0.85)

0.03 (1.53)

-0.08* (-1.97)

0.03* (3.97)

0.06* (4.98)

0.02 (1.05)

Adj. R2 0.43 0.53 0.62 0.45 0.40 0.46 0.61 0.45 0.61

*Significant at 5% level. **Significant at 10% level

Table 3. Liquidity and Internal/External governance This table shows the OLS results of the following regression model:QuotedSpreadi,torAmihudilliquidityi,torTurnoveri,t= β0 + β1Level of Monitoringi,t + β2Log(Pricei,t) + β3Return Volatilityi,t+ β4Log(Trading Volumei,t) + β5Log(Assetsi,t) + β6AssetIntangibilityi,t+ β7R&D Expenditurei,t+ β8Dividendi,t + εi,t; where Quoted Spreadi,tis the proportionate quoted percentage spread of stock i in year t, Amihudilliquidityi,t is return per dollar volume, Turnoveri,t is average daily volume per share outstanding,Level of Monitoring is internal/external governance as measured by G-Indexi,t,Pricei,t is the mean stock price, Return Volatilityi,t is the standard deviation of daily returns, Trading Volumei,t is the mean daily dollar trading volume, Assetsi,t is the book value of total assets, Intangibilityi,tis the book value of total intangible assets, Dividendi,t is the amount of dividend paid per share per year and εi,t is the error term. We calculate t-statistics using White‘s (1980) standard errors and report them in parentheses.


All Firms

NYSE/ AMEX

Nasdaq All Firms

NYSE/ AMEX

Nasdaq

All Firms

NYSE/ AMEX

Nasdaq

Log G-index

-0.01 (-0.22)

-0.03** (-1.67)

-0.06* (-1.97)

-0.11* (-4.65)

-0.13* (-5.14)

-0.12* (-2.21)

0.04* (-2.01)

0.06* (-3.08)

0.06* (-1.96)

Log volume

-0.44* (-10.5)

-0.26* (-7.10)

-0.99* (-15.1)

-0.56* (-12.2)

-0.65* (-13.3)

-0.81* (-7.04)

0.51* (17.55)

0.49* (9.18)

0.77* (9.52)

Log intangible

-0.02 (-0.68)

-0.04 (-1.30)

-0.03 (-0.58)

-0.03 (-0.75)

-0.05 (-1.35)

-0.08 (-0.98)

0.05* (2.16)

0.10* (2.97)

-0.01 (-0.21)

Log assets

-0.34* (-8.64)

-0.14* (3.54)

-0.23* (3.82)

-0.26* (-5.22)

-0.30* (-5.88)

-0.39* (-3.76)

0.33* (10.53)

0.26* (4.81)

0.28* (4.27)

R& D Expense

0.05* (2.63)

0.07* (3.68)

0.09* (3.31)

0.04** (1.84)

0.05* (2.13)

0.05 (0.91)

-0.01 (-0.23)

-0.01 (1.12)

0.03 (0.52)

Volatility 0.09* (3.52)

0.22* (9.69)

0.38* (8.89)

0.26* (8.38)

0.16* (5.30)

0.29* (5.54)

-0.55* (-27.8)

-0.54* (-10.6)

-0.41* (-6.71)

Log Price

-0.47* (-17.27)

-0.53* (-18.8)

-0.10* (-2.10)

-0.07* (2.03)

-0.01 (-0.14) -0.18* (-

2.30) 0.05* (2.44)

0.08** (1.90)

0.07 (1.42)

Dividends -0.04** (-1.91)

-0.03** (-1.72)

-0.01 (-0.29)

-0.01 (-1.54)

-0.05* (-2.01)

-0.14* (-2.28)

0.02 (1.52)

0.06* (3.16)

0.05* (1.99)

Adj. R2 0.47 0.59 0.74 0.16 0.26 0.19 0.66 0.47 0.69


Table 4. Liquidity and External governance This table shows the OLS results of the following regression model:QuotedSpreadi,torAmihudilliquidityi,torTurnoveri,t= β0 + β1Level of Monitoringi,t + β2Log(Pricei,t) + β3Return Volatilityi,t+ β4Log(Trading Volumei,t) + β5Log(Assetsi,t) + β6AssetIntangibilityi,t+ β7R&D Expenditurei,t+ β8Dividendi,t + εi,t; where Quoted Spreadi,tis the proportionate quoted percentage spread of stock i in year t, Amihudilliquidityi,t is return per dollar volume, Turnoveri,t is average daily volume per share outstanding,Level of Monitoring is external governance as measured by number of block holders and number of analysts followingfirmi in year t,Pricei,t is the mean stock price, Return Volatilityi,t is the standard deviation of daily returns, Trading Volumei,t is the mean daily dollar trading volume, Assetsi,t is the book value of total assets, Intangibilityi,tis the book value of total intangible assets, Dividendi,t is the amount of dividend paid per share per year and εi,t is the error term. We calculate t-statistics using White‘s (1980) standard errors and report them in parentheses.


All Firms

NYSE/ AMEX

Nasdaq All Firms

NYSE/ AMEX

Nasdaq

All Firms

NYSE/ AMEX

Nasdaq

Block holders

-0.03** (-1.77)

-0.02** (-1.71)

-0.07* (-2.77)

-0.04* (-2.35)

-0.02 (-0.85)

-0.09* (-2.40)

0.01 (1.13)

0.01 (0.72)

-0.03 (-1.26)

Number Analysts

-0.02 (-1.43)

-0.03* (-2.16)

-0.02 (-0.56)

-0.04* (-2.10)

-0.07* (-3.27)

-0.10* (-2.06)

0.08* (3.64)

0.11* (4.81)

0.04 (0.73)

Log volume

-0.41* (-13.6)

-0.19* (-6.25)

-0.98* (-15.3)

-0.54* (-14.9)

-0.66* (-17.6)

-0.95* (-10.1)

0.43* (15.19)

0.40* (10.9)

0.67* (9.63)

Log intangible

-0.01 (-0.10)

-0.03 (-1.56)

-0.10* (-2.98)

-0.06* (-2.45)

-0.06* (-2.54)

-0.08** (-1.78)

0.07* (4.04)

0.12* (5.51)

-0.02 (-0.49)

Log assets

-0.35* (-12.16)

-0.09* (-3.31)

-0.26* (-5.57)

-0.28* (8.13)

-0.29* (-8.49)

-0.52* (-7.55)

0.32* (12.42)

0.27* (7.67)

0.25* (4.93)

R & D Expense

0.03* (2.20)

0.04* (2.83)

0.13* (5.11)

0.04* (2.33)

0.04* (2.20)

0.06 (1.49)

-0.03* (-3.68)

-0.04* (-5.46)

-0.09* (-4.02)


0.23* (12.47)

0.26* (8.72)

0.27* (12.03)

0.15* (6.65)

0.34* (7.71)

-0.58* (-21.5)

-0.55* (-19.9)

-0.44* (-13.8)

Log Price

-0.46* (-21.1)

-0.53* (-23.5)

-0.02 (-0.60)

0.02 (0.96)

-0.01 (-0.47)

-0.12* (-2.07)

0.13 (6.84)

0.15* (5.63)

0.03 (0.74)

Dividends -0.01 (-0.56)

-0.05* (2.92)

0.01 (0.11)

0.02 (1.09)

0.01 (0.50)

0.10 (2.61)

-0.01 (-0.65)

-0.02 (-1.38)

0.01 (0.62)

Adj. R2 0.41 0.52 0.66 0.17 0.25 0.27 0.64 0.47 0.66


Table 5. Liquidity and different levels of governance This table shows the OLS results of the following regression model:QuotedSpreadi,torAmihudilliquidityi,torTurnoveri,t= β0 + β1Level of Monitoringi,t + β2Log(Pricei,t) + β3Return Volatilityi,t+ β4Log(Trading Volumei,t) + β5Log(Assetsi,t) + β6AssetIntangibilityi,t+ β7R&D Expenditurei,t+ β8Dividendi,t + εi,t;where Quoted Spreadi,tis the proportionate quoted percentage spread of stock i in year t, Amihudilliquidityi,t is return per dollar volume, Turnoveri,t is average daily volume per share outstanding,Relativeagei,t is CEO‘s age relative to subordinate managers‘ age and Tenurei,t is CEO tenure, G-Indexi,t is governance index, Blockholdersi,t is number of block holders and Analystsi,t is number of analysts followingfirmi in year t,Pricei,t is the mean stock price, Return Volatilityi,t is the standard deviation of daily returns, Trading Volumei,t is the mean daily dollar trading volume, Assetsi,t is the book value of total assets, Intangibilityi,tis the book value of total intangible assets, Dividendi,t is the amount of dividend paid per share per year and εi,t is the error term. We calculate t-statistics using White‘s (1980) standard errors and report them in parentheses.


All Firms

NYSE/ AMEX

Nasdaq All Firms

NYSE/ AMEX

Nasdaq All Firms

NYSE/ AMEX

Nasdaq

CEO Age 0.01 (0.20)

0.04 (1.04)

0.06** (1.67)

0.01 (0.38)

-0.04 (-1.14)

0.10* (1.96)

-0.02 (-1.01)

-0.01 (-0.19)

-0.03 (-0.67)

Rel. Age -0.08* (-2.86)

-0.07* (-2.62)

-0.07* (-1.98)

-0.10* (-3.21)

-0.07** (-1.91)

-0.18* (-3.53)

0.05* (1.98)

0.01 (0.19)

0.30* (2.28)

Tenure 0.00 (0.03)

0.01 (0.37)

0.05 (1.55)

0.00 (0.14)

0.01 (0.16)

0.03 (0.53)

-0.02 (-1.11)

-0.03 (-1.01)

-0.00 (-0.13)

Log G-index

-0.04** (-1.75)

-0.08* (-2.94)

0.04 (1.11)

-0.15* (-4.87)

-0.17* (-4.83)

-0.05 (-0.95)

0.02 (0.73)

0.12* (4.31)

-0.01 (-0.19)

Block holders

-0.02 (-0.67)

-0.07* (-2.83)

-0.05 (-1.38)

-0.07* (-2.32)

-0.09* (-2.42)

0.02 (0.44)

-0.03 (-1.45)

0.01 (0.44)

-0.03 (-0.89)

Number Analysts

-0.07* (2.32)

-0.02 (-0.70)

-0.11 (1.62)

-0.07** (-1.75)

0.06 (1.41)

-0.26* (-3.03)

0.04 (1.43)

0.09** (1.87)

-0.08 (-0.94)

Log volume

-0.48* (-5.66)

-0.23* (-2.90)

-0.41* (-3.18)

-0.85* (-11.5)

-0.82* (-9.63)

-0.55* (-2.98)

0.39* (7.19)

0.38* (4.97)

0.78* (4.75)

Log intangible

0.02 (0.58)

-0.02 (-0.69)

0.06 (1.09)

-0.10* (2.17)

-0.08 (-1.57)

-0.02 (-0.30)

-0.05 (-1.19)

0.10* (2.02)

-0.07 (-0.99)

Log assets

-0.35* (-5.03)

-0.08 (1.19)

-0.22* (1.96)

-0.40* (-2.07)

-0.39* (-4.99)

-0.01 (-0.11)

0.31* (6.18)

0.28* (3.25)

0.29 (2.28)

R & D Expense

0.07* (2.68)

0.08* (3.55)

0.11* (2.99)

0.06* (2.09)

0.07 (2.06)

0.08 (1.37)

-0.01 (-0.21)

-0.01 (-0.67)

-0.18* (-3.40)


0.24* (5.77)

0.40* (6.88)

0.47* (11.2)

0.20* (4.05)

0.68* (9.96)

-0.64* (-15.2)

-0.60* (-9.67)

-0.46* (-10.6)

Log Price

-0.49* (-7.74)

-0.54* (-9.30)

-0.46* (-6.38)

0.04 (0.76)

0.02 (0.31)

-0.29* (-2.99)

0.09* (2.24)

0.06 (1.02)

-0.07 (-0.84)

Dividends -0.05* (-2.10)

0.01 (0.16)

-0.22* (5.65)

-0.05 (1.23)

-0.00 (-0.06)

-0.15* (-2.48)

0.02 (0.91)

0.02 (0.61)

0.00 (0.05)

Adj. R2 0.49 0.60 0.84 0.39 0.31 0.73 0.72 0.48 0.75


Table 6. Internal Succession- How is next CEO hired? This table reports the occurrences when a new CEO comes from the pool of recent (non-CEO) top executives for all firms for the period 1 January 1996 to 31 December 2001. Number of CEO changes per year is the number of CEOs who were not CEOs of that company in the preceding year. Internal promotions is the number of new CEOs who were non-CEO executives of the same company in the preceding year, External hiring is the number of CEOs who are hired externally and Mixed is number of firms for which the CEOs are hired internally from non-CEO executives for certain years as well as externally during other years. We present the statistics for each variable for all firms together and separately for the firms listed on NYSE/AMEX and Nasdaq.

All firms NYSE/AMEX Nasdaq

Number of CEO changes per year 126.83 82.50 44.33

Internal Promotions 82% 88% 71%

External Hiring 12% 8% 20%

Mixed 6% 4% 9%

Table 7. Liquidity and different levels of governance This table shows the OLS results of the following regression model:QuotedSpreadi,torAmihudilliquidityi,torTurnoveri,t= α0 + β0Internal Promotionsi,t + β1Level of Monitoringi,t + β2Log(Pricei,t) + β3Return Volatilityi,t+ β4Log(Trading Volumei,t) + β5Log(Assetsi,t) + β6AssetIntangibilityi,t+ β7R&D Expenditurei,t+ β8Dividendi,t + εi,t; where Quoted Spreadi,tis the proportionate quoted percentage spread of stock i in year t, Amihudilliquidityi,t is return per dollar volume, Turnoveri,t is average daily volume per share outstanding, Internal Promotions is a dummy variable that is 1 if the subordinate managers are promoted to CEO, 0 otherwise, Relative agei,t is CEO‘s age relative to subordinate managers‘ age and Tenurei,t is CEO tenure, G-Indexi,t is governance index, Blockholdersi,t is number of block holders and Analystsi,t is number of analysts followingfirmi in year t,Pricei,t is the mean stock price, Return Volatilityi,t is the standard deviation of daily returns, Trading Volumei,t is the mean daily dollar trading volume, Assetsi,t is the book value of total assets, Intangibilityi,tis the book value of total intangible assets, Dividendi,t is the

amount of dividend paid per share per year and εi,t is the error term. We calculate t-statistics using White‘s (1980) standard errors and report them in parentheses. *Significant at 5% level. **Significant at 10% level

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Linking Remuneration to Directors' Performance During the Global Financial Crisis

Dr. Mohammad Istiaq Azim

Faculty of Business and Enterprise Swinburne University of Technology, Hawthorn, Australia

Joyce Chua Ai Mei

Faculty of Business and Enterprise Swinburne University of Technology, Hawthorn, Australia

ABSTRACT: Of the three alternatives to reduce agency conflict - monitoring, perfect contracting and compensation - remunerating directors has emerged as the best solution to minimize the agency problem. However, this mechanism involves a trade-off between incentives and risk sharing. Substantial research has been done in the United States and United Kingdom, while analyses of the Australian context are still limited, especially in terms of using the data for the global financial crisis. This paper will investigate the relationship between Australian directors’ remuneration and their companies’ performance during this recent financial crisis. In order to achieve a better understanding of this relationship, a conceptual model and hypotheses are developed. This paper also examines the relationship of each remuneration component and each company performance measure. The sample is taken from the Top 200 companies from the Australian Stock Exchange (ASX) list for 2007 and 2008. The methodology utilizes three approaches. Firstly, this research investigates the pay-for-performance relationship that existed during the global financial crisis. Then, it examines the relationship between directors’ remuneration and company performance one year before and after the crisis and uses these findings to compare with those during the crisis. Thirdly, lead and lag analyses were implemented. Lead analysis compares performance in the previous year to the current year’s remuneration, while lag analysis looks one year further ahead regarding performance because generally the effectiveness of rewarding remunerations will not reflect the company’s performance immediately. This research found that Australia’s business reward system is quite effective because directors’ remunerations reduced by their company when they underperform during a particular crisis.

The Board’s Role During Final Phases of M&A Deal Making. Laurence J. Stybel

Suffolk University, USA

Keywords

Governance, M&A, Organization Development, Power, CEO Abstract This working paper postulates two M&A teams: a powerful M&A Deal Team and a less powerful M&A Integration Team. During the last stages of M&A Deal Making, this Team may be so narrowly fixated on deal completion, concerns of the Integration Team may be given short shrift. One of the critical roles of the Board during this phase of M&A Deal Making is to insure that the voice of the less powerful M&A Integration Team is fully heard. The CEO may not want to hear these concerns. In the interests of advancing shareholder value, the Board should have a role in insuring that the Integration Team’s voice is clearly understood. Future research should focus on the role of Boards during the final stage of M&A Deal Making and the role of Under Promise/Over Deliver in successful M&A events.

Introduction

In retail, there are periods when waves of consolidation move rapidly. According to one expert in the field, the odds of shareholders seeing success in M&A transaction are less than the odds of winning at Las Vegas. Those are not good odds! One reason for this poor track record is the gap between the M&A Deal Making Team and the M&A Integration Team. We propose that the Board of Directors have a unique role in balancing unequal power during the final stages of M&A Deal Making. M&A Deal Completion versus M&A Integration

I had lunch with a partner at one of the world‘s most respected law firms specializing in M&A transactions. During this meeting, I asked if he had seen the research done by a Big Four CPA firm suggesting that most M&As fail to achieve acquirers‘ expectations three years post acquisition. His response was: ―We do transactions. What happens after the transaction is completed is not our responsibility.‖ His comment was both blunt and honest. There is intense drama for actors in M&A deal making. The financial and reputational stakes are extraordinarily high. During the final stages of M&A Deal Completion, the urge to close can be so intense, the in-house team may fail to give sufficient attention to what will happen once the deal is done. The in-house team responsible for M&A deal completion can vary but it is often the powerful troika of the Chief Executive Officer, Chief Financial Officer, and Chief Legal Officer. In addition, there are powerful, credible external voices for deal completion in Investment Bankers and outside legal counsel. What about the in-house team that is responsible for M&A deal integration? It usually is a less powerful troika composed of the Chief HR Officer, the Chief Information Officer plus a Director level executive from the Finance Function.

From a power perspective, the Deal Making Troika can become so invested in deal completion during the final stages of deal making, they may fail to focus on critical post-deal integration issues. One might argue that M&A Integration issues are sufficiently dealt with during the due diligence process. These reports often focus on risks associated with doing the deal. These reports don‘t necessarily pay enough attention to the operational requirements to fully integrate two companies. The Role of the Board During the Final Stages of M&A Deal Making. The Board of Directors, on the other hand, has long term shareholder accountabilities that could make them less emotionally involved in the success of a specific transaction. In this paper we will discuss three issues where the interests of M&A integration and M&A deal making may conflict: what shall the transaction be called, the role of mourning, and under promise/over deliver. What Shall Transaction Be Called?

Is this an acquisition or a ―merger of equals?‖ Sometimes, the phrase ―merger of equals‖ is used by investment bankers in early discussions to make the subject more appealing to targets. Once the investment banker utters the word ―merger,‖ it is hard to back away from it. Sometimes targets ask that the deal be clothed as a merger to provide institutional face-saving for leaders and investors. CEOs can get so caught up in the drama of deal completion, granting the desire to call the deal a merger seems like an inexpensive proposition. What are the governance implications? From a corporate governance perspective, once the term ―merger‖ is used, how can one fail to integrate members of the Board of Directors from the merged ―partner?‖ Does this bigger board provide more value for shareholders? Another option is to create a ―new‖ company with a ―new name‖ and a ―new Board‖ that contains Directors from the two companies. This is what happened when United States mobile phone networks Nextel and Sprint ―merged.‖ And it would have happened had Sprint acquired T-Mobile. It the Board wishes to keep the size of the Board at a reasonable level, calling the deal a ―merger‖ may result in the loss of services of effective members of the acquiring company Board only to have them replaced by ineffective Board members of the acquired company. Our best clients fight on the front end of the deal for the right to call the transaction an acquisition. Once it is defined as an acquisition, there is no justification to bring in Board members from the acquired company. Our best clients do not give the investment bankers the authority to use the ―merger‖ word. Having insisted on calling the deal an acquisition, we often recommend that Boards engage in classic Under Promise/Over Deliver: once the Board has gotten the right to call the transaction an ―acquisition,‖ it ought to selectively invite one or two members from the soon to be acquired company to become Directors. The Role of Mourning Most cultures have transition rituals for community members to mourn the passing of the old while accepting the inevitability of the new. Common transition rituals include rites of passage from childhood into adulthood, college commencements, weddings, and funerals.

Ceremonies for letting go of the old before embracing the new is a basic human need. Why aren‘t such rituals more permitted in business? Perhaps one reason such critical rituals are not permitted is that in Mergers, the public statement is a variation of: We are pleased to announce a merger of equals. Our new company will combine the strengths of both entities for better customer service and more shareholder value. Given such a statement, should it not be time to celebrate? Mourning would be inappropriate. Acquisitions can allow for mourning rituals to take place: One of our clients was acquired by a large bank. The day before the old sign was to go down from the building, the President the President hired a Dixieland Band and staged a Dixieland-type Funeral at the Bank. Another client booked the hall at a local Church and held a memorial service for the company on the day before the transaction was to go into effect. People came up and spoke about how the old company had been such an important part of their lives. Tears were shed. Next day, the employees moved on to a new chapter in their lives. During the final stages of M&A deal completion, the powerful troika working hard to close the deal probably are not giving much thought to post-acquisition emotions. Human Resources may be sensitive to this issue. But they sometimes lack the institutional power to raise the issue. If the Deal Making Troika do not wish to pay attention to the issue, The Board should be the one to ask the right questions and put it on the agenda. Under Promise/Over Deliver.

One of the best managed integrations we observed was the following: On the first day after the acquisition deal was signed, a senior officer of the acquiring company came and gave a talk to all employees of the acquired company. He informed the audience that within twelve months only 30% of employees in the room would still be employed by the company. By the end of twelve months, the IT systems would be replaced by the acquiring company‘s IT systems. By the end of twelve months, the forms, operations, and approach would all look like the acquired company. While the employees in the room were sad to hear this news, they were not surprised. The official merely confirmed employees‘ worst fears. By the end of twelve months, there was a high morale among the employees of the acquired company: 60% of employees were still with the company; the acquiring company had adopted some of the components of the acquired company‘s IT systems; middle managers had meaningful roles on integration task forces; and some of operations used by the acquired company were adopted. This was classic Under Promise/Over Deliver. It can be done in an Acquisition. It is hard to do in a Merger of Equals. A Merger is an Over Promise/ Under Deliver and everybody knows it.

Conclusions

Tom Herd is Managing Director responsible for mergers & acquisitions capabilities within Accenture's Strategy practice. In 2010, Accenture examined M&As where shareholder value had been created two years after the agreement was signed. Herd concluded that (1) CEOs bet their careers every time they do an M&A and (2) even after studying successful M&As, CEOs ―may still find better odds at the tables in Vegas. ― (2010). It is human nature that CEOs, CFOs, and General Counsels get consumed by the deal making process. It is the responsibility of the Board to stand back and look beyond the narrow limits of the Deal Making Troika‘s field of vision. The Deal Integration Troika doesn‘t have the power. The Board of Directors should fill in the void. References Tom Herd. ―M&A Success: Beating the Odds.‖ BUSINESSWEEK. June 22, 2010. http://www.businessweek.com/managing/content/jun2010/ca20100622_394659.htm

Studying The Relationships Among Institutional Investors As One Criterion For Corporate Governance And Accounting Parameters On

The Dividend Ration

Dr. Zahra Lashgari

Islamic Azad University Central Tehran Branch, Tehran Iran

Mohammad Javad Heidari Islamic Azad University Central Tehran Branch, Tehran Iran

Keywords: Institutional investors, dividend payout ratio, corporate governance, ownership structure, accounting variables Abstract: One of the monitoring mechanisms affecting corporate governance is the emergence of institutional investors in the ownership structure of companies – directly through ownership and indirectly through their stock exchange potentially affecting company activities. This study examines the relationships among institutional investors as a corporate governance mechanism, and the accounting variables on dividend payout ratio as performance evaluation metrics, in creating value for stakeholders and the corporation as well. For statistical analysis and correlation analysis, the panel method is used. The sample of this study is chosen from the listed companies on Tehran Stock Exchange, and the time period is between 2006 and 2010. A total of 85 companies qualified at the range above, and thus is used. The results indicate a significant positive relationship among the ownership percentage of institutional investors, the amount of liquidity, profitability rate, the ratio of market value to book value of corporate assets compared to declared income tax, and also the lack of significant relationship between percentage of sales growth and the last year’s dividend payout ratio.

Introduction

The stock market is an important means in relation to the optimal allocation of capital in a country. Therefore, an understanding of this market, its players and its relationships is instrumental in its development. Investors are the major players in the market; their investments in companies follow different objectives. Whether or not investors opt for dividend payouts, or retained earnings, diversifies the policies governing the payments of dividends. Many researchers have studied the financial and operational policies of companies and the factors which affect those policies. The empirical evidence indicates that there is a link between several factors, such as the size of the company, its retained earnings and its investment opportunities, on the one hand, and dividend policies on the other. However, not enough attention has been paid to corporate sovereignty mechanisms, including institutional investors, or profit distributions. A look at the capital market structure in developing countries and transition economies illustrates that institutional investors account for a major part of the capital market and national production; their role is taking on more importance by the day. The combination of investors in different companies brings together a variety of entities and individuals. Minor shareholders and independent investors hold partial stares in companies‘ ownership. To monitor the performance of company managers, these shareholders primarily rely on public data, such as financial statements released by the company. Unlike the first group, major stakeholders get access to a company‘s valuable information on future prospects and trade strategies, as well as long-term investments, through contact with company managers.

Institutional investors are more skillful than independent investors in their analysis of financial statements and in their projections. Because their investment is basically designed to secure more profit and wealth, Earnings per Share (EPS) and Dividends per Share (DPS) are of great importance to them; they expect to earn return both through dividends and price fluctuations on the stock market. Evidently, EPS and DPS are among the most important factors affecting share prices. Thus, institutional investors may try to influence the decisions that affect those two indices. To that end, they may even try to put pressure on the management. Under Clause 72 of Article 1 of the Securities Market Law of the Islamic Republic of Iran, institutional investors include: banks and insurance firms, holding companies, investment companies, pension funds, capital providers and investment funds registered with the Securities and Exchange Organization of Iran, as well as public institutes and organizations affiliated with state-owned companies. In other words, institutional investors hold the biggest stake in publicly traded companies in Iran. The present paper investigates the correlation between institutional investors which, along with accounting variables, serve as a criterion for corporate sovereignty, and the amount of dividends paid out. What makes this research important is that it empirically illustrates how institutional investors, such as insurance companies, investment funds, financial institutes and banks; affect the payments of dividends, which is of significance to investors. Literature review

Many articles have been published ever since Berle and Means (1932) studied corporate ownership and control. What all these studies have in common is the impact of ownership structure on corporate performance. These articles feature different types of ownership. There have been many studies in this regard; the present paper only mentions a few of the important local and international studies that focused on institutional ownership. International Research

Cornett et al. (2007) studied the impact of institutional ownership on the operational performance of S&P500, focusing on the importance of institutional investors over a seven-year period, stretching from 1993 to 2000. They concluded that there was a significant relationship between operational returns, institutional ownership and the number of institutional owners. The relationship existed as long as the institutions in question had no trade ties with the company. They applied a multiple regression, as the statistical method of choice. Almazen et al. (2007) studied the relationship between institutional investors and cost of monitoring. The study suggests that institutional investors play an important role in management monitoring; however, their effect is not the same. Institutional investors with no trade ties with companies play a significant role in the ownership structure, active monitoring, and management decisions. Chen et al. (2007) studied the correlation between monitoring and institutional investors. His findings suggest that institutional investor influences lead to better decision-making in companies. That effect is not the same for all investors, but primarily applies to institutional investors with no commercial ties with the company. Maug (1998) focused on the following question: Is the willingness of investors to influence corporate decision-making a function of the number of shares they hold? He concluded that when the number of shares an institutional investor holds is large, the possibility of selloff becomes limited and they have to keep their shares for longer periods of time. This creates a strong motivation for corporate management supervision. When institutional investors hold a relatively smaller number of shares and the overall performance of the company is weak, they can easily cash in their investment. This eliminates their motivation to supervise management.

Smith (1996) focused on whether institutional investors brought about more concentration on corporate performance. He concluded that supervision by institutional investors could lead to more concentration on performance and less concentration on opportunistic and profiteering behavior. Kunwar (2003) studied the elements that affected dividend policies in companies listed on the Stock Exchange of Pakistan and found a significant relationship between the size of the company, the volume of its retained earnings and investment opportunities, on the one hand, and dividends, on the other. Mohammed Amidu et al. (2006) studied two elements affecting dividends, namely agency costs and investment opportunities. In this study, the percentage of institutional investors represented agency costs, the volume of sales, and the ratio of market value to book value of corporate assets representing investment opportunities. Their study indicated a negative correlation between the number of institutional investors and the ratio of market value to book value of corporate assets, and a direct link between other factors. Helen Short et al. (2002) studied the link between management and institutional investors and its effect on dividends. In this investigation, four linear regression models, namely full adjustment, partial adjustment, and Waud and profit trend, were used to test dividend policies. The results illustrated that all four models indicated a significant relationship between ownership by institutional owners and dividend policies. Local Research

She‘ri and Marfoo (2006) conducted a study on the impact that outside directors have on the board and institutional investors have on the accuracy, bias, timeliness and review of profit forecasts. The Tehran Stock Exchange study, which stretched between 2003 and 2005, revealed that outside directors on the board and institutional investors have a very marginal impact on earnings forecasts. Moradzadeh Fard et al. (2009) focused on the relationship between institutional stock ownership and earnings management in listed companies on Tehran Stock Exchange. This study indicates a negative relationship between institutional shareholding and profit management. In other words, a greater percentage of institutional shareholders translate into less corporate flexibility in the management of commitment items; hence, institutional investors improve the quality of corporate sovereignty. A study by Foroughi et al. (2009) focused on the impact of institutional investors on dividend policies in companies listed on the Tehran Stock Exchange. Their research study examined the effect of institutional investors (ownership type and structure), as well as the role of shareholders in management on dividend policies. The findings of the study indicate that a greater role by shareholders in corporate management helps improve financial and operational policy-making in companies. That eventually leads to strategic corporate mechanisms. Research hypothesis This research investigation features six hypotheses as below:

1. There is a direct relationship between the percentage of corporate ownership by institutional investors and dividends.

2. There is a relationship between liquidity and dividend payout ratios. 3. There is a relationship between tool tax and dividend payout ratios. 4. There is a relationship between income growth and dividend payout ratios. 5. There is a relationship between the market and book value of corporate assets and

dividend payout ratios. 6. There is a relationship between Return on Assets (ROA) and dividend payout ratios.

Statistical population and sample

Companies listed on the Tehran Stock Exchange form the statistical population of this research study. Financial statements, board reports presented to assemblies, data bank soft wares released by the Tehran Stock Exchange have been used in gathering data covering a five-year period leading to 2010. Companies had to meet certain requirements to qualify for this research investigation. Only companies listed on the Tehran Stock Exchange prior to 2006 were eligible. The purpose of this qualification was to collect a uniform pool of data. In addition, there had to be no change in their fiscal year status during the course of the study. There had to be no pause in the offering of their shares on the stock exchange, except for instances which had to do with assemblies. For the sake of more uniformity, and to eliminate the need for quarterly adjustment and bolster comparability, their fiscal year had to come to an end at the same time as Iran‘s calendar year (March 20). In light of the fact that financial statements of companies largely depended on the nature and type of their activity, investment firms, brokerages, insurance companies and banks, which had paid out dividends during the five years in question, were the only companies picked to form the statistical population. This was also meant to maintain uniformity and bolster comparability. Research Model and Variables The regression model is as follows. PAYOUTit = 0.185 + 0.321PROFit + 0.06CASHit +1.104TAXit + 0.145INSHit + 0.008MTBVit

(Model 1)

PAYOUT- is the amount of dividend approved by the assembly divided by earnings per share. The independent variables include: PROF - the proportion of earnings before interest and taxes to the total assets of the company. CASH - the liquidity logarithm at the end of the fiscal period. TAX - the declared tax divided by earnings before interest and taxes. INSH - the percentage of capital invested by institutional investors. GROW - the percentage of changes in sales over the previous fiscal year. MTBV - the proportion of current market value to the net book value of corporate assets at the time mentioned in the balance sheet. Statistical analysis After examining the regression presumptions (normal distribution, absence of autocorrelation, absence of multi co linearity, heterogeneity of variance) and ensuring their presence, E.views software was used to process the data related to 85 companies during the five-year period. The results are presented in Table 1.

Variable Coefficient Std. Error t-Statistic Prob.

C 0.185 0.096 1.928 0.055

PROF 0.331 0.113 2.928 0.004

CASH 0.060 0.027 2.189 0.029

TAX 1.103 0.250 4.421 0.000

INSH 0.149 0.050 3.001 0.003

GROW -0.122 0.041 -0.543 0.588

MTBV 0.008 0.003 2.600 0.010

R-squared 0.202 Mean dependent var 0.711

Adjusted R-squared 0.190 S.D.dependent var 0.307

S.E.of regression 0.277


F- statistic 16.781

Prob (F-statistic) 0.000

Durbin- Watson stat 1.864

Table 1-- summary statistical results of model 1 The regression technique was used to choose a suitable model. The only eliminated variable was Grow. That meant the fourth hypothesis had to be eliminated, however, other variables were also relevant. Table 2 illustrates the final results of a panel analysis after adjustments to the variable GROW. These results formed a basis for testing the research hypothesis.

Variable Coefficient Std.Error t-Statistic Prob.

C 0.185 0.095 1.943 0.053

PROF 0.321 0.111 2.891 0.004

CASH 0.060 0.027 2.199 0.028

TAX 1.104 0.252 4.377 0.000

INSH 0.145 0.050 2.914 0.004

MTBV 0.008 0.003 2.682 0.008

R-squared 0.199 Mean dependent var

0.712

Adjusted R-squared 0.189 S.D.dependent var 0.307

S.E.of regression 0.277

F- statistic 19.936

Prob (f-statistic) 0.000

Durbin- Watson stat 1.863

Table 2-summary statistical results of model 2 The optimal regression equation, which builds on the results from the statistical analysis software, is as follows: PAYOUTit = 0.185 + 0.321PROFit + 0.06CASHit +1.104TAXit + 0.145INSHit + 0.008MTBVit

(Model 2)

Hypothesis1: There is a direct relationship between the percentage of corporate ownership by institutional investors and dividends.


INSH 0.145 0.050 2.914 0.004

Table 3- statistical results from the test of hypothesis 1 Given the significance of the variable (t-Statistic = 2.914) and the results which appear in the table 3, the first hypothesis of the research study was found to be 95% reliable. It should be noted that the correlation between the percentage of capital invested by institutional investors and the dividend payout ratio is positive. Hypothesis2: There is a relationship between liquidity and dividend payout ratio.


CASH 0.060 0.027 2.199 0.028

Table 4- statistical results from the test of hypothesis2 Given the significance of the variable (t-Statistic = 2.199) and the results which appear in the table 4, the second hypothesis of the research study was found to be 95% reliable. It should be noted that the correlation between liquidity and dividend payout ratio is positive.

Hypothesis 3: There is a relationship between declared tax and dividend payout ratio.


TAX 1.104 0.252 4.377 0.000

Table 5- statistical results from the test of hypothesis 3 Given the significance of the variable (t-Statistic = 4.377) and the results which appear in the table 5, the third hypothesis of the research study was found to be 95% reliable. It should be noted that the correlation between declared tax and dividend payout ratio is positive. Hypothesis 4: There is a relationship between income growth and dividend payout ratio.


GROW -0.022 0.041 -0.583 0.588

Table 6- statistical results from the test of hypothesis 4 Given the significance of the variable (t-Statistic = -0.583) and the results which appear in the table 6, the fourth hypothesis of the research study was found to be 95% reliable. It should be noted that the correlation between income growth and dividend payout ratio is positive. Hypothesis5: There is a relationship between the market and book value of corporate assets and dividend payout ratio.


MTBV 0.008 0.003 2.682 0.008

Table 7- statistical results from the test of hypothesis 5 Given the significance of the variable (t-Statistic = 2.682) and the results which appear in the table 7, the fifth hypothesis of the research study was found to be 95% reliable. It should be noted that the correlation between the market and book value of corporate assets and dividend payout ratio is positive. Hypothesis 6: There is a relationship between Return on Assets (ROA) and dividend payout ratio.


PROF 0.321 0.111 2.891 0.004

Table 8- statistical results from the test of hypothesis 6 Given the significance of the variable (t-Statistic = 2.891) and the results which appear in the table 8, the sixth hypothesis of the research study was found to be 95% reliable. It should be noted that the correlation between Return on Assets (ROA) and dividend payout ratio is positive. Conclusions A closer look at the results of the study, explained in detail in Section 5, illustrates a positive, significant relationship between the percentage of institutional investors and the dividend payout ratio. These results are consistent with Foroughi (2009), who found that when the full adjustment model was applied, institutional investors were one of the factors affecting the dividend policies. In other words, in portfolio management, investors who tend to earn profits in cash should pay attention to the share of institutional investors in the capital structure of the company, as well as to variables such as the corporate capability to supply liquidity for dividend payouts and corporate profitability. The results of the present study are not the same as the findings of the research conducted by Mohammed Amidu et al. (2006). Political and

economic conditions governing the economies and capital markets of the two countries could account for the differences in dividend policy. The research study produced yet another delicate result: an increase in a company‘s sales over the previous year does not offer perfect information about making decisions in relation to the dividend payout ratio. It should be noted that the results of this study differ from the findings of Amidu‘s(2006) research on corporate income growth. Hence, an increase in sales is not necessarily indicative of an improvement in liquidity or a rise in earnings per share. Instead, any examination of this variable should take into account other elements contributing to corporate profitability and outside factors. This can also be looked at from a different angle. Statistical results produced by tests involving the research model reveal that there is no significant relationship between sale‘s growth and dividend policies. That means that when companies are growing, or have plans for future development on their agenda, their dividend policy is not necessarily affected. In light of the fact that retaining earnings does not necessarily produce an inexpensive source of finances, there is no reason for companies experiencing growth and development to consider a drop in dividend distribution. In addition, in this regard, temporary changes in sales, governed by factors beyond the company‘s control and that are not expected to continue in the future, should be taken into account. The present study concludes that there is a significant relationship between the dividend payout ratio and corporate liquidity. As for the tax variable and the positive relationship with the dividend payout ratio, given that this variable has been examined based on a declared tax, which has a direct relationship with earnings before interest and taxes, this study suggests there is a significant positive relationship with the dividend payout ratio. In Iran, it normally takes two years for the final tax statement to reveal how much tax a company should pay. That means it takes a certain year‘s income tax – which is a cash output – two years to affect the decision of the board on earnings and that of investors attending the assembly on dividends. Consequently, the impact of a declared tax, which has a direct relationship with earnings before taxes, will be significant and positive. This concurs with the results of Amidu et al (2006). It should be noted that other results from this study are also similar to the findings in Mohammed Amidu et al. (2006) Practical suggestions Investors who seek to receive cash dividends as a considerable part of their current income should take notice of the results of this research study in their investment choices. According to this study, some variables, such as growth in revenue of companies over previous years, are not necessarily linked to profit distribution. Management of companies should make careful decisions when it comes to dividends. If the management of a company changes the dividend policy in a way that is not compatible with the company‘s previous year‘s returns, risk factor, and investment opportunities, they will draw a negative response from the market. In addition, the management has to release transparent information to keep shareholders in the loop, and thus, prevent any negative market responses. Moreover, financial analysts can use the factors identified in this research study in estimating and evaluating the stock returns of companies and/ or build a portfolios include companies with low or high returns. Like independent investors, the government and its associated agencies, which hold shares in governmental companies, will be interested in identifying and estimating corporate earnings and the factors that affect them. In macroeconomics, some analyses on profitability and the distribution of corporate earnings could provide economic policymakers with useful information on the degree of the willingness of a society to invest or consume. As such, a better

understanding of the earnings distribution system and the capital market factors which affect it could help with the formulation of financial and economic policies, which may lead society in a certain direction. It is recommended that users of financial statements, especially potential investors and shareholders, pay attention to the investment structure of target companies in their decision-making on the capital market. References Almazan, Andres, Jay C. Hartzell, and Laura T. Starks. "Active Institutional Shareholders and Cost of Monitoring: Evidence from Managerial Compensation." Financial Management 34.4 (2005): 5-34. Print. Amidu, Mohammad, and Joshua Abpr. "Determinates of Dividend Payout Rations in Ghana." Journal of Risk Finance 7.2 (2006): 136-45. Print. Berle, Adolf A., and Gardiner C. Means. The Modern Corporation and Private Property. New York: n.p., 1932.

Print. Chen, X., J. Harford, and K. Li. "Monitoring: Which Institutions Matter?." Journal of Financial Economics

86.2 (2007): 279-305. Print. Cornett, M., A. Marcus, A. Saunders, and H. Tehranian. "The Impact of Institutional Ownership on Corporate Operating Performance." Journal of Banking & Finance 31.6 (2007): 1771-794. Print.

Foroughi, Dariush, Ali Saeedi, and Mohsen Azhdari. "The Impact of Institutional Investors on Dividends Policies in Companies Listed on Tehran Stock Exchange." Iranian Accounting Research 2 (2009): 114-29.

Print. Kanwer, Aneel. "The Determinants Of Corporate Dividend Policies In Pakistan: An Empirical Analysis." MFS 2004 Conference | Final Paper Submissions. Proc. of Eleventh Annual Conference Of The Multinational

Finance Society, Istanbul, Turkey. N.p., n.d. Web. <http://mfs.rutgers.edu/mfc/MFC11/submittedpapers.html>. MFC 181 to MFC 200 Maug, Ernst. "Large Shareholders as Monitors: Is There a Trade-Off between Liquidity and Control?" The Journal of Finance 53.1 (1998): 65-98. Print.

Moradzadeh Fard, Mehdi, Mehdi Nazemiardekani, Reza Golami, and Hojatolah Farzani. "The Relationship between Institutional Stock Ownership and Earnings Managements in Listed Companies of Tehran Stock Exchange." The Iranian Accounting and Auditing Review 16th ser. 55.2 (2009): 85-98. Print. She‘ri, Saber, and Mohammad Marfoo. "The Relationship between Percentage of outside Directors and Institutional Investors in the Board and Firms‘ Profit Forecasts." Iranian Accounting Studies 17 (2007): 63-

104. Print. Short, Helen, Hao Zhang, and Kevin Keasey. "The Link between Dividend Policy an Dinstitutional Ownership." , Jourmal of Corporate Finance (2002): 105-22. Print. Smith, Michael P. "Shareholder Activism by Institutional Investors: Evidence from CalPERS." Journal of Finance L1.1 (1996): 227-52. Print.

Profits, Financial Leverage and Corporate Governance Umar R Butt

MacMaster University, Hamilton

Keywords: Trade-off theory, corporate governance, profits, financial leverage Abstract Does corporate governance play a role in determining the interactions between financial leverage and profits? I examine the relationship between corporate governance, profits and the use of debt financing, to test the validity of the trade-off theory of capital structure. I find that firms which maintain good governance structures have leverage ratios that are higher (forty-four percent) than those of firms with poor governance mechanisms per unit of profit. Further tests suggest that good governance firms exhibit a positive relationship between profits and financial leverage while poor governance firms show an inverse relationship. The results are robust to an estimation methodology which allows for financial leverage, profits and governance to be determined jointly, using an instrumental variable approach. The key finding of the study is that corporate governance is identified as the feature that motivates managers to use more debt to take advantage of the tax deductibility of interest. The data indicate that good governance firms issue more gross and net debt (1.4 and 3.4 times respectively) and also retire more debt (1.2 times) than poor governance firms. The results of the paper demonstrate that the mixed results of prior studies notwithstanding, leverage is increasing in profits when controlled for agency problems, and shareholder controlled firms exhibit the results predicted by the trade-off theory of capital structure.

The impacts of cross-docking on supply chain management: Cost reduction through consolidation3

Shaolong Tang Business and Management Division,

Beijing Normal University-Hong Kong Baptist University United International College.

Jacqueline W. Wang

School of Accounting and Finance , The Hong Kong Polytechnic University

Key words: Supply chain management, Retail Management, cross docking

Abstract

Cross-Docking has been widely characterized as a way of warehouse elimination and inventory cost reduction in supply chain management literatures. It is a logistics technique that removes the storage and picking functions of a warehouse. When goods arrive at the cross-dock, they are unloaded from the incoming vehicles, sorted and consolidated according to customer demand, conveyed and loaded onto outbound vehicles for delivery to customers. A proper application of cross-docking in logistics can greatly improve the performance of distribution systems. However, replacing traditional distribution process by cross-docking also changes the modes of members in distribution system to handle the demand uncertainty, related to inventory overstock and shortage cost. This research aims to reveal the suitability and impacts of cross-docking on supply chain. The decision making problems for single item are analyzed in the system. Our model is concerned with the situation of multiple suppliers serving one retailer through a cross-dock. We mainly consider the reduction of transportation cost through consolidation at cross-dock. By analyzing the ordering decision for direct delivery without consolidation, consolidation with cross-docking and distribution center, we compare their costs and determine the situation in which cross-docking is preferred. This research shows that the suitability of cross-docking depends on its business environment, involving variance of demand, leadtime, number of stores, and coefficient of demand relationship, and other factors.

1. Introduction

A typical warehouse has four functions: receiving, storage, order picking, and shipping, in which the middle two are the mostly costly: storage for the higher inventory holding cost, and picking process for the labor intensive. It has been known that the best way to reduce cost and enhance efficiency is not just by improving a function but by eliminating it (Schaffer 1998). Cross-docking is a logistics technique that removes the storage and picking functions of a warehouse, and coordinates (sort and reorganize) goods to load from delivery vehicles to shipping vehicles (Bartholdi and Gue 2004). When goods arrive at the cross-dock, they are unloaded from the incoming delivery trucks, sorted, consolidated according to customer demand, routed and loaded onto outbound trucks for delivery to customers. No items are actually stored in the cross docks. The whole process usually takes less than twenty-four hours. Cross-docking smoothes the flow of items from origin to destination to improve the customer service level and decrease the cost occurred in delivery, and can be described as the flow of material directly from receiving to shipping, where the goal is to minimize handling and virtually no storage.

3 This research is partially supported by United International College Research Grant

Cross docking has significantly attracted attention from both industrial and academic areas due to its excellent performance by s eliminating the central warehouse in the supply chain. Compared to the traditional warehouse where goods are first stored when they arrive, cross-docking requires goods not stored at the cross-dock but directly conveyed to the customers. The inventory holding and order-picking cost at the cross-dock are eliminated. Although the obvious advantages of cross-docking can be observed easily, is it definitely a suitable technique under any situation? In fact, this problem has not been paid fitting attention, and can not be clearly understood without quantitative analysis. Compared with traditional distribution center where goods are first stored, cross-docking significantly changes the modes of members in the distribution system to handle the demand uncertainty related to inventory overstock and shortage cost., and is expected to achieve the economies of scale and to satisfy the customers‘ requirement better. To study the suitability of cross-docking, comparisons need to be conducted by evaluating the performance of the systems with cross-docking and traditional distribution center. In fact, it is highly depends on its business environment, including variance of demand, leadtime, number of stores, timely pattern of demands, etc. This research is to clearly examine the suitability of cross-docking.

The overall goal of this research is to develop a better understanding of cross-docking and to provide a quantitative analysis on the related economical problems. In particular, it aims to conduct research on the consolidation function of cross docking. We consider the cross-docking system including one cross-dock and multiple stores (or suppliers). The decision making problems for single item are analyzed in the system. The function of consolidation in the framework where multiple suppliers serve one retailer via cross-dock is considered. The suppliers and the cross-dock are in a close region but faraway from the retailer. By analyzing the ordering decision for direct delivery without cross-docking, consolidation with cross-docking and distribution center, we compare the direct shipments and distribution center to cross-docking respectively, and examine the factors which influence their preference. 2. Literature Review

The definition and benefits of cross-docking are discussed in several articles. Clyde (1992) introduces the basic concepts of cross-docking and configures the requirement for successive cross-docking. He describes the simplest form of cross-docking as a quick means for moving individual containers or pallets directly from the receiving area to the shipping area in a distribution center, and suggests that cross-docking is a philosophy which encompasses delivering goods from the manufacturer to the ultimate customers in the shortest time. Harrington (1993) defines cross docking as a distribution method that avoids storing goods before delivering them to retail stores or outlets, instead, moves items from the receiving to the shipping dock directly, or holds them in a temporary staging area before transferring them to the outbound dock. Successful implementation of cross-docking operation requires several key points, which are studied by several researchers. Schwind (1995) discusses the requirements for cross-docking on material handling, EDI, automatic identification, dock facilities and management. Furthermore, he suggests that simulation and information system can help eliminate the impact of environmental variation on cross-docking operations. Schaffer (1998) discusses the requirements for successful cross-docking: coordination with other partners in supply chain, absolute confidence in the quality and availability of products, communications, well controlled cross-docking operations, better-trained employees, advanced facilities and equipment, and tactical management. Cooke (1997) further discusses the inevitably fundamental role of information technology on cross-docking. Although there have been many warehouse-management packages on the market claimed to support cross-docking operations, in most cases the packages also require customization to fit the special situation faced by different warehouses. There are also some case analyses for cross-docking. Garry (1993) analyzes the cross-docking program implemented by Richfood, a Mechanicsville, Virginia, wholesaler. Three

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grocery suppliers and twelve stores are involved in the program. The vendors load multi-SKU orders by store on pallets, and deliver them to distribution center of Richfood. Then at the distribution center the received pallets will be shifted from receiving dock to its shipping dock and sent onto outbound trucks, with other products, to the stores. In addition, the essential role of EDI emerges in the program. Meanwhile, cross-docking also puts new pressure on both manufacturers and distributors. Manufacturers have to commit to timely and sufficient supply to meet the demand. On the other hand, distributors need to hire well-trained employee to run cross-docking, and have to modify traditional warehouse to suitable for cross-docking. Cook et al. (2005) study how to apply the lean production principles to create a cross dock, and provide a practical case study from Eastman Kodak Company. In the case, the company decided to improve inbound material flow from suppliers to the plants through cross-docking, and first developed a pilot project that convert an existing traditional warehouse to a cross dock. The pilot project began training employees, selecting suppliers and materials of the project, locating cross-dock site, developing information systems, and reorganizing the transportation operations to support cross-docking. It illustrates that cross-docking can reduce inventory investment, storage space requirements, handling cost, and order cycle time, meanwhile accelerate inventory turnover.

There are also related research articles on analytic models of cross-docking. Firstly, several studies focus on the network problem for cross-docking. Gumus and Bookbinder (2004) study the impact of cross-docking on transportation consolidation by simulation method. Sung and Song (2003) study an integrated network design problem that combines locating cross-docks and allocating vehicles for transportation services from suppliers to cross-docks and from cross-docks to customers. Donaldson et al. (1998) develop a cross-docking network model, in which

vehicles are dispatched on a fixed schedule to meet delivery requirement. They concern on determining whether to deliver directly from origins to destinations or through cross-dock, and the number of vehicles needed in the distribution network. Erlebacher and Meller (2000) develop a model to decide on the number of distribution center, their location as well as customers served to minimize the fixed operations cost of distribution centers, inventory holding cost, and transportation costs. Li, Lim and Rodrigues (2003) modeled the cross-docking scheduling problem as a machine scheduling problem, then designed and implemented two heuristics to solve it. Teo and Shu (2004) study the distribution network design problem integrating transportation and infinite horizon multiechelon inventory cost. Secondly, the impacts of cross-docking on inventory control in supply chain are also paid attention to by a few authors. A model published by Waller, Cassady and Ozment (2006) concern the suitability issue for cross-docking. It compared the inventory holding cost of the retailer system with cross-docking to that of inventory holding in a distribution center. Their model is similar to the Pre-C model discussed here. But we further involve the penalty cost for shortage and assume that demands of retail stores are not stationary but serially correlated, which can be applied to describe many real situations in industry. Eppen and Schrage (1981) compare the cost of the decentralized system with that of the centralized system, and show that the expected cost of a decentralized system exceeds the centralized one, and the magnitude of benefit depends on the number of consolidated demands and the correlation among demands. Jonsson and Silver (1987) examine a two-echelon distribution system including one central warehouse and N branch warehouses. The systems with and without redistribution at the end of the last period per cycle are analyzed and compared. They showed that redistribution can reduce the inventory for a given service level. Jackson (1988) addresses the stock allocation problem for a two-echelon distribution system where one warehouse serves N retailers during the periods between the

incoming shipments from the outside supplier. In addition, some literature is concerned with transportation consolidation in supply chain. The result of consolidation is lower transportation cost per unit, while delay caused by dispatching aggregated shipment may have negative effect on customer inventory or service level. Higginson and Bookbinder (1994) analyze three common

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shipment-release policies: time policy, quantity policy, and time-and-quantity policy. A time policy requires that a shipment must be released at a predetermined date no matter how much freight is consolidated. A quantity policy refers that a combined freight does not be dispatched until a consolidated weight is reached. Finally, under a time-and-quantity policy, all orders for a particular destination are held until either a predetermined date or a minimal consolidated weight achieved. Higginson and Bookbinder (1995) consider the decision process on when to release a consolidated load by common carriage or private fleet as a discrete-time Markovian decision process, and provide numeric examples to illustrate the optimal policy in shipment consolidation. Bookbinder and Higginson (2002) consider freight consolidation problem as a stochastic clearing system to decide the maximum holding time and desired dispatch quantity. They assume that orders are received according to a Poisson process, and that the order weight follows an unshifted gamma distribution. Cetinkaya and Lee (2000) study how to coordinate inventory and transportation decisions in VMI systems where a vendor realizes a sequence of random demands from a group of retailers located in a given geographical region. In this research, we will mainly focus on the major function of cross docking, i.e. consolidation. Cross-docking can be viewed as a way to consolidate a number of orders with small quantity into a large-scale freight to transport. Transportation cost will be decreased due to the lower unit fare for large-scale shipment. 3. Model Framework

In this research, the consolidation function of cross docking will be examined by a model including multiple suppliers and single retailer (Figure 1). Suppliers are clustered in a region far away from the retailer. The retailer places an order to each supplier every period, while the order quantity is not very large. If the retailer transports the goods from a supplier to herself directly (Figure 2), the transportation cost will be high for the order quantity of the single supplier is not in large scale. However, there is an advantage for direct shipments that the cycle time from the supplier to the retailer is relatively short.

An alternative mode of transportation is that goods from multiple suppliers are first consolidated at a spot (cross-dock) and then transported to the retail to reduce the transportation cost. With cross-docking, goods from suppliers are consolidated, but not stored, at the cross-dock, and then dispatched to the retailer. The structure of the mode is shown in Figure 1. The rate of transportation decreases as the amount of cargos increases. On the other hand, the cycle time from suppliers to the retailer may increase when compared to the direct shipments. That is with cross-docking, the longer cycle time has to be paid for the decreased transportation rate.

Figure 1 Cross-docking system containing N-supplier and one-retailer

1l 2l

Cross Dock or

Distribution Center

Suppliers Retailer

Figure 2 Direct deliveries from N-suppliers to one retailer Another possible way of transportation can be carried out by replacing the cross-dock by a traditional distribution center (DC) where goods from supplier are first stored there and then ordered by the retailer. The consolidation of goods from multiple suppliers can also be implemented to decrease the transportation cost at DC, while additional holding cost at DC has to be paid. In fact, compared to cross-docking, this method shifts some inventory from the retailer to the DC. If the holding cost at DC is less than that at retailer, the system can also perform well. In this research, we compare the direct shipments and distribution center to cross-docking respectively, and examine the factors which influence their preference. In the following sections, we first provide the modeling framework and the expected average costs for the three cases. Then the comparisons are conducted, and numerical experiments are run to analyze the preference of cross-docking. Next, we briefly describe the model framework. Consider the situation where multiple suppliers clustering in a close region serve a big overseas retailer. It is a long haul from suppliers to retailer. There is a spot for consolidation operated by the retailer in this region. The spot can be functioned as a cross-dock or DC. Consider goods from a supplier. Denote the leadtime from the supplier to the retailer with direct shipments by l. If consolidation, goods from the supplier

will first be transported to that spot and then be carried together with other suppliers‘ goods to

the retailer in a large scale. Denote the leadtime from the supplier to the consolidation spot by 2l ,

and the leadtime from the spot to the retailer by 1l . Let

2 1l l to characterize the long distance

from the region to the retailer. 1 2l l is longer than l for goods has to spend time in

consolidation. The longer leadtime from the supplier to the retailer with consolidation can be attributed to two reasons: the time spent in waiting for other suppliers‘ goods in the same batch for consolidation, and the longer distance for consolidation compared with direct delivery. Assume that the demand faced by retailer is not stationary but correlated

1 ,t t tD d D u

where tD is the demand faced by retailer in period t, is a constant satisfying0 1 , and

tis

independent and identically normally distribution with zero mean and variance 2 . The retailer reviews its inventory level of the goods provided by the supplier and places an order at the end of period t. With cross-docking (or direct shipment), goods will arrive at the beginning of period

1 2 1t l l (or 1t l ). With DC, the retailer‘s order will be met by the inventory of DC, and

then the goods will arrive at the retailer at the beginning of period1 1t l . Observing the

demand of retailer, DC needs to place an order to the supplier to replenish its inventory level

with leadtime2l .

Suppliers Retailer

The demand that can not be met by on-hand inventory of the retailer is backordered. Let rh be

the unit holding cost, and rp be the unit penalty cost for backorder at the retailer. With DC,

denote the unit holding cost and backorder cost by dh and

dp .

Denote the unit transportation rate with cross-docking and DC by1v , and the rate with direct

shipment by2v . Consolidation by cross-docking or DC enables transportation rate to be lowered

for the enlarged scale of shipment when the retailer bargains with the carrier. Then we

assume1 2v v . It also should be noted that we do not consider the difference of operational costs

for receiving goods at the retailer side with direct shipments and consolidation. This difference is negligible since we assume that the receiving dock at the retailer is operated with fixed rent and labor costs. In addition, the operational cost for consolidation with cross-docking or DC is not considered for it is shared with goods from multiple suppliers and trivial.

Ordering decisions will be first analyzed in the two cases with and without consolidation. Then numerical analysis is followed to examine the situation in which cross docking is suitable. 4. Ordering Decision Analysis In this section the retailer‘s ordering decisions for one supplier with cross-docking, direct shipment and DC are analyzed.

Consider one supplier in this region. When goods from the supplier are delivered to the

retailer via cross-dock, the leadtime of ordering is 1 2l l periods. At the end of period t, the

optimal order-up-to-level c

tI for the retailer can be given as that in the work of Lee et al (2000):

where

is the standard normal distribution function.

1 2 1 2

1 2

1 1

1 2

122

21

1

(1 ) (1 ){( 1) }

1 1 1

(1 )(1 )

,

c c ct t t

l l l lct t

l l

c it

i

r

r r

I m k v

dm l l D

v

pk

p h

r r r r

r r r

sr

r

¢ ¢ ¢ ¢+ + + +

¢ ¢+ +

=

-

= +

- -¢ ¢= + + - +

- - -

= --

é ù= F Fê ú

+ê úë û

å

Then the expected holding, shortage and transportation cost for the retailer in

period1 2 1t l l , denoted by ( )c

tE C , is given by

1 2

1 2

1 2

1 10

122

1 1 21

( ) ( ) ( ) ( ) ( ) ( )2

( ) ( ) ( ) ( ) (1 )2 (1 )

where is the retailer's demand d

ct

ct

Ic c crt t l l r t L r t L

I

l lir

t l l r r rk

i

L

hE C v E D h I x dG x p x I dG x

hv E D h k h p y k d y

G 1 2istribution from period 1 to period 1


t t l l

Since

1 2 1lim ( ) / (1 )t t l lE D d r¢ ¢® ¥ + + + = - , the expected average cost for cross-docking, denoted by ( )cE C , is

1 2

1

122

21

( ) lim ( )

/(1 )2

( ) ( ) ( ) (1 )(1 )

c c

t t

r

l li

r r rk

i

E C E C

hv d

h k h p y k d y

Next we consider direct shipment. The leadtime of ordering is l periods from the retailer to

the supplier with direct shipment. Denote the order-up-to-level with direct delivery by dtI . At the

end of period t, d

tI can be given as:

where


1 1

122

21

1

(1 ) (1 ){( 1) }

1 1 1

(1 )(1 )

,

d d dt t t

l ldt t

l

d it

i

r

r r

I m k v

dm l D

v

pk

p h

r r r r

r r r

sr

r

+ +

+

=

-

= +

- -= + - +

- - -

= --

é ù= F Fê ú

+ê úë û

å

Then the expected holding, shortage and transportation cost for the retailer with direct

shipment in period 1t l , denoted by ( )d

tE C , is given by

2 10

2 12

2 1 21

( ) ( ) ( ) ( ) ( ) ( )2

( ) ( ) ( ) ( ) (1 )2 (1 )

where is the retailer's demand distribution from p

ct

ct

Id c crt t l r t l r t l

I

lir

t l r r rk

i

l

hE C v E D h I x dG x p x I dG x

hv E D h k h p y k d y

G eriod 1 to period 1


t t l

Since1lim ( ) / (1 ),t t lE D d r® ¥ + + = - the expected average cost for direct shipment, denoted

by ( )dE C , is

2

2 12

21

( ) lim ( )

/(1 )2

( ) ( ) ( ) (1 )(1 )

d d

t t

r

li

r r rk

i

E C E C

hv d

h k h p y k d y

Finally consider consolidation with DC. The decision process is similar to the situation in Section 3.2.1 except the different cycle times among nodes and that DC serves only one

customer (retailer) here. The retailer observes the demand tD and inventory level D

tI , and places

an order of size DtQ to the DC for its inventory replenishment at the end of period t. The DC

fulfils the demand with on-hand inventory if available. The retailer receives the order at the

beginning of period1 1t l . DC can be viewed as a system with back orders, and guarantees

the sufficient supply to the retailer. Meanwhile, at the end of each period, DC observes its demand, i.e. the retailer‘ order, reviews its inventory level and places an order to the supplier to

replenish its own inventory. The DC receives the required order after 2l periods from the

supplier. Denote the expected average cost by ( )DE C . We get

2

1 2

1

1

123 2

21

122

21

1

( ) /(1 )2 2

( ) ( ) ( ) (1 )(1 )

( ) ( ) ( ) (1 )(1 )

where , is

D d r

ll l i

d d dk

i

li

r r rk

i

d

d d

h hE C v d

h k h p y k d y

h k h p y k d y

pk

p h the standard normal distribution function

5. Further Research

Next we will compare cross-docking for consolidation with direct shipment and DC respectively. From the expected average costs derived from last section, we analyze the situation in which cross-docking is preferred. Numerical experiments are conduct to verify and explore the factors that influence the suitability of cross-docking.

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Planning of Long Term Care Services to Elderly at the Hashemite Kingdom of Jordan; Its reality and challenges

Dr. Hasan Salih Suliman Al-Qudah Faculty of Finance and Administration Science.

Abstract: Growing of aging phenomenon at world's population is a steadily significant. There is a need to confront this problem by dealing with through providing investigating to core issues regarding amount of health and social care done others to help this category her by Jordanian government, and to help our people at there late elderly age through identification elder self-realization and encouragements to develop their potential needs through the available resources commuted by community, like level of educational, cultural, spiritual and recreational activities and reflection. The present study would shade lights on our deer once as it can represent an important resource to the very few scientific research or even un touched category of our society by looking deep to cover part of their needs in this domain. This paper aims to identify the potential of current planning of long term care services for elderly in Hashemite Kingdom of Jordan. The reality and challenges to Jordanian long term centers available of deferent ways and facilities providing of services to elderly in a number of charities and civil related, the study also will investigate what are the present policies and issues made to accommodate the elder at both official level as well as to identify the most important present plans and programs, and technical support are in current status at Jordanian legislator in order to provide effective services for the elderly in Jordan. The Limitation of the current study will only identifying 4 out of 9 elderly centers or shelter by investigating there present services provided to accommodate of elderly her in Jordanian capital Amman .finally the result of the study would focuses on develop the present policies on behalf of elderly. This study is based on method survey by usages of checklist in collection of necessary data.

Business Policies, Strategies And Performance Dr S E Zamani

Head of Centre for International Researches, Tehran, Iran

Abstract Business development in around the world has been considered by many experts for many years. By structural Policy on basis on Solutions, reforms, planning and also finding new ways for spreading markets around the worlds and entering the Foreign markets are necessary for a sustainable development of a Business at this century .Free Economic and development on the basis of comprehensive investment. In private sectors with world market development are elements for improvement of Businesses. The emphasis on Business promoters ,decentralization of industries employments are needed All of sectors by the basic reforms with improvement of Income and more employment and other sectors with increasing exports are important .Also some reforms on wages should be considered. This study examines the role of promoters in sustainable development in the world business have been progressed .In developing countries the policies for changes in business have not been effected during the last decade, therefore the basic solutions of their business need reforms towards cooperation with other countries. Technology are necessary in modern economic and also privatization of Governmental enterprises, decrease of government role in productive Activities, decentralizing management and financial affairs and also trading activities by banks are most important elements for improving world Business .supporting from non-governmental sectors by increasing personnel income and more employments are needed. Many researches should be done for finding the ways of more reforms in business area around the world.

The impact of non-tariff barriers on imports in Malaysia’s manufacturing sector

Dr Azlina Hanif Faculty of Business Management, UiTM Shah Alam, Malaysia

Professor Dr Rokiah Alavi Dr Jarita Duasa

Dr Gairuzazmi Mat Ghani^ Kulliyyah of Economics and Management Sciences, International Islamic University, Gombak,

Malaysia

Abstract The successive General Agreement on Tariffs and Trade (GATT) rounds of multilateral trade negotiations have generally led to significant tariff reductions in many countries. Given the relatively low tariff environment, focus is now directed onto the rising importance of non-tariff barriers (NTBs) as a protectionist and regulatory trade policy tool. However, studies pertaining to NTBs are relatively scarce. Thus, the present study seeks to identify the incidence of NTBs in Malaysia’s manufacturing sector. This would permit the measurement of NTB protection at both the aggregate and disaggregated levels. The impact of NTBs on aggregate and disaggregated imports in the sector is then examined. The study finds that the level of NTBs measured in the sector between 1978 and 2007 has remained somewhat stable. The vector autoregressive analysis conducted reveals that NTBs exert no influence on aggregate manufacturing imports. Real income is the only significant factor which influences aggregate manufacturing imports albeit briefly. Meanwhile, at a more disaggregated level, results from OLS in first differences show that an increase in the growth of NTBs does in fact reduce the import growths of iron and non-alloy steel. Based on the outcome of the study, trade policies with regard to the imposition or removal of NTBs should be formulated on a product-by-product or industry-by-industry basis.

Relational value, service mechanisms, and realized performance: An empirical study of ASP in Taiwan

Shi-Wei Chou Department of Information Management, National Kaohsiung First University of Science of

Technology, Taiwan Yu-Chieh Chang

Department of marketing department, Shu-Te University, Taiwan

Keywords: Application service provider, performance, the resource-based view, social exchange

theory Abstract How to improve the performance of an application service provider (ASP) remains a problem. We draw on the resource-based view (RBV) and social exchange theory to propose a research model and test it empirically. The aim of the proposed model is to understand how an ASP’s performance is affected by the relational value or resources in interfirm partnerships between clients and ASPs. Besides, this study also examines the factors that motivate clients to facilitate the above partnerships. Based on 102 ASP project leaders, we confirm our hypotheses that IT customization, training, and trial positively affect relational value, in terms of knowledge sharing and process coupling with clients, which in turn influences performance.

1. Introduction ASPs or software as a service (SaaS), aiming to provide information technology (IT) services for their clients over the Internet, have attracted attention because of cost savings, service quality improvement, and helping firms implement information systems (IS) without high investment of IT and installing complex business applications (Bardhan et al. 2010, Susarla et al. 2009, 2010). Despite the purported benefits and the popularity of ASPs, the performance of ASPs is mixed and the factors that affect the performance of ASPs remain unclear. Performance is defined as ASPs‘ capability of providing customers with cost-effective and high quality IT operations such as providing best practices and useful IT for the customers (Montoya et al. 2010). An ASP‘s profitability and customer relationships rely on its performance. Understanding the antecedents of performance helps an ASP improve its service operations and customer service (Lacity and Willcocks 1998, Lee and Kim 1999, Mears 2004). With the emergence of the paradigm of service science, this study is motivated by the importance for better understanding of how knowledge interdependence between a client firm and its ASP can be appropriately addressed such that the performance of an ASP can be enhanced. Thus, this study proposes an integrated model based on the resource-based view (RBV) and social exchange theory. We use RBV to describe how to leveraging resources (relational value) in interfirm partnerships and use social exchange theory to identify the factors that motivate clients to foster the above partnerships. Internal service mechanisms as facilitators refer to the service provided by an ASP with the aim of facilitating the service production processes including training, trial, and IT customization. Relational value as resource refers to the benefits derived from a relationship by combinations of the relation-specific resources, including interfirm knowledge sharing and process coupling (Ke et al. 2009, Saraf et al. 2007). Both knowledge sharing and process coupling refer to an ASP‘s capability of acquiring client-specific knowledge, which in turn enables the ASP to have a deep understanding of the unique feature of the client‘s IS. Drawing on the RBV (Dyer and Singh 1998, Wade and Hulland 2004), service delivery chain (Heskett et al. 1994), and social exchange theory (Bendapudi and Berry 1997, Wulf and Odekerken-Schroder 2001), this research aims to explore the link between internal service

mechanisms, relational value, and the performance of an ASP. We propose two research questions—(1) Do the internal service mechanisms affect relational value? (2) Does relational value, in terms of knowledge interdependence and process coupling, influence an ASP‘s performance? 2. Literature Review and theoretical background 2.1 Relational value Relational value has been used in the B2B context to represent the value-creation activity or how partners are able to leverage the resources embedded in interfirm processes such that their performance can be enhanced (Dyer and Singh 1998, Saraf et al. 2007). As suggested by the RBV and the relational view of the firm, the study conceptualizes relational value as an ASP‘s (or a firm that provides ASP-related services) ability to combine IS resources between the ASP and its partners such that the ASP‘s goal can be achieved. Because how an ASP solves the problem caused by knowledge interdependency between client firms and ASPs affects their performance, this study conceptualizes relational value as an ASP‘s knowledge sharing and process coupling with its client. Knowledge sharing focuses on sharing insights about a client firm‘s business context and strategic objectives, thus it is more strategic in nature. In contrast, the concept of process coupling is similar to operational integration, which is conceptualized as the extent to which an ASP is able to respond to the idiosyncrasies in the client firm‘s processes and to integrate them with the IT services delivered by the ASP. As the aim of relational value is to better manage its external relationships (in terms of information collection and coordination of client firms)—or an ASP‘s ability to leverage outside-in resources, the RBV suggests that relational value affects an ASP‘s performance. 2.2 Internal service mechanisms—IT customization, training, and trial Social exchange theory suggests that individuals are motivated by two factors for engaging in long-term relationships—dedication and constraint (Wulf and Odekerken-Schroder 2001). While dedication-based relationship maintenance is derived from individuals‘ attitudinal commitment building on genuine appreciation for the relationship, the reason for maintaining constraint-based relationships is that individuals are locked in economic, social, or psychological investments (Bendapudi and Berry 1997). This theory has been used to explain various types of relationships, including personal relationships, employee-firm relationships, and customer-firm relationships. Applying this theory to the context of client-ASPs relationships is appropriate because client firms and ASPs represent users and service providers respectively and the outsourced task is viewed as the IT service based on a service paradigm. 3. Hypothesis development 3.1 Relational value (interfirm knowledge sharing, process coupling) and ASPs’ performance Knowledge sharing refers to the extent to which a client firm shares its context-specific knowledge that is essential to the development of the outsourced IS applications (Saraf et al. 2007, Susarla et al. 2010). In the context of ASPs, the performance of an ASP depends on the extent to which it is able to understand the requirements of distinct areas of the client firm and offer reliable services (or IS applications), from which the client‘s problems can be solved (Susarla et al. 2010). The more knowledge sharing between the client and its ASP, the more the client understands whether the ASP‘s IS development matches the business requirements of the outsourced application. Thus, knowledge sharing might highly help ASPs understand their clients‘ business domain and the requirements of the proprietary applications of the clients such that the delivered IT services by the ASP can be well integrated into a chain of other functions in the client firm. Given that knowledge sharing plays a key role in fulfilling the outsourced task, we expect that knowledge sharing is positively related to ASPs‘ performance.

H1: ASPs’ knowledge sharing with clients is positively related to ASPs’ performance.

Interfirm process is defined as the extent to which the processes crossing the boundaries of the partners can be operationally integrated (Saraf et al. 2007). The aim of process coupling is to enhance the efficiency and effectiveness of collective tasks by well coordinated interfirm activities so that operational integration can be achieved. In this study, interfirm process coupling refers to the extent to which the interfirm processes and communication between a client and an ASP are manageable. As the interfirm process coupling increases, the client is actively involved in the outsourced task and collaborates with the ASP in providing the information related to the outsourced task, and the ASP improves its understanding in client needs so that the ASP‘s service is tailored to the client‘s needs (Susarla et al. 2010). Thus, the more process coupling between the ASP and the client, the more the ASP is able to align its service with the client‘s needs. This in turn leads to more customer satisfaction and enhanced performance of the ASP. Thus, we expect that interfirm process coupling helps increase the performance of an ASP. H2: ASPs’ process coupling with clients is positively related to ASPs’ performance. 3.2 ASPs’ service mechanisms and relational value

Building on social exchange theory, this study proposes two types of mechanisms that may motivate services users to cooperate with service providers—constraint-based and dedication-based mechanisms (Kim and Son 2009, Wulf and Odekerken-Schroder 2001). As noted previously, this study views IT customization as a constrain-based mechanism, while both trial and training fall into the category of dedication-based mechanisms. 3.2.1 IT customization IT customization in the context of SaaS refers to the degree to which an ASP is willing to provide a client with uniquely built or customized applications (Susarla et al. 2010). The more customized solutions an ASP uses, the more likely information exchanges between the ASP and the client can be facilitated (Klein and Rai 2009). Exiting studies also show that customization to client needs and long-term partnerships with a client firm help knowledge sharing between partners (Susarla et al. 2010). As client IT customization enables the ASP to better manage interactions and flows of information with the client and helps collaborate with the client (Susarla et al. 2010), leading to more process coupling with clients. H3a: client IT customization is positively related to ASP knowledge sharing with clients. H3b: client IT customization is positively related to ASP process coupling with clients. 3.2.2 Training and Trial

From the perspective of social exchange theory, training and trial serve as the key drivers of dedication-based relationship (Kim and Son 2009, Wulf and Odekerken-Schroder 2001). This is because when an ASP is willing to provide service of training and trial, its client firm forms attitudinal commitment resulting from the perceived benefits of building relationships with the ASP. The actualization of the IT services provided by an ASP replies on the extent to which the employees of the client firm are able to use the IT system effectively (Montoya et al. 2010). Empirical research shows that training exerts a positive influence on the attainment of system benefits. A trained user not only is able to use the IT services effectively, but also engender positive attitudes toward the ASP and it‘s IT services (Bostrom et al. 1990). We therefore expect that the client firm is willing to share knowledge with the ASP and to collaborate with the ASP, leading to more coordinated interfirm activities.

H4a: client training is positively related to ASP knowledge sharing with clients. H4b: client training is positively related to ASP process coupling with clients. Trial refers to the degree to which users are allowed to use the IT services or systems in a ―hands-on‖ manner (Montoya et al. 2010). Trial enables the users to explore the services from both technical and functional standpoints. Similar to formal training, trial deepens users‘ understanding of the features of IT services and provides the users with more opportunities to explore the systems (or IT services) and use the services to serve the client firm‘s customers. As suggested by the theory of service-profit chain (Heskett et al. 1994), the more a client firm receives service (such as trial) from its service provider, the firm is more likely to be able to provide service for its external customers—leading to more actualized benefits of the IT services. When a client benefits from the IT services or systems provided by the ASP, the client is willing to trust the ASP and to corporate with it, resulting in more knowledge sharing and interfirm process coupling. H5a: client trial is positively related to ASP knowledge sharing with clients. H5b: client trial is positively related to ASP process coupling with clients. Our research model is shown in Figure 1.

ASP IT

customization

Training

Trial

ASP knowledge

sharing with customers

ASP process coupling

with customers

ASP realized

performance

H3a

H3b

H4a

H4b

H5a

H5b

H1

H2

Relational valueInternal service mechanisms

Figure-1. Research model

4. Research methodology This study used survey method to collect data. The collected data and proposed hypotheses were tested by the partial least squares (PLS) method. Project leaders of ASPs were selected as the key informants because they represent the individuals that have the knowledge about implementing SaaS. 4.1 Measurement and Data collection The items of the questionnaire were developed based on both discussions with managers in firms that have experience in SaaS outsourcing and existing measures that are suitable for SaaS implementation. The draft questionnaire was pretested on face and content validity by two project managers of ASPs and two IS managers of client firms that have experience in ASP outsourcing. The above procedure leads to minor modifications of the wording of some survey items. All measures employed a seven-point Likert scale from ―strongly disagree‖ to ―strongly agree.‖ The identification of the informants was through ASP portal sites. Every informant was sent a letter of solicitation, which included a brief description and the objective of this study, and the survey instrument to be completed by her/him. Individuals with at least two years of

experience in delivering IT services in SaaS context were chosen because they are familiar with every aspect of SaaS implementation and have experience with performing IT services. 102 questionnaires were received and useful for further analysis, resulting in a 19% response rate, which is consistent with the response rates of similar surveys conducted in Taiwan. Table 1 demonstrates the salient features of the respondents, including project completion time, duration, decision makers, experience, and education.

Table 1. Demographic characteristics of the providers of SaaS (N= 102)

Number of respondents Percentage

Project complete time (month) (average time taken to implement and deploy the IT service)

<1 6 5.9

1-6 18 17.6

7-12 35 34.3

13-24 31 30.4

>24 12 11.8

Duration (year) (the term of the typical contract)

<1 38 37.3

1-2 30 29.4

2-3 24 23.5

>3 10 9.8

Decision maker (individuals in the client firm who are responsible for the decision on outsourcing)

IT/MIS decision makers 50 49.0

Senior business decision makers 10 9.8

Both IT and business decision makers

42 41.2

Work experience (in years)

3-5 27 26.5

6-8 36 35.3

9-11 25 24.5

11~ 14 13.7

Gender

Female 30 29.4

Male 72 70.6

Education

High school 7 6.9

University 56 54.9

Graduate school 39 38.2

4.2 Measures Table 2 lists the definitions of the constructs, including dependent and independent variables.

Table 2. Definitions of the constructs Constructs Definitions References items

ASP IT Customization (IT_CUS)

The extent to which an ASP is willing to provide a client with applications specific to the client.

Klein and Rai (2009) 3

Training (TRAIN) The extent to which an ASP provides a client firm with the training that is appropriate and sufficient for using the IT services provided by the ASP.

Montoya et al‘s (2010) 3

Trial (TRIAL) The degree to which users are able to experiment with and use the IT services offered by an ASP on a trial basis long enough to see what they can do

Montoya et al‘s (2010) 4

Knowledge sharing with customers (KS_CUS)

The exchange of insights about the business context between business partners.

Saraf et al. (2007) 3

ASP process coupling with customers (PC_CUS)

The extent to which the interfirm process between a client and an ASP operates properly.

Saraf et al. (2007) 5

Realized performance (REAL_PE)

The extent to which the ASP has realized pre-established performance expectations central to interorganizaitonal services

Susarla et al. (2009) 4

5. Results This study used structured equation modeling (SEM) with partial least squares (PLS) to examine the proposed model and hypotheses. The reason for selecting PLS is that it neither is contingent on multivariate normal distributions of the data nor requires the large sample sizes as do other methods. Two-stage analytical approaches were used as suggested by prior research (Bock et al. 2005)—the measurement model in terms of reliability and validity was first conducted to consider the measurement model; then, the structural model was tested. 5.1 Measurement model Three types of validity were used to validate our measurement model—content, convergent, and discriminant validity. The aim of content validity is to ensure consistency between the measurement items and the extant literature. This was performed by interviewing senior practitioners who have experience with SaaS and pilot-testing the instrument. This study examined convergent validity by considering composite reliability and average variance extracted (AVE) from the measures (Hair et al. 1998). The threshold reliability of a construct is 0.7 (Chin 1998). From Table 3, the composite reliability of the constructs ranged from 0.873 to 0.946. As to the AVE of a measure, 0.5 implies acceptability (Fornel and Larcker 1981). As shown in Table 3, the AVE of our measures ranged from 0.698 to 0.855, indicating the acceptability. Finally, we examined the discriminant validity of our instrument based on the square root of AVE (Fornell and Larcker 1981). The discriminant validity is confirmed according to Table 4 because the square root of the AVE for each construct was greater than the levels of correlations that included the construct. Table 5 lists loadings and cross-loadings of the constructs, suggesting that disciminant validity is acceptable.

Table 4. Correlation between Constructs

IT_CUS TRAIN TRIAL KS_CUS PC_CUS REAL_PE

IT_CUS 0.930

TRAIN 0.487 0.955

TRIAL 0.542 0.611 0.935

KS_CUS 0.444 0.507 0.466 0.873

PC_CUS 0.618 0.568 0.611 0.685 0.939

REAL_PE 0.457 0.584 0.453 0.542 0.603 0.956

5.2

Structural model Because of the adequate measurement model, we used PLS to examine the proposed hypotheses, including estimating the strengths of the relationships between the dependent and independent variables (or path coefficients; β), and the amount of variance explained by the independent variables (or R2). R2 refers to the predictive power of the model. This study used a

Table 3. Values of CR and AVE Results of Confirmatory Factor Analysis

Measures Construct Items Composite Reliability (CR) Average Variance Extracted(AVE)

ASP IT Customization(IT_CUS)

3 0.922 0.798

Training (TRAIN) 3 0.946 0.855

TRIAL 4 0.91 0.716

Knowledge sharing with customers(KS_CUS)

3 0.873 0.698

ASP process coupling with customers(PC_CUS)

5 0.92 0.699

Realized performance(REAL_PE)

4 0.939 0.793

Table 5. Results of Confirmatory Factor Analysis

Construct Items 1 2 3 4 5 6

ASP IT Customization

IT_CUS_1 0.915 0.461 0.468 0.409 0.582 0.365

IT_CUS_2 0.890 0.403 0.467 0.358 0.488 0.458

IT_CUS_3 0.902 0.449 0.529 0.429 0.594 0.421

Training

TRAIN_1 0.357 0.896 0.486 0.477 0.551 0.604

TRAIN_2 0.450 0.971 0.591 0.48 0.510 0.510

TRAIN_3 0.559 0.934 0.637 0.461 0.526 0.519

Trial

TRIAL_1 0.455 0.497 0.88 0.267 0.453 0.288

TRIAL_2 0.466 0.480 0.882 0.257 0.453 0.219

TRIAL_3 0.512 0.482 0.902 0.416 0.562 0.335

TRIAL_4 0.407 0.586 0.747 0.549 0.561 0.598

Knowledge sharing with customers

KS_CUS_1 0.421 0.53 0.454 0.922 0.631 0.526

KS_CUS_2 0.438 0.382 0.421 0.767 0.588 0.359

KS_CUS_3 0.259 0.348 0.293 0.837 0.509 0.476

ASP process coupling with customers

PC_CUS_1 0.459 0.48 0.487 0.641 0.838 0.573

PC_CUS_2 0.482 0.481 0.436 0.530 0.884 0.524

PC_CUS_3 0.418 0.452 0.379 0.638 0.813 0.506

PC_CUS_4 0.556 0.513 0.564 0.587 0.876 0.562

PC_CUS_5 0.676 0.466 0.688 0.501 0.808 0.382

Realized performance

REAL_PE_1 0.467 0.599 0.520 0.563 0.565 0.881

REAL_PE_2 0.389 0.517 0.340 0.470 0.513 0.905

REAL_PE_3 0.350 0.441 0.361 0.425 0.535 0.905

REAL_PE_4 0.438 0.544 0.403 0.490 0.557 0.907

bootstrap resampling procedure (resamples of 300) for a confidence estimation procedure other than normal approximation. The results of the PLS analysis are shown in Figure 2 and summarized in Table 6.

ASP IT customization

Training

Trial

ASP knowledge sharing with

customers (R2= 0.324)

ASP process coupling with

customers (R2= 0.519)

ASP realized

performance (R2= 0.457)

0.200(1.757)**

0.251(0.843)**

0.205(1.817)**

0.358(3.251)***

0.303(2.893)***

0.221(1.877)**

0.169(2.049)**

0.282(2.667)***

p<0.1*, p<0.05**, p<0.01***

Relational valueInternal service mechansims

Figure 2. Results of PLS analysis

Table 6. Results of hypothesis testing Hypotheses Beta(t-value) Results

H1: knowledge sharingASP performance

0.200(1.757)** Supported

H2: process coupling ASP performance 0.251(1.739)** Supported

H3a: IT customization knowledge sharing

0.205(1.817)** Supported

H3b: IT customization process coupling 0.358(3.252)*** Supported

H4a: training knowledge sharing 0.303(2.893)*** Supported

H4b: training process coupling 0.221(1.877)** Supported

H5a: trial knowledge sharing 0.169(2.049)** Supported

H5b: trial process coupling 0.282(2.667)*** Supported

p<0.1*; p<0.05**; p<0.01*** H1 (β = 0.20, p< 0.05) and H2 (β = 0.251, p< 0.05) are supported as expected. The above findings show that ASPs‘ performance is affected by both ASPs‘ knowledge sharing and process coupling with a client firm. ASPs‘ IT customization affects both their knowledge sharing (H3a, β = 0.205, p< 0.05) and process coupling (H3b, β = 0.358, p< 0.01) with a client firm. Training is positively related to knowledge sharing (H4a, β = 0.303, p< 0.01) and process coupling (H4b, β = 0.221, p< 0.05). Finally, trial positively influences both knowledge sharing (H5a, β = 0.169, p< 0.05) and process coupling (H5b, β = 0.282, p< 0.01). 6. Discussions and Conclusion

The goal of this research is to deepen our understanding of how ASPs‘ performance can be improved, particularly from the perspective of the RBV and social exchange theory. Our findings increase the understanding of how ASPs‘ performance can be increased by levering outside-in resources (in terms of relational value), and how to motivate clients to cooperate with their ASP to increase relational value. The results advance research on outsourcing in SaaS setting by providing a multidisciplinary understanding of implantation of IT services delivered by an ASP. Our findings have the following insights.

First, our findings confirm that internal service mechanisms, in terms of client IT customization, training, trialing yields a higher order benefit by offering greater relational value—richer information exchange and better process coupling so as to improve ASPs‘ performance. This study contributes to the literature on service sciences by extending our understanding of how different antecedents (e.g. training and trial) can be used to affect the quality of service. Second, this study identifies the factors salient to ASPs‘ performance, knowledge sharing and process coupling with clients. While most existing studies emphasize the importance of relational value for performance in the context of B2B (Saraf et al. 2007), examining the above relationship in SaaS context and using different theories (e.g. the RBV and the relational view of the firm) provides a new insight into how to enhance ASPs‘ performance by value-adding collaboration with clients. Building on the RBV, our findings suggest external relationship management (or conceptualization of an outside-in resource), in terms of knowledge sharing and process coupling with clients, plays a key role in SaaS performance. Combining prior research on relational value with ours, we are able to understand how relational value helps a firm improve performance in different context, including increasing business unit performance (Saraf et al. 2007) and achieve greater competitiveness (Rai and Tang 2010) in B2B context and enhancing ASPs‘ performance in SaaS context. The R2 of knowledge sharing and process coupling with clients are 0.12 and 0.11 respectively, indicating that knowledge sharing which is more strategic in nature and process coupling aiming at operational integration contribute to the performance of ASPs equally. In sum, this study advances the theory by providing the facilitators (internal service mechanisms) from which an ASP is able to improve its capability of managing external relationship, which in turn leads to enhanced performance. Our findings also help ASP managers perform an outsourcing task effectively and efficiently by leveraging external and internal resources. 7. Research limitations and direction for further research This study has three limitations. First, we emphasized a limited number of variables that may affect ASPs‘ performance. Although these factors play a critical role in affecting ASPs‘ performance, other factors such as ASPs‘ service quality and absorptive capacity may influence ASPs‘ outcome. Second, this study emphasized the impact of service mechanisms on ASPs‘ performance, but we did not consider the level of fit that may affect the forgoing relationships. Future study may take this into consideration. Finally, the usual limitations of cross-sectional surveys are ascribed to lack of causality, as is this study. Future study may emphasize temporal comparisons such as changes in service mechanisms; relational assets and ASPs‘ realized performance. References Bardhan, I. R., Demirkan, H., Kannan, P. K., R. J. Kauffman, and Sougstad, R. (2010), ―An interdisciplinary

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Relations between States and International Economic Institutions Abdulrahim Soomro

Birbeck, University of London

Abstract

‗Development occupies the centre of an incredibly powerful semantic constellation. There is nothing in modern mentality comparable to it as a force guiding thought and behaviour. At the same time, very few words are feeble, as fragile and as incapable of giving substance and meaning to thought and behaviour as this one‘ Esteva

1.0 Introduction

The World Wars, in addition to the colossal loss of life and damage to property and infrastructure, brought drastic changes in world systems of the mainly social, cultural and economic types. After World War II, almost all of Europe and Japan were badly affected by the war. World leaders of that time, realising their immediate responsibility, stressed the need for development. During this time ―[t]he Marshal Plan was introduced by the United States of America for the economic development of Europe. Later attention was also drawn to other parts of the world which were ‗underdeveloped‘ and deemed to lack basic facilities and living standards‖.4 ―Towards the end of Second World War, rich countries, seeing a need for reconstruction in Europe and safeguarding against economic instability, brought into being the International Monetary Fund and the International Bank for Reconstruction and Development – the World Bank. With the introduction of America‘s Marshal Plan for Europe, the World Bank was free to turn its attention to the poorest countries of the world. By providing scarce resources to these countries, the World Bank was also able to endow with the missing expertise. The success of these pioneering efforts led to a

network of international development banks working under the World Bank. In this essay the relationship between states and international economic institutions shall be dealt with in the context of development. These states include both donor and recipient countries. The concept of development or rather sustainable development will be highlighted and discussed and the essay will consider Esteva‘s view of development. It will also spotlight the achievements and contribution of states and International Economic Institutions in achieving desired goals, especially in underdeveloped countries during the post World War II era. The independence of international economic institutions has always been the concern of intellectuals, writers and NGOs, who perceive the political motives of donors and the influences of affluent countries in policies of aid agencies; who to aid, how to aid, when to aid and when not to aid. Development assistance is the combination of money, advice and conditions provided by rich nations and international financial institutions such as the World Bank and International Monitory Fund and others; the discussion shall be narrowed to these two institutions only. This will further draw attention towards development targets fixed in Millennium Development Goals and efforts taken by the world as a whole and developing

4 Marshall Plan, formally European Recovery Program, (April 1948–December 1951), http://www.britannica.com/EBchecked/topic/366654/Marshall-Plan accessed on 27/02/2011

http://www.britannica.com/EBchecked/topic/366654/Marshall-Plan

countries for achieving such goals. The discussion shall further look at the development and its link with conventional wisdom and the benefits achieved by the end-users of development funds. 2.0 Concept of development

The term development has always stirred the minds of scholars and sages of the world, and different definitions, interpretations and explanations have been given at different times. Indeed development is a complex term that takes in many different ideas. IUCN, UNEP, and WWF (1991) emphasised sustainable development, sustainable growth and sustainable consumption, improvement in the population‘s quality of life while taking into consideration the ecosystem‘s regenerating capacity. In a definition presented by Pearce in 1993, ―sustainable development is related to the society‘s development whose costs are not placed on future generations‖.5 Esteva has argued that ―development describes a process through which the potentialities of an object or organism are released, until it reaches its natural, complete, full-fledged form. The development or evolution of a living being, in biology is referred to the process through which organisms achieved their genetic potential.‖6 Amartya Sen, argues for a broader goal for development as ―increasing the capability of all human beings to achieve those things that they most value. Higher income, of course, increases such capabilities in important ways, so it is a significant component of development. But it is not the only part, it does not assure good health, adequate education, greater longevity, the ability to influence the political decisions that affect one's life or the freedom to choose alternative lifestyles or even goods and services‖.7 Development is very much linked with poverty though it is also very difficult to describe poverty in few words as it is a complex phenomenon having different dimensions; the word ‗poverty‘ is also generally referred to as ‗under-development‖8 . There appears to be no specific definition in literature available on poverty; however in plain words we can attempt to describe poverty as hunger, lack of shelter, being sick and having no access to health facilities, no access to school and not having the ability to read etc. Poverty is also unemployment; it is fear for the future. Lastly we can also say poverty is lack of empowerment and lack of representation and freedom. Here we can add ‗to overcome poverty is a real development‘. 3.0 Causes of Underdevelopment

Various causes and concerns could be referred to as underdevelopment which really slows down the progress or creates hurdles in the pace of development. By overcoming these barriers the countries and international economic institutions can certainly achieve the development goals. However sincere efforts, commitment and will of all stakeholders is required to overcome such hurdles. In this essay I will look at a few causes and reasons which become the source of

5 Remigijus Ciegis, The concept of Sustainable Development and its use for Sustainability Scenarios, http://www.ktu.edu/It/mokslas/zurnalai/inzeko/62/1392-2756-2009-2-62-28.pdf 6 Esteva, G. (1992) Development. In: Sachs, W. (ed.) The Development Dictionary: a guide to knowledge as power. London: Zed books, p.8 ISBN: 1856490440 7 The Road From Serfdom: Amartya Sen Argues that Growth Is Not Enough, http://www.foreignaffairs.com/articles/55653/richard-n-cooper/the-road-from-serfdom-amartya-sen-argues-that-growth-is-not-enoug?page=show accessed on 20/08/2010 8 Poverty as Underdevelopment; Trans-action, Rutgers-The State University New Brunswick, N.J. 08903, www.

http://www.foreignaffairs.com/articles/55653/richard-n-cooper/the-road-from-serfdom-amartya-sen-argues-that-growth-is-not-enoug?page=show


underdevelopment that frustrates the real motives of institutions and the donors for improving the living, standards of common man throughout the world. 3.1 Debt Crisis

The recipient countries which are receiving funds from different International Financial Institutions for the purpose of socio-economic development have to pay a heavy cost in terms of interest. It was due to these reasons that Debt-Relief Initiatives for Heavily Indebted Poor Countries were introduced which are commonly referred to as the HIPC. ―In the 1960s and 1970s, third-world debt was largely incurred by corrupt, unaccountable regimes. Many loans were officially targeted towards large and wasteful infrastructure projects, but often the money went into the pockets of 100 or 200 people surrounding the regime leaders and ended up in private Swiss bank accounts in the first world.‖9 This situation invited criticism of World Bank and IMF in 1990s as international activist groups and NGOs such as ‗Oxfam International‘, ‗Bread for the World‘ and others highlighted such issues and put the debt on the public agenda.10 However, structural adjustment policies implemented by IMF and the World Bank are conditionalties for getting new loans or to obtain low interest rates on existing loans. These programs include internal changes such as privatisation, deregulation and external ones, especially reducing trade barriers. For attracting investment, poor countries enter into a competing race to the bottom, to see who can provide lower standards, reduced wages and cheaper resources. This has always been a major cause of poverty and has further increased poverty and inequality. Furthermore, aid has often come with a price of its own for the developing nations; aid is often wasted on conditions that the recipient must use overpriced goods and services from donor countries. In reality most aid does not actually go to the poorest that need it the most. 3.2 Politics, countries, corruption and development In 1970, the world‘s rich countries agreed to give 0.7% of their annual gross national income as official international development aid. Since that time, despite billions being contributed each year, rich nations have rarely met their actual promised targets. Recently, there was an EU pledge to spend 0.56% of GNI on poverty reduction by 2010, and 0.7% by 2015. ―The US is often the largest donor in monetary terms, but ranks amongst the lowest in terms of meeting the stated 0.7% target. Still the US government has provided over $321 billion in assistance since World War II‖.11 Looking at this figure it seems that foreign aid is politically popular; and political success in donor countries, mainly because they persuade their political designs with the weapon of aid. This is equally suited to non-democratic and unpopular governments in the developed world. During 1980s long war fought against USSR through Afghanistan and Pakistan, and very recent ongoing ‗war against terror‘ in the same region could be one of the examples. In spite of heavy amount of aid given in this region- it is an economic and social failure. Unfortunately the record of aid disbursement shows that in most cases aid is given to the countries ruled by military dictators for perpetuating their rule and fulfilling the political agenda of donor rich countries. A few examples are in ―Latin America, Africa, South Asia, and

9 Rick Rowden, A World of Debt, Third World Traveller The American Prospect magazine, Summer 2001. 10 Sarah Boseley, World Bank poverty drive a failure, says report, The Guardian, Thursday 3July,

2003, http://www.guardian.co.uk/2003/jul/03/saraboseley accessed on 20/01/2011 11 John Majewski, Third Word Development: Foreign Aid or Free Trade?, http://www.thefreemanonline.org accessed on 14/02/2011

http://www.guardian.co.uk/2003/jul/03/saraboseley

http://www.thefreemanonline.org/

the Middle East that have been common areas for military rule or prolonged dictatorships such as Pakistan, Bangladesh, Nigeria, Egypt, Burma, Chile, Zimbabwe and Libya‖.12 Through the bureaucracies, development aid fosters political exploitation. There are many examples of Third World governments using aid to enrich their ruling elite at the expense of the masses. ―President Sese Seko of Zaire, for instance, used foreign aid money to partly fund the construction of eleven presidential palaces‖.13 Not only this but ―Development funds are often used in other projects for example modernising capital cities, such as Brasilia, Islamabad, Abuja in Nigeria, Lilongwe in Malawi and Dodma in Tanzania, that benefit few people except the ruling classes. Foreign aid is also used to subsidize expensive Third World Airlines which only benefit the elite of the country, while taking away the resources from the needed private sector activities‖.14 This disbursement practice of development funds shadows credibility, efforts and agenda of funding agencies and also creates a substantial question mark over the relationship between states and IEIs. ―Corruption is certainly wrong as, it not only makes governance dysfunctional and ineffective; but empowering particular individuals rather than institutions, and favoring discretion and arbitrary decision rather than rule following‖15 From the above discussion it can be considered that foreign aid or development assistance is often improperly used, or wasted on corrupt recipient governments despite good intentions from donor countries. In reality, both the quantity and quality of aid have been poor and in the meantime international economic institutions, recipients or even donor nations have never been held to account for the failure of large projects and massive grand strategies aimed to help the vulnerable. There is no proper system of need assessment to establish what the requirement is, and what need to be done? Transparency International in its policy paper suggests that ―[t]here is today an increased awareness of the development community in both donor and recipient countries that without countering corruption, aid is in danger of not reaching the poor or reaching them only partially. The credibility of future aid will depend on the ability of the aid system to demonstrate that it can address corruption pro-actively and comprehensively.‖16 3.3 Colonisation

Development to some extent can be linked to colonialism, as Tunde Obadina, in his web based article ‗The myth of Neo-colonialism‘ has highlighted: ―Colonialism laid the seeds of the intellectual and material development in Africans. It brought enlightenment where there was ignorance. It suppressed slavery and other barbaric practices such as pagan worship and

12 Manfred Kossok; Journal of Interamerican Studies and World Affairs

Vol. 14, No. 4, Special Issue: Military and Reform Governments in Latin America (Nov., 1972),

pp. 375-398

13 John Majewski, Third Word Development: Foreign Aid or Free Trade?, http://www.thefreemanonline.org accessed on 14/02/2011 14 P.T. Bauer, Reality and Rhetoric: Studies in the Economics of Development (Cambridge, Mass.: Harvard University Press, 1984), p.52. 15 Santos, A. (2006) The World Bank’s uses of the ‘rule of law’ promise in economic development, Cambridge University Press, p.274 16

Poverty, Aid and Corruption (2007) Transparency International Policy Paper,

http://www.transparency.org/global_priorities/poverty/corruption_aid accessed on 21/02/2011


http://www.transparency.org/publications/publications/aid_corruption

http://www.transparency.org/global_priorities/poverty/corruption_aid

cannibalism. Formal education and modern medicine were brought to people who had limited understanding or control of their physical environment. The introduction of modern communications, exportable agricultural crops and some new industries provided a foundation for economic development.‖ 17 On the other hand he also analysed the views of those who are more critical of colonialism, arguing that ―colonial rule left Africans poorer than they were before it began. Not only were African labour and resources super-exploited, the continent‘s capacity to develop was undermined. Under imperial rule African economies were structured to be permanently dependent on Western nations.‖18 Taking both of these differing views we need to link and analyse the relations of states and international economic institutions and see to what level the recipient countries are independent in decision making in development process or what the limitations and bindings on their independence are after the formal end of colonial rule in the world. 4.0 Development, Conventional Wisdom and Goals An impression has developed that the consultants of international economic institutions plan and design projects on their own without looking at the conventional wisdom, need assessment and participation of poor folk living in the development area. Frank, during his visit to Pakistan rightly pointed out that, ―It is absolutely amazing. They are the most fantastic people. You should talk to the people in villages. They know exactly what they want. They are well organized, very articulate, sociologically it‘s amazing.‖19 Knowledge of local conditions, experimental results from interventions and some way to get feedback from the poor, who will find out all the variable and complicated answers of how to make aid work are being ignored. This has resulted in the failure to attain the desired targets, goals and achievements.

The relationship between states and IEI could be further scanned with unanimously agreed ambitious targets planned in the name of Millennium Development Goals (MDGs). In September 2000, at the United Nations Millennium Summit, world leaders agreed to eight specific and measurable development goals—now called the Millennium Development Goals (MDGs) to be achieved by 2015. ―The first seven goals focus on eradicating extreme poverty and hunger; achieving universal primary education; promoting gender equality and empowering women; reducing child mortality; improving maternal health; combating HIV/AIDS, malaria and other diseases; and ensuring environmental sustainability. The eighth goal calls for the creation of a global partnership for development, with targets for aid, trade, and debt relief.‖20 It is recognized that macroeconomic stability and growth depend heavily on structural and institutional factors. Therefore, in contributing to the achievement of the MDGs, the

17 Tunde Obadina. The myth of Neo-colonialism, http://www.afbis.com/analysis/neo-colonialism.html accessed 31

Dec 09.

18 Tunde Obadina. The myth of Neo-colonialism, http://www.afbis.com/analysis/neo-colonialism.html accessed 31 Dec 09.

19 Frank, L. The development game. In: Rahnema, M. &

Bawtree, V. (eds.) The post-development reader. London: Zed Books Ltd.

ISBN: 1856494748. (1997) pp.267

20

End Poverty- Millennium Development goals. http://www.un.org/millenniumgoals/ accessed

01 Jan 10.

http://www.afbis.com/analysis/neo-colonialism.html


http://www.un.org/millenniumgoals/

World Bank and International Monetary Fund and other donor agencies work closely with partner countries, and also other multilateral and bilateral providers of aid and financing. It is yet a question - how far we shall be able to achieve these goals in a specified time period. The underdeveloped (recipient) country‘s political leaders in their political statements and their development partners (IEI) in their annual reports highlight their efforts for achieving development targets in combating poverty.21 But the independent forums, non-state actors, non-governmental organizations and the media have constantly been unveiling the realities behind development and bring facts into the public. ―The Paris High-Level Forum was hosted by the French Government on February 28 to March 2, 2005 and attended by development officials and ministers from ninety one countries, twenty six donor organizations, representatives of civil society organizations and the private sector‖.22 The commitments of the Paris declaration on Aid Effectiveness overall include the need for effective leadership over their development policies, strategies, and to coordinate development actions; however the donor countries will base their overall support on receiving country‘s national development strategies, institutions, and procedures more harmonized, transparent, and collectively effective and aligned with recipients priorities. Donor and developing countries pledge that they will be mutually accountable for development results, which is eventually the need of the day. 5.0 Law & Development ―The rule of law is essential to equitable economic development and sustainable poverty reduction. A weak legal and judicial system undermines the fight against poverty on any fronts: they divert investment to markets with more predictable rule-based environments, deprive the important sector of the use of productive assets, and mute the voice of citizens in the decision making process.23 The countries and their relationships with IEIs are guided by certain boundaries which only law can define, interpret and implement. ―The idea that the legal system is crucial for economic growth now forms part of the conventional wisdom in development theory. This idea's most common expression is the "rule of law" a legal order consisting of predictable, enforceable and efficient rules required for a market economy to flourish.‖24 The definition of development discussed above covers protection against all such excesses which cannot be possible without an organized system and rule of law. The World Bank has also initiated various Law Reform Projects in different parts of the world linked to development. Likewise there is also a need for a law which could deal with the issues between states and international economic institutes. This will help in implementation of all agreed and mutually signed treaties, MoUs, agreements, resolutions and the compliance of pledges made in conferences and meetings. There is a need for a body to decide, disclose and

21 The World Bank Annual Report, http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/EXTANNREP/0,,menuPK:1397243~pagePK:64168427~piPK:64168435~theSitePK:1397226,00.html accessed on 28/02/2011

22 Paris High-Level Forum (2005), http://www.aidharmonization.org/secondary-pages/Paris2005

http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/EXTANNREP/0,,menuPK:1397243~pagePK:64168427~piPK:64168435~theSitePK:1397226,00.html

http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/EXTANNREP/0,,menuPK:1397243~pagePK:64168427~piPK:64168435~theSitePK:1397226,00.html

impose its decisions on all such commitments between the underdeveloped (recipient) and developed (donor) countries and international economic institutions and to provide remedies to disputes or disagreements therein. This will not only smooth the relationship among all stakeholders but the parties will have recourse to legal remedies in cases where these principles are violated. 6.0 Discussion The development projects initiated by IEIs in collaboration with recipient countries costing hundreds of millions pounds are aimed at alleviating poverty; but the world is still striving for desired results to the satisfaction of end users. Save the Children Fund UK claims that the ―[t]he World Bank has not only continued with costly but failing projects in Bangladesh and Uganda but it is planning to expand, with a scheme billed for Ethiopia. The Bank both designs the programmes and lends beneficiaries the money to carry them out, which increases their debt. These projects threaten to plunge developing countries into further debt without making any substantial impact on malnutrition rates‖.25 This appears to be an alarming situation, especially when the world‘s rich countries have contributed a heavy amount for the purpose of development, not for underdevelopment. Development is necessary and should take place within a perspective of integration into the world economy. It is generally observed that economic interests are dominant in policies and also politics play a vital role, but the perceived development is always lacking; thus compelling Esteva to say that development occupies the centre of an incredibly powerful semantic constellation. Development plans are basically the human, financial and technological resources that are under our control and need to be mobilised to produce measureable results in a given period, in the same way as business plans do. In reality we observe that these development plans in most cases fail to meet this basic concept of planning, either because the resources described in the plan are not under anyone‘s control, or because the plan lacks specificity. It is of the utmost importance to reassure that real stakeholders are involved at the planning level to achieve desired results. Folk wisdom, the knowledge of local conditions, experimental results from interventions, and some way to get feedback from the ends users, which would find ways of answering complicated questions and make aid work are miserably ignored. Countries that are pouring in money in the name of development - have they been able to achieve the desired tangible results. There should be self assessed and honest answers to all such questions. There could also be an argument in favour of IEIs about their efforts as it cannot out rightly be rejected, but needs some justification with evidences to substantiate this argument. It is also understandable that in most cases project feasibility, need assessment, ongoing monitoring and audits are not carried out according to satisfaction of all stakeholders. There could be hundreds of examples where projects failed due to their incompatibility with the local circumstances and environments. One example is the mega project of drainage ‗Left Bank Outfall Darin‘ initiated by the World Bank which caused catastrophe to locals during monsoon rains. Soon after completion of the project, water started flowing in the reverse direction resulting in loss of lives, crops, and animals. ―The World Bank inspection panel report on LBOD

23 Santos, A. (2006) The World bank‘s uses of the ‗rule of Law‘ promise in economic development p.268 24 Santos, A. The World Bank‘s uses the ‗rule of law‘ premise in economic development. Cambridge University Press, (2006) p253 25 Sarah Boseley, World Bank poverty drive a failure, says report, The Guardian, Thursday 3July, 2003, http://www.guardian.co.uk/2003/jul/03/saraboseley accessed on 20/01/2011


project in southern part of Pakistan explicitly stated that there were serious violations of World Banks safeguard policies and the failure of the project related structures. The LBOD project has caused serious environmental problems. Local communities and folk wisdom was ignored during project designing and its implementation.‖26 It is also an accepted fact that development is not a free mechanism which can be secluded from the politics, hegemony of economic powers, and the interest of donors, or from the personal interests of actors (rulers, bureaucracy, technocrats and implementers of development). But still the sincerity of these above mentioned actors for the cause, need to be ensured. The apparent results and conditions of the underdeveloped countries still suggest that we are far away from such ideal targets of success and dreams of nations. Are the people of that area given access to the documented / recorded benefits of the projects so they can really comment on its veracity? There is a need to build an environment where community from both donor and recipient countries can hold the agencies responsible for outcomes. Have donor countries and their politicians realised that their money, which is public money, has been wastefully spent. A negative evaluation of a particular aid effort is also a learning opportunity, but should not be an excuse to stop the aid and halt the process of development. On the contrary it is a continuous process of learning from mistakes for further and future development. 7.0 Conclusion The world as a whole has made tremendous efforts towards development over the past sixty five years since World War II. The grace and generosity of world leaders since the beginning is very much evident from their vision and thinking for development both in Europe and in poor countries around the world. The creation of institutions like World Bank and IMF and many other regional banks clearly depicts the positive ambitions of policy makers of the world. It also clearly envisages that the need for development is very well recognized and mutually accepted. Now it is the implementation that needs to be stressed with the ultimate purpose of achieving the desired goals. There remains no point in disagreeing with Esteva on his statement that development occupies the centre of an incredibly powerful semantic constellation he declares that development is an elusive concept which is easily molded to the ends of those purporting to excuse it. Esteva decides that the character of development should not be like this, because it can be abused and it is ‗doomed‘. The efforts of international agencies can really be appreciated in this regard, especially the World Bank, IMF, UN who pour in funds and strive for capacity building of underdeveloped countries. There is no denying the fact that every plan has some loopholes and drawbacks as perfection in the extreme degree is impossible. There are different views both positive and negative, but it can still be concluded that we have a long way to go in achieving our aims. The international economic institutions should feel responsible for practically involving the aid recipient countries from level of need assessment, planning, implementation and follow-up that is called ‗‘alternative development‘. The world cannot achieve a complete end to poverty without homegrown development based on the dynamism of individuals, conventional wisdom and firms in free markets. The developed countries and the agencies responsible for development need to be participative and result oriented and should shun all other designs, except to focus only on sustainable development. Similarly the notions such as the ‗rule of law‘ and ‗sovereignty‘ also find themselves with loose definitions when used in the context of International Economic Law Justice and Development. The dream which is shown in the

26 Pakistan: Left Bank Out-fall Drain (LBOD), Sindh Development Institute; http//sindhdevlopmentinstitute.slogspot.com/2006/10/ accessed on 15/02/2011

Millennium Development Goal can only come true when real efforts are put in, with the collaboration of all stakeholders otherwise it will take another century to achieve these goals. References: Amanda Perry-Kessaris,‘ the relationship between legal systems and economic development: integrating economic and cultural approaches‘ (Journal of Law and Society29:2.2008) Balancing Accountabilities and Scaling up Results, Http://Www-Wds.Worldbank.Org/External, accessed 05/02/11. Bawtree, V. (eds.) The post-development reader. London: Zed Books Ltd. End Poverty- Millennium Development goals. http://www.un.org/millenniumgoals/ accessed 01/02 11. End Poverty- Millennium Development goals. http://www.un.org/millenniumgoals/ accessed 01 Jan 11. Esteva, G. (1992) Development. In: Sachs, W. (ed.) The Development Dictionary: a guide to knowledge as power. London: Zed books, p.7 ISBN: 1856490440 Frank, L. (1997) The development game. In: Rahnema, M. & Bawtree, V. (eds.) The post-development reader. London: Zed Books Ltd. ISBN: 1856494748. Frank, L., The development game. In: Rahnema, M. & Bawtree, V. (eds.) The post-development reader. (London: Zed Books Ltd. ISBN: 1856494748. 1997) Frederick Cooper and Randall Packard, International Development and the Social Sciences, (University of California Press Limited. London, England First Edition 1997) G. Esteva ‗Development‘ in W. Sachs ed. The Development Dictionary: a guide to knowledge as power (London:

Zed Books, 1992) Gilbert Rist (2004), The History of Development: Zed Books Ltd. John Zysman, ―Governments, Markets, and Growth‖, (Cornell University Press. London. 1994) Kathleen Staudt, Managing Development, State, Society, and International Contexts, (Sage Publications. India, PVT Ltd. First Edition 1991) Linda Weiss & John M. Hobson, ―States and Economic Development, A comparative Historical Analysis‖, (Polity Press Cambridge. UK 1995) P. T. Muchlinski, ―Multinational enterprises and the Law‖, (Oxford: OUP, 2007) P.T. Bauer, Reality and Rhetoric: Studies in the Economics of Development (Cambridge, Mass.: Harvard University Press, 1984), p.52. Paris High-Level Forum (2005), http://www.aidharmonization.org/secondary-pages/Paris2005 Paz Estrella Tolentino, Multinational Corporations Emergence & Evaluation, (Routledge Taylor & Francis group. London, 2000) Remigijus Ciegis, The concept of Sustainable Development and its use for Sustainability Scenarios, http://www.ktu.edu/It/mokslas/zurnalai/inzeko/62/1392-2756-2009-2-62-28.pdf Rick Rowden, A World of Debt, Third World Traveller The American Prospect magazine, Summer 2001. Santos, A. (2006) The World bank‘s uses of the ‗rule of Law‘ promise in economic development Cambridge University Press Shanin, T. ‗The idea of progress‘ in L. Frank (1997) ‗The development game‘ in M. Rahnema and V. Bawtree The Post-development Reader Zed Books (2002) The World Bank‘s uses of the ‗rule of law‘ promise in economic development, (2006) Cambridge University Press, W. Easterly ‗Planners and Gangsters‘ in The White Man’s Burden: Why the West’s efforts to aid the rest have done so much ill and so little good’ (Oxford: OUP, 2006)

William M. Lafferty and James, ―Meadowcroft Implementing Sustainable Development‖, (Oxford: OUP. 2000) The IMF and Good Governance, http://www.imf.org/external/np/exr/facts/gov.htm, accessed on 15/02/2011. United Nations, The UN Development Decade: Proposals for Action. New York: UN. 1962. Pakistan: Left Bank Out-fall Drain (LBOD), Sindh Development Institute; http//sindhdevlopmentinstitute.slogspot.com/2006/10/ accessed on 15/02/2011 Paris High-Level Forum (2005), http://www.aidharmonization.org/secondary-pages/Paris2005 accessed on 12/01/2011



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Special Economic Zone: Initiation and Inhibition

M. Ravinder Reddy

School of Management, National Institute of Technology, Warangal Surendar Gade

Department of Management Studies, S R Engineering College, Warangal P. Ramlal

School of Management, National Institute of Technology, Warangal

Key words: SEZ, Initiatives Abstract: This paper focuses on the need of Special Economic Zone (SEZ), the evolution, importance and the problems of Special Economic Zones in India. Discussed administrative set up and approval mechanism of SEZs in India. It explains salient features of Indian SEZs, initiation taken by government, incentives and benefits given to companies in SEZs. We discussed Area wise, sector wise performance and key areas to be focused. At the end paper has produced some suggestions to strengthen the SEZs.

Introduction: The emergence of SEZs in a conservative society like India is aimed at changing the Indian outdated thinking and environment but even today some still argue that agriculture must be the priority, while others contend that industry should take precedence. There is no use in debating, as this approach will get India nowhere. Be it increasing urbanization or SEZs, we must accept the fact that change has arrived on India‘s doorstep. What India needs is to welcome these transformations, and manage them successfully. Special Economic Zones (SEZs) are geographical regions that have economic laws different from a country's typical economic laws. The goal is usually an increase in foreign direct investment (FDI) in the country and ultimately developed economy. Traditionally SEZs are created as open markets within an economy that is dominated by distortion trade, macro and exchange regulation and other regulatory governmental controls. SEZs are believed to create a conducive environment to promote investment and exports. And hence, many developing countries are developing the SEZs with the expectation that they will provide the engines of growth for their economies to achieve industrialization. To achieve its three-fold objectives of attracting FDI, increasing exports and accelerating the country's economic growth, the Government of India announced the introduction of SEZs in its Export-Import Policy of March 2000. Objectives of the paper: This paper is aimed to discuss the following objectives: 1. To give an overall concept about Special Economic Zones 2. To discuss the importance and impact of SEZs indian economy, 3. To identify the problems with SEZs 4. To discuss the export performance and sector wise performance of SEZ 5. To discuss the initiative taken by Government, incentives and benefits, and 6. To produce possible suggestions to strengthen SEZs in India.

Special Economic Zone (SEZ)-Definition

―A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others.‖ Usually the goal of an SEZ structure is to increase foreign investment.‘ Administrative set up for SEZS:

SEZs is governed by a three tier administrative set up a) The Board of Approval is the apex body in the Department, b) The Unit Approval Committee at the Zonal level dealing with approval of units in the SEZs and other related issues, and c) Each Zone is headed by a Development Commissioner, who also heads the Unit Approval Committee. Approval Mechanism for SEZS: Any proposal for setting up of SEZ in the Private/Joint/State Sector is routed through the concerned State government who in turn forwards the same to the Department of Commerce with its recommendations for consideration of the Board of Approval. On the other hand, any proposals for setting up of units in the SEZ are approved at the Zonal level by the Approval Committee consisting of Development Commissioner, Customs Authorities and representatives of State Government.. Approval given for setting up new SEZs in Private/Joint/State Sector: Approvals have so far been given for setting up of 117 new Special Economic Zones (including 3 Free Trade Warehousing Zones) spread over 15 States and 2 Union Territories in the Private/Joint Sector or by the State Governments and its agencies. Of the 117 SEZs approved for establishment, 7 SEZs have already become operational, 6 SEZs are now getting ready for operation and the other are at various stages of implementation. From EPZs to SEZs:

India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone model in promoting exports, with Asia‘s first EPZ set up in Kandla in 1965. In 2000, after thirty-five years, Murlisone Maran, then Commerce Minister, made a tour to the southern provinces of China and realized the importance of SEZ. On returning from the visit, he incorporated the SEZ into the Exim Policy of India and after five year, Special Economic Zones Act 2005 was introduced and in 2006 SEZ Rules was formulated. The main objectives of the SEZ Act include: Generation of additional economic activity Promotion of exports of goods and services, Promotion of investment from domestic and foreign sources, Creation of employment opportunities, and Development of infrastructure facilities. Government initiative for SEZ: Indian government to instill confidence in investors and signal their commitment towards a stable SEZ worked on the Special Economic Zones Act. In May, 2005 the Special Economic Zones Act was passed by Parliament, which received Presidential assent on the 23rd of June, 2005. The Special Economic Zones Act 2005, after extensive consultations, came into effect on 10th February, 2006. The Act offered drastic simplification of procedures on matters relating to central as well as state governments. The main objectives of the SEZ Act include generation of

additional economic activity, promotion of exports of goods and services, promotion of investment from domestic and foreign sources, creation of employment opportunities, and development of infrastructure facilities. It is expected that the Special Economic Zones Act will trigger a large flow of foreign and domestic investment. Salient features of the Indian SEZ initiative include:

Unlike most of the international instances where zones are primarily developed by Governments, the Indian SEZ policy provides for development of these zones in the government, private or joint sector. This offers equal opportunity to both Indian and international private developers.

For Greenfield SEZs, the Government has specified a minimum preferable area of 1,000 hectares. However, for sector specific SEZs, there is no restriction of minimum area.

100 per cent FDI is permitted for all investments in SEZs, except for activities under the negative list.

SEZ units are required to be positive net foreign exchange earners and are not subject to any minimum value addition norms or export obligations.

Goods flow into the SEZ area from Domestic Tariff Area (DTA) will be treated as exports and goods coming from the SEZ area into DTA are treated as imports.

Incentives and Benefits

Besides providing state-of-the-art infrastructure and access to a large well-trained and skilled work force, the Government of India also provides enterprises and developers with a favorable and attractive framework of incentives 100% income tax exemption for a block of five years and an additional 50% tax exemption for two years thereafter 100% FDI in the manufacturing sector permitted through automatic route, barring a few sectors. External commercial borrowings by SEZ units upto US$500 million in a year without any maturity restrictions through recognized banking channels. Facility to retain 100% foreign exchange receipts in Exchange Earners‘ Foreign Currency Account. 100% FDI permitted to SEZ franchisee in providing basic telephone services in SEZs. No cap on foreign investment for small scale sector reserved items. Exemption from industrial licensing requirements for items reserved for the SSI sector. No import license requirements Exemption from customs duties on import of capital goods, raw materials, consumables, spares etc Exemption from Central Excise duties on procurement of capital goods, raw materials, consumable spares etc., from the domestic market. No routine examinations by Customs for export and import cargo. Facility to realize and repatriate export proceeds within 12 months. Profits allowed to be repatriated without any dividend-balancing requirement. Job work on behalf of domestic exporters for direct export allowed. Subcontracting both domestic and international is permitted; this facility is available to jewellery units as well. Exemption from Central Sales Tax and Service Tax Facilities to set up off-shore banking units in SEZs. Incentives to Developers Exemption from duties on import /procurement of goods for the development, operation and maintenance of SEZ.

Income tax exemption for a block of 10 years in 15 years. Exemption from Service Tax FDI to develop townships within SEZs with residential, educational, health care and recreational facilities permitted on a case-to-case basis. Export performance of SEZs:

Exports from SEZs grew by 16.4% from 2000-01 to 2004-05. In the same period, total exports in India grew by 12.1%. This clearly signifies the importance of SEZs in India. As is evident from Diagram 1, exports from SEZs have a steady increasing trend over the period. The export figure from SEZs has actually doubled over the period. However, the share of exports from SEZs in the total exports of the country has only increased from 4.2% in 2000-01 to 5.1% in 2004-05. Sector-wise Performance in SEZs:

In the 1990s, the engineering sector accounted for the largest share of exports followed by drugs, electronics and gems & jewellery. In 2002, the share of engineering goods came down to 5% of total SEZ exports. The share of drugs and pharmaceutical sector also fell from 26% in 1990 to around 6% by 2002. The textile sector has shown a marginal decline of 2% in its share over the period. In contrast, exports of gems and jewellery which had only a share of 11% in 1990 rose rapidly and accounted for 42% of the total SEZ exports in India in 2002. The share of electronics exports also grew from 25% in 1990 to 34% in 2002 faster than the overall zone exports. It is to be noted that 50% of the electronics sector is software. Thus in 2002, the electronics and gems & jewellery sectors accounted for more than 75% of the total exports from SEZs in India and thus can be named as the key performing sectors in Indian SEZs. Issues with SEZs:

However, there still are many critics of this scheme who point at the following issues:

Real estate exploitation; The loss of land to agriculture and inadequacy of compensation and other deprivation suffered by farmers and rural workers; The impact of tax exemptions and other fiscal incentives, on the central state and state revenue; The impact on the regional balance in developments and Administrative weaknesses. Key Focus Areas:

The zones' performance in attracting investment and promoting export competitiveness seems to be directly related with the location, infrastructure facilities, quality of governance and the incentive packages. 1. Location

Region Specific: Locating SEZs near or in industrial/urban areas is likely to be a factor critical to their success. This satisfies the labour needs of the zone units, ensures more accessible and uninterrupted utilities, better services and allows for more spillover effects.

Strategic: SEZs located near ports or airports or having proximity to a bigger city have been more attractive than other industrial sites and are likely to show better export performance.

2. Quality of Infrastructure Availability of good quality infrastructure improves the business climate by reducing the cost of operations and boosting operating profitability. The term 'infrastructure' includes physical infrastructure within the zone as well as external and also social infrastructure within the zone. Physical infrastructure within the zone includes water, electricity, warehousing, transport, telecommunication, police station, fire station and banks while physical infrastructure external

to the zone includes transport facilities for the zones, roads leading to the zones and port facilities. Social infrastructure within the zone comprises of residential complexes, schools, hospitals and recreation facilities. 3. Quality of Governance Efficient governance in all stages of the creation and running of an SEZ is crucial to its performance. It greatly influences the attractiveness of a zone to foreign investors and its eventual performance. The provision of efficient bureaucratic and economic services, a clear and transparent legal and regulatory structure and an unfettered and stable policy framework ensure the success of the zones. 4. Incentive package A preferential treatment is given to SEZ units by granting them government policy concessions. Governments offer a multitude of fiscal and non fiscal concessions. Fiscal concessions include duty free imports of raw and intermediate inputs and capital goods and income tax exemptions. Non fiscal incentives vary widely across countries. These include relaxation from industrial laws including labour laws in many countries. The theory behind these incentives is that liberalizing the rules and tax commitments lowers direct and indirect costs. Fiscal incentives have direct bearing on the cost. These incentives may help in directly reducing the costs of producing and exporting. Non fiscal incentives affect costs indirectly. These concessions expedite decision making and streamline day to day operations. Investor friendly custom regime, for instance, implies that the entrepreneurs are free from routine inspections of import- export cargo. Relaxations in labour market help in reducing labour market rigidities and may improve labour productivity. The Road Ahead: There should be a vision in the design, establishment and operations of the SEZ. It is necessary to develop zones as industrial clusters of specific products. The backward

linkages would benefit the growth of accessories units as well. The zones should specialize in terms of economic activities depending on the availability

of human capital, resources and infrastructure in the region. They thus tend to transform into horizontally-integrated industrial clusters, which include industries that might share a common market for the end products, use a common technology or labor force skills, or require similar natural resources. It seems, therefore, that it would be desirable to develop zones as industrial clusters of specific products. This may encourage downstream industries also.

Zones in the long run need to give way to industrial clusters of horizontally and vertically integrated industries in general, high tech industries in particular. This would not only help to jump-start the manufacturing processes but would also improve export competitiveness with greater returns.

At present, there is no autonomous authority responsible for the development of zones and for providing single window clearances in India. The zone administration functions as a government department office. Ideally, the SEZs should be managed by autonomous authorities, which should be constituted under specific Acts and should be assigned the responsibilities to promote the zones.

In India, SEZs are managed by a single government department. At the zonal level, there is no fine tuning of the division of responsibilities. Ideally, there should be specific departments managing specific issues within SEZs. There should be a general administration department and other departments dedicated to specific issues. For example, there can be an Investor Services department for all the investment processing issues, an Industrial Relations Department handling labour issues, etc.

Conclusion:

Thus it can be concluded that the government needs to enact legislation, create a focused administrative infrastructure to govern SEZs, offer highly attractive incentives and locate zones in the best possible locations. Still India is in its initial stages in this case, lot of work has to come towards SEZs. Government should encourage various sources to bring out best possible out comes in this matter. Government should have enough care in selecting locations; priority should be given to the states which are still backward. Overall investment climate (infrastructure, governance) in a country matters in the success of its SEZs in terms of competitiveness. Generally, it is argued that the SEZ concept is attractive because it is much easier to resolve the problems of infrastructure and governance on a limited geographical area than it is to resolve them countrywide. The zones cannot be insulated from the broader institutional and economic context of the country and be treated as an economy within the economy. Zones are a part of the economy and require overall improvement in the investment climate to ensure success in the long run. They should not, therefore, be viewed as an alternative to the overall development model. References: ―The great Indian SEZ rush‖ – by T.N.C. Rajagopalan, Business Standard news paper September 25, 2006. ―SEZ (Special Economic Zone)‖ – An Overview, Challengers, and Future by Neeraj Mishra – neerajmishra.wordspace.com, July 6, 2008. ―Special Economic Zones in India: A peep into the Policy Frame Work‖—Paper submitted by Prof. C.G. Ghanesh, University of Kerela, National Seminar on SEZ: Opptunities and Challenges, on 24th and 25th October, 2008, LB College, Warangal, AP ―Special Economic Zones- Engines for Growth‖ - Paper of Confederation of Indian Industry. ―Whey everyone is interested in SEZ‖ – by Subir Gokarn, published in Business Standard news paper March 27, 2006. www.sezindia.nic.in.

http://www.sezindia.nic.in/

Board Composition and Value: The Case of Quality Excellence Charitou, A.

Aston Business School Aston University

Georgiou, I., Department of Public and Business Administration University of Cyprus

Soteriou, A.

Department of Public and Business Administration University of Cyprus

Abstract We empirically investigate the relationship between board composition and quality excellence. Since the composition of the board is a reflection of the firm’s strategy, and strategy plays a pivotal role in attaining quality excellence, we propose and test the relationship between board composition and the likelihood of attaining quality excellence. We focus on board composition with respect to directors’ expertise. Specifically, we examine the role of i) inside directors, ii) directors who are experts at the main object of business operations, and iii) directors with management expertise. We use a conditional logistic regression model to assess the relationship. As a proxy for quality excellence we use the winning of a Malcolm Baldrige Quality Award (MBQA) or a local award explicitly based on the MBQA criteria. Our dataset consists of a unique, hand-collected sample of 63 first time award winners during the time period 1996-2006 and a matching sample of 63 firms that never won a quality award. Empirical results show that the number of non-executive directors with expertise at the main object of business operations of the firm is positively related to the likelihood of being awarded. This study contributes to the literature by shedding light on the corporate governance of firms that take the leap to go beyond survival and pursue excellence; furthermore, it highlights the strategic role of the board by demonstrating that board composition and quality excellence are related through this role.

Manipulation of Security Prices and its Impact on the Market Yu Chuan Huang

Yao Jen Cheng Department of Risk Management and Insurance

National Kaohsiung First University of Science and Technology

Keywords: stock manipulation; market quality; price impacts; market efficiency Abstract This study examines the manipulation of stock prices in the Taiwan Stock Exchange Corporation (TSEC). Using a new hand-collected data set, we examine the characteristics and patterns of the manipulated stocks and their impacts on market prices, volatility, and efficiency. Our results show that manipulated firms tend to be small. Most of the manipulation cases involved a “pump and dump” trading strategy. The manipulation operations have led to high temporary price impacts, increased volatility, larger trading activities, short-term price continuation and long-term price reversal during the manipulation period. They therefore have important impacts on market efficiency.

Role of Rate of Return, Inflation & Deposits on Loan Supply: An Empirical Study of Banking Sector in Pakistan

Mian Sajid Nazir, Imran Haider Naqvi and Muhammad Musarrat Nawaz

COMSATS Lahor, Pakistan

Keywords: Weighted average rate of return, advances, deposits, inflation, consumer price index, Pakistan, banking system. Abstract: In Pakistan, banks are experiencing a significant increase in supply of loans. Trend of financing through banks is increasing from with the passage of time. The purpose of this research paper is to investigate the major factors which have determining role in the supply of loans in local market of Pakistan. Statistical techniques have been used to relate the supply of loans with deposits, weighted average rate of returns on loans, and rate inflation. The data used was collected from various published reports of State Bank of Pakistan, Federal Bureau of Statistics, and Economic Survey of Pakistan on monthly basis for the period of 1991 to 2009. The results reported that the supply of loan is positively related with the inflation and negatively associated with the weighted average rate of return on loans sanctioned by banks. Moreover, the amount of deposits is found positively predicting the loan supply by the banking sector of Pakistan. 1. Introduction The significance of financial sector in the economic growth can not be denied and banking sector, in the capacity of intermediation between borrower and lender, facilitates the economic activities as a part of financial sector (Nazir et al. 2010). Evaluating the financial conditions and performance of banks has been a considerable issue in the recent years, particularly in developing countries. This phenomenon is attributed to the crucial role of commercial banks in the economy, which is a result of the generally acceptable fact that commercial banks are dominant financial institutions and represents prime source of financial intermediation in these countries (Hussain, 2005). The assessment of banking sector is important to depositors, owners, potential investors and, of course, for the policy makers as banks is the effective executers of monetary policy of the government. In Pakistan two different banking systems are operating simultaneously. First, the conventional banking system that is based on interest and in practice from many years, and other one is, the Islamic banking system which is considered to be the substitute of the conventional banking system now a days. Pakistan started Islamic banking in 1980‘s by changing the banking company ordinance 1962 and associated laws or regulation to accommodate the non-interest base transactions. Islamic banking is considered to be the fastest growing segment of the credit market in muslin countries that have Islamic banks. In Pakistan, Islamic banks are less in numbers and their operations are not parallel to the conventional banking system operating in the same market. The bank lending is considered to be the main function of every bank which is dependant upon the rate of return it charges for the borrowers. Commercial banking system, also known as conventional banking system, merely depends upon the interest means predetermined and guaranteed rate of return, where as the Islamic banking system is based on the profit-loss sharing. Because rate of return in Islamic banking is not fixed, suppliers of funds become investors instead of creditors. The provider of financial capital and the entrepreneur share business risks in return for shares of the profits. In commercial banking system, the rate of interest is set through money market operations in which government financial instruments

when sells increase the money supply increasingly forcing the conventional bank to lower its interest rate. On the other side buying the government financial securities contracts the money supply hence increase the rate of return. Low rate of return has an effect on the economy as a whole. Whereas in Islamic banking system, monetary policy can be implemented through an open market operation using traded equities in private firms instead of with government bonds. Many researchers call for the low interest rate because that tends to lending in large and large amounts. Many researchers call for the low interest rate because that tends to lending in large and large amounts. As the Islamic bank system is in competition with the conventional banking system so they are eager to give their investment holders a return that is comparable to the prevailing interest rate (Roy, 1991). The returns of creditors in Islamic banking is tied up with the business or project .The greater the profit that is earn in the business or project greater would be the return to the creditors. Their lending activities can be affected by many other factors including rate of return, total deposits, and inflation. In this paper our primarily focus is on the rate of return effect on loan supply in both banking systems. The volume of literature work has been done on the effect of rate of return on the loan supply. In this section we are intended to review some of the leading research studies to see what previous studies say about the effect of rate of return on loan supply. The amount of bank lending declines with inflation (Boyd and Champ 2006). Inflation, or even the mere uncertainty caused by expectations of inflation, has a strongly adverse impact on long-term lending. Movements in open market interest rates are fully and quickly transmitted to commercial loan customers (Slovin and Sushka, 1983). The importance of the bank health variable suggests that a credit channel working through something other than interest rate differentials, or the level of the federal funds rate (Peek et al., 2003). As demand for a restricted supply of loans increased, the interest rates for loans would also increase, acting to restrict demand for loans, and the eventual impact of the bubble (Jacky, 2009). Loan commitment size was found to be positively correlated with the risk premium or interest markup, the commitment fee, the length of the contract, the existence of a collateral requirement, higher firm current rations (indicative of a better credit rating), and firm size by Melnik and Plaut (1986) whereas decline in deposit supply reduced loan supply (Staharn and Loutskina, 2008). Credit losses lead to a stronger reduction in credit supply when monetary policy is tight than when it is loose (Nier and Zicchino, 2006). Banks receive direct instructions about the volume of their lending operations; enabling monetary authorities to manage without the discount rate (Khan and Mirakhor, 1990). The evidence presented contradicts the notion that indexing loan rates to the prime rate results in an increase in the relative cost of borrowing for nonprime borrowers (James, 1982). Central bank can slow the real activity by raising bank funding cost and there by constrain the supply of credit. A lower rate of return usually means larger amounts of loans, which drips down to the customer and vice versa (Alfredo, 2001). This paper is concerned with the analysis of the effect of rate of return on the supply of loans in banking systems with respect to Pakistan. In addition to this, we also analyzed the effect of inflation and deposits on advances. In developing countries like Pakistan, Inflation is hardly controlled. This unchecked inflation affects the savings of people adversely, resulting in the fluctuated interest rate and deposits in banks. On the other hand, state bank utilizes the tool of interest rate to control the inflation. And this interest rate also affects the deposits and advances in banks. So, all these variables are interrelated and this study incorporates the effect of these variables in order to find out their impact on the level of loans/advances in Pakistan for a period of 1991-2009 on monthly basis.

2. Research Methodology

The objective of this research paper is to investigate the effect of rate of return, deposits and inflation on the loan supply in Pakistani banking sector. Our concern is that if there is any impact of ROR, inflation and deposits on Advances in Pakistani financial sector. If there is any relation of ROR, CPI and deposits with advances, then what is the nature of the relation? Which variables are significant in impacting the loan supply in Pakistan? In order to look into this relationship, we have used regression analysis. For this purpose loan supply is regressed against the weighted average rate of return on advances, consumer price index and deposits for the study period of 1991-2009. 2.1 Research design:

This research study has been designed in such a way that it helps us to analyze the trend of loan supply in Pakistan along with its factors like deposits, interest rate and inflation. We took weighted average rate of return on advances as interest rate which is showing by rate of return in model. For inflation, we considered the weighted average consumer price index. In present study, we have included all the scheduled banks in Pakistan on our sample. In Pakistan, a total of 6 full-fledge Islamic banks and 23 commercial banks are currently operating. In order to make this research more reliable, we use the secondary sources for collection of relevant data and required information. Since the study is based on financial and economic data, the main source of data was reports of State Bank of Pakistan. The secondary data is collected from annual reports of State Bank of Pakistan and data base of Federal Bureau of Statistics. The amount of Advances, Deposit and Weighted Average Rate of Return was taken from Quarterly Statistical Bulletin (Statistic and data warehouse Department, State bank of Pakistan), whereas statistics of Inflation was taken from Federal Board of Statistics. The period of study is spread over eighteen years starting from 1991 to 2009 for the banking sector of Pakistan. In order to comprehend our results, monthly data was used and we got 216 monthly observations for 23 commercial banks operating in Pakistan. 2.2 The Model of Study Following Makiyan (2003), it is expected that supply of loan has a positive relationship with Inflation and Deposits in banks, and no relationship with Rate of Return. This means, supply of loan increases with the increase of inflation and deposits, on the other hand, there is no impact either rate of return increases or decreases. We used following variables to investigate the relationship between supply of loans and its determinates;

Loans = INFRORDep 321 ………………. (1)

Where: Loans = Monthly supply of loans by the banks in Pakistan during 1991-2009 DEP = Deposits in banks in Pakistan during 1991-2009 ROR = Weighted Average rate of Return on Advances for 1991-2009 INF = Inflation which is Consumer price index during 1991-2009

and are the constant and residuals, respectively

3. Results and Discussion The statistics of data collected has been described in figure 1, 2, and 3. In1991, interest rate is 10.73% and the amount of advances is Rs. 2409301 million. In 1992 there is minor increase in interest rate i.e. 10.73% to 10.94% and there is also increase in advances. In 1993, interest rate and advances both increased side by side. But in next year, trend is totally opposite. In 1994, interest rate decreased from 13.01% to 12.86%, but there is still increasing trend in amount of advances regardless the decrease in interest rate. From year 1995 to 1999, interest rate and advances, both

showed increasing trend. In 2000 thousands, interest rate decreased significantly, but it did not affect the historic increasing trend of advances. They showed the consistent increasing trend from 1991. Similarly in 2004, interest rate was as low as 7.4%, but advances amount was higher than previous years. So, theoretical analysis is showing that there is no effect of interest rate on loan supply.

Figure 1 (Relationship of Advances and ROR of Commercial Banks)

Figure 2 (Relationship of advances with Inflation (1991-2009)

Figure 2 is showing that inflation and advances are positively correlated, that means both showing similar behavior. From 1991 in Pakistan, Inflation always increased. Inflation of one year is always greater than the inflation of the previous year. Same is the case with the deposits. Degree of increase may be less than that of previous year, but there is never decrease in inflation and deposits from the base year. From 1991 to 2001, the rise in inflation and advances is steady. It is also straight line after that. But from 2002, at the CPI of 106.54, there is more rise in advances than before and this rise is consistent afterwards. Relationship of deposits and advances is quite logical. Liabilities and assets are always equal. Banks can do lending up to the extent of holding deposits. So if the deposits increase with time, loan supply also increases or vice versa as shown in figure 3

.

Figure 3 (Relationship of Advances and Deposits (1991 - 2009)

We run the regression analysis to compute the effect of deposits, advances and interest rate. The results reported in Table 1 are showing that deposits are affecting the level of advances in Pakistan, however; this relationship is not as much significant as it should be. This means this supply of advances has a positive relationship with the deposits for the same period. On the other hand weighted average rate of return on advances and inflation are highly significant in Pakistani loan market. This is quite logical. As inflation rate rises, purchasing power parity decreases and people have less money to consume. To meet their expenditures, they borrow more from banks. So, it is due to rise in inflation, demand for loan increases. In order to meet the increasing demand of credit, banks have to raise their supply of loans.

Table 1: Analysis of Loan Supply and its determinants

Dependent Variable: ADV Method: Least Squares Included observations: 216

Variable Coefficien

t Std. Error t-Statistic Prob. DEP 0.020823 0.013354 1.559301 0.1204

INF 18037.09 480.1407 37.56627 0.0000 ROR -67813.47 2952.509 -22.96808 0.0000

R-squared 0.925856 Mean dependent var. 965579.4

Adjusted R-squared 0.925160 S.D. dependent var. 734294.2

So, it may be predicted from the results that there is positive correlation between consumer price index and supply of loans. On the other hand, there is negative correlation between ROR and advances. ROR is impacting negatively on supply of loan. This means that supply of loan rises with the decrease of ROR or vice versa. This is also logical. When Rate of return is low, people lend more from banks. They try to finance their most expenditures from bank because they find it cheap financing and affordable. On the other hand if interest rate rises, people don‘t get finances from banks because they have to return many more at higher interest rate. In order to further investigate the impact of ROR, CPI and deposits on advances we took the Lag of deposits and found following results reported in Table 2. Now deposits become significant after taking log. This means that the deposits of previous month are impacting the loan supply of current month. Banks use the previous month‘s deposits to give loans in next months. For instance, to give loan in month February, deposits of January are used. Moreover, there is

positive correlation of supply of loans with previous month‘s deposits. This means that supply of loans increase if last month deposit increases.

Table 2 : Analysis of Supply of Loans (with first difference of DEP)

Dependent Variable: ADV Method: Least Squares Sample (adjusted): 1991M02 2009M12 Included observations: 215 after adjustments

Variable Coefficient Std. Error t-Statistic Prob. DEP(-1) 0.022683 0.013343 1.699957 0.0906

INF 18006.44 477.4575 37.71319 0.0000 ROR -67807.14 2955.596 -22.94195 0.0000

R-squared 0.925756 Mean dependent var 969155.2

Adjusted R-squared 0.925056 S.D. dependent var 734120.3

4. Conclusion The study is indicating that the supply of loan is largely affected with Pakistan‘s financial and economic condition. Government policies, through monitoring interest rate and inflation play a vital role in the supply of loan. So open market operations, monitory and fiscal policies are the responsible for the impacts on demand and supply of advances through banks. From the results it many concluded that, keeping all other variables constant, the supply of loan of particular month is positively related with the inflation (CPI) in that month and negatively related with the weighted average rate of return on advances. Moreover supply of loan of particular month is positively related with the deposits of last month. As the inflation rate rises in the country, people are more likely to get advances from the bank to maintain their purchasing power and meet their expenses. So inflation and supply of advances are positively correlated in given economic scenario. However, in the case of interest rate, trend is reverse. At higher interest rate, people find it difficult to return the loan. So they are least interested in getting loans from banks. So supply of loan decreases with the increase in the interest rate. In case of deposits, trend is quite different from CPI and ROR. Advances are positively correlated with the deposits of previous period. There is no significant impact of deposits of particular period, on the advances of same period. So banks use previous month deposits to give advances in the current month. This conclusion is valid for both Islamic banks and commercial banks, because in Pakistan, both systems are prevailing. Although interest is not involved in Islamic banking system, but these banks do benchmark prevailing rate of return in their major modes of financing like Modarabah, Morabah and Ijarah etc. So determinants of our study (Deposits, ROR and CPI) may have the same impact on Islamic banking system too. There are some limitations to this study as well. The study focuses on the simple regression analysis techniques with quite few variables. In future, this limitation may be removed by selecting a more advanced analysis techniques of statistics as well as may include more variables in order to have a more rigorous analysis of supply of loans on the level of advances in Pakistan. Moreover, future research may focus on comparing the effect of current model for both Islamic and commercial banks operating in Pakistan which could further enhance our understanding of the objective under study.

References Alfredo SF (2001). Capital accumulation and the composition of capital. Research in Pol. Eco. 19(1): 69-85. Boyd JH, Champ C (2006). Inflation, banking, and economic growth. Working paper, Federal Reserve Bank of Cleveland, USA. Husain I (2005). Banking sector reforms in Pakistan. Reproduced from Blue Chip – The Bus. People‘s Mag., January. Jacky M (2009). The Infinite loan machine: An examination of the effect of loan securitization on the fractional reserve banking system. Presented in the annual meeting of American Finance Association. James C (1982). An analysis of bank loan rate indexation. J. of Fin. 37(3): 809-825. Khan MS, Mirakhor A (1990). Islamic banking: Experiences in the Islamic Republic of Iran and Pakistan.

Eco. Development & Cul. Change. 38(2): 353-76. Makiyan SN (2003). Role of rate of return on loans in Islamic banking system of Iran. Managerial Fin. 29(1): 62-69. Melnik A, Plaut S (1986). Loan commitment contracts: Terms of lending, and credit allocation. J. of Fin. 41(2): 425-435. Myron BS, Sushka ME (1983). A model of the commercial loan rate. J. of Fin. 38(4): 1583-1596. Nazir MS, Nawaz MM, Gilani UJ (2010). Relationship between Economic Growth and Stock Market Development. Afr. J. of Bus. Manage. 4(16): 3473-3479. Nier E, Zicchino L (2006). Bank weakness, loan supply and monetary policy. Working paper series, Bank of England. Peek J, Rosengren ES, Tootell GMB (2003). Identifying the macroeconomic effect of loan supply shocks. J. of Money and Banking. 35(3): 931-946 Roy DA (1991). Islamic Banking. Middle Eastern Studies. 27(2): 427-456.

Strahan P, Loutskina E (2008). Securitization and the declining impact of bank financial condition on loan supply: Evidence from mortgage acceptance rates. Paper presented at the Financial Cycles,‘ Liquidity, and Securitization Conference Hosted by the IMF Washington, DC, USA.

Strategies and Performance of New Mexican Emerging Multinational Enterprises

José G. Vargas-Hernández, Centro Universitario de Ciencias Económico Administrativas U de G, Mexico

Keywords: Mexican emerging multinational enterprises, performance, strategies. Abstract This paper is aimed to analyze the rise of New Mexican emerging multinational enterprises (MexEMNEs) into the global market. There is a growing interest in the study of these emerging multinationals among scholars. Several theoretical perspectives are reviewed which can give an explanation of the emergence of Mexican multinationals and support their expansion in overseas markets. Then, it is analyzed the strategies these multinationals implement and their performance and in doing so, several profiles of MexEMNEs are described and examined. It is intended to set up scenarios for future development. Finally, it is concluded that the survivor Mexican firms of this process of “creative destruction” have transformed into capable and innovative MNEs in order to look and move ahead and take advantage of the challenging new opportunities

The Impact of Corporate Financial Structure on Operating and Market Performance - An Empirical Study of Chinese Public Firms

Dr. Mohsin Habib University of Massachusetts

Dr. Raymond Liu University of Massachusetts

Abstract China’s economy has gone through a major transformation for the last 30 years. Its total GDP has bypassed Japan and becomes the second largest in the world. Central to the economic success is the market reforms and corporatizations of enterprises in China. Many researchers have paid a close attention to the relationships between the firm success and its driving factors. Some of the studies focus on corporate performance and corporate governance (Kato and Long, 2006; Buck et al, 2008). Often times, they study the impact of corporate performance on corporate governance. For instance, some researchers find that corporate performance affects CEO compensation and even determine the top management turnover. However, very few people study the impact of corporate governance on the firm’s actual operating performance. Today, a lot of Chinese firms are listed on the stock exchanges of Shanghai and Shenzhen or even overseas. One of the key questions is what the role of corporate financial structure is in the success of Chinese firms. What is the impact of ownership (i.e., private, institutional, and state ownership) on firm performance? More specifically, do founders’ shares and state shares affect firm performance? For historical reasons, the state’s share is a unique phenomenon in China, which is one of the major part of the total shares of the listed Chinese companies (in our study, it is greater than 22%). Furthermore, how do both corporate governance and financial structure affect firm’s overall market and social output – the corporate reputation? The purpose of our study is to investigate the effect of corporate governance and financial structure on firm operating performance and market/social performance for the Chinese firms. For the measure of corporate governance, we focus on the reward of the top management, which is measured by Reward of the Top Three Executives and Reward of the Top Three Directors. The operating performance is measured by Total Income from Operations, Income from Operations, Operating Profit, and Profit before Taxation. To measure market/social performance, we focus on the corporate reputation, which is measured by Goodwill. Finally, for the measure of corporate financial structure, we focus on stock ownership and firm’s non-stock assets. Stock ownership is measured by Founders Shares, Institutional Investors Holding, and State Shares; Non-stock assets are measured by Intangible Assets. Based on the literature of firm performance and the observed unique situation of Chinese firms in China, we propose that operating performance is affected by corporate governance and financial structure. To confirm our hypothesis, the following model is developed: Operating Performance = a + b*(Management Rewards) + c*(Founders Shares) + d*(Institutional Investors Holding) + e*(State Shares) + f*(Intangible Assets) Where: a, b, c, d, e, and f are the regression coefficients. Furthermore, we believe that institutional investors would affect the firm’s reputation through 1) their efforts to promote the firm as the share holders (such as news release and other public relations tools); and 2) consumers’ trust in the firm by believing that the more institutions invest in the firm, the better the firm’s future. The state has an impact on the firm’s performance by its support through financial resources and government policies. However, its support is not publicized and the support is not just for a particular firm, it is for all the firms it has shares in. Therefore, its impact on firm’s market/social performance (corporate reputation) is indirect, not direct. We propose that both firms’s operating

performance and the institutional investment in the firm will have an impact on firm’s reputation. Therefore, we have the following model: Goodwill = g + h*(Operating Performance) + i*(Institutional Investors Holding) Where: g, h, and i are the regression coefficients. To test our models, financial data from RESSET/DB are used. RESSET company is located in Beijing, China. It provides various corporate financial and governance data for listed firms in China. Besides Operating Performance and Management Rewards, the other variables in the proposed models are single index from the RESSET/DB database. Our Operating Performance is composed of four variables from the database: Total Income from Operations, Income from Operations, Operating Profit, and Profit before Taxation. The reliability of the construct from the four variables is measured by Cronbach’s Alpha (α = 0.801). Management Rewards is composed of two variables: Reward of the Top Three Executives and Reward of the Top Three Directors. The reliability of Management Rewards is even higher (α = 0.954). All the coefficients for the independent variables in our analysis are highly significant. Our models and hypotheses are confirmed. Very few research study the business impact and market/social impact of corporate governance and financial structure at the same time. The findings from this research contribute to the literature in cross-disciplinary areas: management, marketing, finance, and accounting, etc. Especially, the findings from the most recent data of Chinese firms add more values. For instance, for the last ten years, the rewards for both executives and directors of Chinese firms have increased dramatically and are no longer a small amount as the literature suggested (Firth et al, 2006). Our research indicates that the management rewards in Chinese firms not only are not small any more, but also have significant impact on the firm’s performance. Furthermore, this study finds that both institutional investors and the state play an important role for Chinese firms, especially the direct impact of institutional investment on firm’s market/social performance. Further research might look at the differences in different industries and cross-country comparisons.

An Empirical Study on Design Strategy of Beauty Spa Industry from Perspective of Experiential Marketing

Jui-Che, Tu National Yunlin University of Science and Technology, Yunlin, Taiwan, ROC

Shu-Ping Chiu National Yunlin University of Science and Technology, Yunlin, Taiwan, ROC

Wei-Cheng Chu

Shu-Te University of Science and Technology, Taiwan, ROC

Keywords Five senses design, experiential marketing, beauty SPA, design strategy Abstract Peter F. Drucker, gurus of management, believes that the only one purpose of effective marketing is to create valuable customer experience, through which customers will be loyal to enterprise. Marketing mode emphasizing sensory experience has been a popular research topic. Schmitt (1999) classifies experiences into five kinds-senses, emotions, thoughts, actions and relationships, and sense experience stands first. Beauty SPA is one of the experiential marketing industries with sensory appeals as the most representative. Aiming at a case research on beauty SPA industry, this study conducts expert interviews at the first stage so as to summarize five senses design strategy of beauty SPA house and provide designers design blueprint. At the second stage of empirical research, questionnaire survey is used to analyze clients’ consumptions after the design of SPA house is finished.

73.1％ of the 104 questionnaire testees have received beauty treatment before, which means that people

with past cosmetology experience are highly willing to consume again. Practioners are suggested to develop more experiential curriculum, thus to enhance client’s loyalty. Average score of satisfaction with spatial arrangement and devices is 4.39. Focusing on five senses design and adopting operator, designer and customer’s collective participation can increase consumers’ satisfaction and achieve three parties’ approval. In this way, design will be more accurate and more in accordance with the essence of experiential marketing design strategy.

Introduction Consumption experience refers to perception of consuming formed through consumers‘ participation in marketing stimuli, and wonderful experience means positive perception of consumption experience. Logically, consumers‘ benefits should have a positive connection with their experience level (Pine II and Gilmore, 1998). Marketing aesthetics is a kind of marketing that makes an enterprise or brand can bring people positive sensory experience, which will contribute to the identity of this enterprise or brand (Schmitt30& Simonson, 1997). Literature theories show that this marketing model of sensory experience can promote interactions between organizations and customers as well as cultivate loyal clients. How to make customers have positive sense experience is a learning issue for enterprises. Sense is not confined to five senses experience. Pine II & Gilmore (1998) believe experience is personal and it only exists when customers realize perceptual, substantial, intellectual and mental participation. During consumption, consumer‘s excitement, interest, being induced, happiness, satisfaction, pleasure, peace, anger, sadness, relaxation, etc are all emotional benefits. Schmitt (1999) regards experience as individual event in reply to stimulation of marketing efforts made before and after purchase. Therefore, questionnaire investigation of this study is

implemented among consumers after they have experience, so as to know their sensory experiences as well as the ambience, soft equipment and hard devices of SPA house by virtue of consumers‘ personal experiences. Then, this study evaluates if the design strategy of the beauty SPA house is appropriate so as to enhance professional level of this SPA house. Research purposes 1) Utilize literature theories to discuss sense design of beauty SPA industry and the trend of experiential marketing. 2) Analyze the design strategy of SPA house through case study. 3) Analyze similarities and differences of enterprise and consumer‘s perceptions

from perspective of design strategy of this case. 4) Propose advantages and shortcomings of the design strategy in this case and

suggest strategies for improvement. 5) The marketing mode in this case can provide reference for relevant industries

to stipulate design strategy. Research subjects and scope This study conducts a case research on a ―Spa Center for Beauty and Pressure Relief‖, which is attached to one university. Business mode of this SPA center is university-industry collaboration. All beauticians are students from Fashion Design Department of this school. The company is responsible for interview and six-month training, course content of which are schemed by professionals and teachers from styling & cosmetology section of fashion design department. The overall SPA center is planned and designed by professionals and designers. Questionnaire investigation is implemented among consumers after opening ceremony of the store, thus to find out if consumers identify with the design strategy of this SPA center. Research results can provide reference for related industries‘ design strategy. Literature review Origin and definition of SPA SPA, firstly appeared in 1610, is an abbreviation of Latin phrase ―Solus Por Aqua‖. In Latin, Solus, Por and Aqua refer to health, through and water respectively; therefore, SPA means

―health through water‖（Pei-Ying Lin, 2001; Yu-Jen Liu,2000; Ching-Wen Hsieh, 2000）, that‘s

to say, the purpose of health can be realized through utilizing characteristics, temperatures and impact forces of hot spring, water pressure, seawater, etc to promote body circulation and metabolism. There‘s another story about origin of SPA. According to modern etymology, the origin of SPA can be traced back from the middle of fifteenth century. At that time, residents of

Spau town, which is located amid Ardennes forest of Liege, Belgium （Altman,2000）and rich

in beautiful forests and abundant hot mineral springs, often treated various diseases and pains through hot spring baths. Therefore, hot springs there were famous as ―water for therapy‖ in Europe. After years, place name of SPA has become name of hot spring. Britannica Concise Encyclopedia defines SPA as watering place, i.e. a hot spring or tourist attraction where hot water or mineral water for drinking or bathing is available. The mineral spring is said to have therapeutic effect. Merriam Webster Collegiate Dictionary indicates SPA has diversified meanings. When used as noun, SPA refers to mineral spring, a resort with mineral springs, a fashionable resort or hotel, health spa, a commercial establishment providing facilities devoted to health and fitness, etc.

Chun-Ting Chen (2001) and Yan-Jiun Chen (2003）believe that SPA means ―utilizing various

methods such as hydrotherapy, aroma therapy and message to relax the body and spirit through people‘s five senses, thus to achieve curative effects including beauty, health, decompression,

etc. The most broad-sense definition of SPA is every combination beneficial for body, mentality and spirit. After the introduction of SPA to Taiwan, aromatherapy stimulates the trend of SPA therapy firstly. Then, multiple SPA types and leisure industry management modes are formed through commercial repackaging, deconstruction and reorganization. Definitions of SPA written in English dictionaries are reinterpreted. Definitions of sense and experience With regard to research on sense, Linstorm (2005) simultaneously studies all five senses and mainly investigates positive effects of five senses (vision, smell, hearing, taste, touch) on leading brand, wonderful experience and distinct features. Customers have sense and sensibility, so marketing elements have to meet their emotional and rational demands at the same time. Customers are often driven by emotion when making rational choice, so they desire for entertainment, stimulation, emotional attack and creative challenges (Chien-Ying Weng , 2009). According to Schmitt (1999), experience refers to consumer‘s response to some stimulus (e.g. marketing efforts before and after purchase). Schmitt (2005) also believes that customer experience is interaction between organization and customer; it is substantial performance of organization evoked by sensory stimulation and integrated emotion. Well-known McCann-Erickson World Group, which echoes above definitions, is of the opinion that an experience should include overall life as well as can be integrated into product and used for strengthening service or creating existence of entity. Holbrook & Hirschman (1982) see consumption experience as an aggregation of imagination, emotion and entertainment. Krishnan (1996) believes brand experience can be divided into direct experience (e.g. trial or use) and indirect experience (advertisement, public praise). Definition of design strategy

Table 1 Summary of experts and scholars‘ definitions of design strategy

Mozota(1990) Designers assign the resources obtained through management, so as to achieve visualization of company positioning.

Kasten(1996) Action plan for gaining competitive advantage by virtue of product design. This strategy is used by design groups.

Olson et.al.(1998)

Effectively allocate and coordinate design resources and actions for the purpose of realizing goals of the company (i.e. creating appropriate public and internal identity, product supply and usage environment)

Wen-Yin Chen(1996)

Design strategy, a guideline for company designers to create novel product conceptions, benefits product design, product series, service, communication, as well as response to future trend of market, technology, development, application, etc.

Ming-Chyuan Ho

(1997)

Make analysis of exterior environment (market and industry) and internal organization (atmosphere, resource, framework, procedure, etc), so as to propose a series of clear guidelines for the design of new products during design development and decision making.

Wen-Chih Chang (1998)

Proposals adopted after carefully analyzing and comparing the context of specific products, which is carried out before design.

Shin-Fu Lee (1999)

Design strategy can be viewed as a design theory and approach aiming at company strategy so as to reflect trends of future marketing and technology advances. It also means that the enterprise decides design goals and directions in accordance with market, technology, etc, and evaluates integrated effects of design factors and resources, for the purpose of providing guidelines for company designers and design affairs as well as helping product, communication and environment identify

the standard rules of design.

Data resources: Cheng-Lein Teng, 2001 Research methods This study summarizes and designs questionnaire according to content obtained through expert interview. Experts include chain beauty parlor operators, senior managers of beauty studio, senior cosmetology lecturers, senior technical directors, SPA consumers with over 10 years of beauty experiences and presidents of beauty associates. The questionnaire is designed after generalizing experts‘ professional views of sense experience design, atmosphere construction and organization style of beauty SPA center in this case. SPSS 17.0 is used to analyze the recycled questionnaires, thus to provide the company clear and accurate indicative evaluation. Conclusion To find out customers‘ satisfaction and feelings, this study implements questionnaire survey among consumers of a beauty SPA center that is jointly established by fashion design department of one university and beauty SPA chain. Their precious opinions can provide reference for the improvement direction and design strategy of beauty SPA house, so as to achieve sustainable operation through continuous innovations and efforts. Proximity in averages of statistic data means that different populations‘ views and perceptions of questionnaire items are extremely similar. Statistical results are generalized as follows: 1) Among the total of 104 samples, 20 people are male and 84 are female. The

unmarried (72) accounts for 69.2% of testees. Young students‘ consuming capacity should not be underestimated.

2) The 52 consumers aged 18 to 25 account for 46% of all testees. Number of consumers is inversely proportional to age of consumer, so young people are more willing to accept beauty SPA.

3) Among all of the 104 questionnaire responders, 76 (73.1%) have accepted ebeauty-relevant therapy before. Most testees are not used to doing beauty SPA regularly.

4) 8.1% (50 people) of testees often feel pressured, so stress relief treatment has market potential. People go to accept beauty therapy not entirely for beautifying facial skin but more for relieving stress. Therefore, cosmetology operators should strengthen training on message technique and value the room atmosphere, thus to make the SPA house become a secret base for clients to release pressure and dote on themselves. In this way, consumers will be more loyal to the SPA house.

5) 37 consumers are accustomed to accepting beauty therapy in studio, and account for the highest ratio (35.6%).

6) Regarding the way of knowing this beauty center, 33.7% of testees (i.e. 35 people) are through friend‘s introduction. 102 testees (98.1%) say they will recommend relatives and friends to accept service at this beauty center. Obviously, overall performance of the whole beauty group is highly approved.

7) The beauty therapy item that testee wants to try most is ―body beautification, meridian and pressure relief‖. The percentage of consumers wishing to experience this item is 47.9% (57 people). The next is ―facial care‖. 26.9% (32 people) of testees want to accept this therapy.

8) Average score of satisfaction with spatial arrangement and devices is 4.39, which indicates that consumers are quite satisfied with this item and highly appreciate this SPA center.

References Ming-Chyuan Ho & Hung-wen Hsu, 2000, Investigation into Relationships between Commission Design Studio and Clients from Perspective of Design Communication, The 7th Academic Conference on Design, CID, pp.743-748, National Taiwan University of Science and Technology Po-Ying Chu, Li Chieh Chen, Wei-Sheng Yu, 2010, Extracting the Emotional Index and Developing the Evaluation Method for the Perceived Value of Products, Journal of Design, Vol 15, Issue 1. Chien-Ying Weng, 2009, An Empirical Study on the Relationships among Five Senses, Perceived Consumer Benefits, and Great Experience-an Example of Coffee Consumption, Institute of Business & Management, NCTU. Alice N. H. Chen, 2004, Love SPA-Beauty Bath DIY, Millennium Co.Ltd, Taipei City. Chun-Ting Chen, 2001, International Journal of Hot Spring in Taiwan, Taiwan Hot Spring Culture, Taipei City. Cheng-Lein, Teng, 2001, Design Strategy-Management Tool and Competition Weapon of Product Design, Asia-Pacific, Taipei. Pine II, B. J. and Gilmore J. H., ― Welcome to the Experience Economy‖, Harvard Business Review, 76, pp.97-105, 1998. Schmitt, B.H., Experiential Marketing: How to Get Customers to Sense Feel Think Act Relateto Your Company and Brands , The Free Press, New York, 1999. Schmitt, B.H. Customer Experience Management: A Revolutionary Approach to Connecting 99 with Your Customer, John Wiley & Sons, Inc., 2003. Holbrook, M. B.(2000). The Millennial Consumer in the Texts of Our Times: Experience and Entertainment. Journal of Macromarketing, 20(2), 178-192. Krishnan, H. S., ―Characteristics of Memory Associations: A Consumer-Based Brand Equity Perspective‖, International Journal of Research in Marketing, 13, pp.389-405, 1996. Rober Blaich & Janet Blaich,2003, Product Design and Corporate Strategy, translated by Ming-Ying Yang, Liuho Publishing, Taipei.

Manufacture Owned Brand Vs Private Label Brand: Where Does the Buying Wind Blow?

Isita Lahiri University of Kalyani, Kalyani

Gairik Das IISWBM, Kolkata

Key words: Manufacturer owned brands, Private Label brands, Apparel Retail, and Organised Retail. Abstract Looking at the tempting growth of organized retail in India an increasing number of private label brands are competing to win over local and manufacturer owned brands for a larger share of the retail pie. Aapparel retailers like Shoppers Stop, Westside, Pantaloon, etc could popularize their private labels among bargain-conscious consumers of urban centres appealing with lower price than comparable manufacturers' brands. In India, the market size for private labels is still very small, given the fact that share of organized retail is also very small in the market. According to In Store Consulting, a retail consulting agency, private label brands have low entry barrier, and as the costs of running the stores are going up the local retailers can bank on their own brands for a better margin. The present paper examines the factors influencing customer behavior to buy manufacturer owned brand versus private label brands in the organized retail apparel market in West Bengal. Based on a customer survey with the help of a standardised questionnaire, having been blended open ended and close ended questions, the paper also delves into the effect of demographics, product related attributes and non-product related attributes on customers behaviour to buy manufacturers owned brand and private label brands in the retail apparel market using various statistical tools according to the just and requirement appeared in the study.

Manufacturing and Distribution Strategies, Distribution Channels, and Transaction Costs: The Case of Parallel Imports in Automobiles*

Godfrey Yeung, PhD Department of Geography

National University of Singapore Vincent Mok, PhD

School of Accounting and Finance Hong Kong Polytechnic University

Hong Kong Keywords

Parallel imports, manufacturing and distribution strategies, distribution channels, transaction costs, automobiles Abstract: We apply transaction cost economics to examine the roles of transnational corporations’ (TNCs) manufacturing and marketing strategies and how constraints on official distribution channels, the asset specificity and bounded rational behavior of franchise dealers and parallel traders could contribute to the sustainability of parallel imports in automobiles. TNCs’ manufacturing and distribution strategies partly contribute to the existence of regional differences in the pricing and availability of specific models and specifications of vehicles. These necessary conditions allow opportunistic parallel traders to engage in arbitrage. In addition, the asset specificity of franchise dealers, the bounded rationality, and the opportunism of dealers and arbitrageurs, contribute to the existence and sustainability of parallel imports. Franchise dealers are unable to respond to the market demand as they are “locked-in” with specific manufacturers (due to the non-deployable nature of their assets) and have to implement the official distribution strategies of manufacturers by stocking certain models and specifications of vehicles at pre-determined volumes every year. Instead of letting their capital be tied-up in stocks, rationally bounded and profit-oriented dealers are willing to risk the possible sanctions of manufacturers to offload their surplus stocks to opportunistic parallel traders directly or indirectly. Introduction The parallel distribution of genuine brand name products by unauthorized distributors is a well-known phenomenon in the globalized world. For instance, it is estimated that 38 percent of iPhones designated for the United States (US) and European markets in 2007 were resold in other markets where the phone has yet to be launched officially by Apple (International Herald Tribune, 18 February 2008). Parallel imports exist when an unauthorized distributor procures

genuine brand name products from an authorized distributor and then resells them to customers in a second market without the permission of the owner of their intellectual property rights (copyright, patent, or trademark) for that market. In other words, parallel traders engage in ―parallel importation‖ or ―parallel distribution channels‖ and compete directly with the product‘s authorized distribution channels in the second market (Duhan and Sheffet, 1988:76; Weigand, 1991:53; Yang, Ahmadi, and Monroe, 1998:433).27

* The authors would like to express their gratitude to the anonymous traders and people who facilitated and participated in their surveys. The Hong Kong Polytechnic University financed the authors’ field surveys between 2006 and 2009 (Research Project Reference: GYG24). 27 Some authors, such as Li and Maskus (2006:443) and Maskus (2000:1269), have not made explicit distinctions between parallel imports and gray-market imports. Duhan and Sheffet (1988:76), Michael (1998:26-27), and Weigand (1989:20; 1991:53-55), however, have argued that the ―gray market‖ is a broader term, which includes parallel imports and ―re-imports‖ (products intended for foreign markets

Given that parallel imports in automobiles account for a significant market share at 15-20 percent in the Hong Kong Special Administrative Region (hereinafter called Hong Kong) and Singapore, and 15-17 percent in the US and the United Kingdom (UK), global automobile giants and their franchise dealers are certainly aware of the existence of parallel imports (Bucklin, 1990; The Strait Times, 18 May 2007).28 Why do parallel imports persist when manufacturers have

several tools at their disposal, including the imposition of fines upon recalcitrant dealers, to end this practice? There are limited previous studies on parallel imports in automobiles despite the automobile industry‘s importance in an economy. For an illustration, the automobile industry accounts for 6.2 percent of manufacturing employment (over 850,000 people), and 11 and 13 percent of all manufactured exports and imports, respectively, in the UK (Daily Telegraph, 5 December 2008). In contrast to the existing literature which has largely focused on the regional price differentiation as the necessary condition for parallel imports, this paper aims to investigate the roles of transnational corporations‘ (TNCs) manufacturing and marketing strategies in the parallel imports of passenger vehicles. We also examine how constraints on official distribution channels, the asset specificity and bounded rational behavior of franchise dealers and parallel traders could contribute to the sustainability of parallel imports in automobiles. Passenger vehicles include cars, sport utility vehicles, multi-purpose vehicles, and mini-vans. In addition to the primary and secondary evidence collected in Hong Kong and Singapore, two regions which have the most liberal laws regulating the existence of parallel imports in automobiles, we shall use examples of other major automobile markets in North America and Europe for illustration in this paper. Regional price differentiation is commonly used by economists to explain the existence of parallel imports (Ahmadi and Yang, 2000; Dutta, Bergen and John, 1994; Gallini and Hollis, 1999; Hur and Riyanto, 2006; Malueg and Schwartz, 1994; Maskus, 2000; Maskus and Chen, 2004; Richardson, 2002). Arbitrage can occur when the differences in prices between different markets, including differences due to volume discounts and market ―presence‖ policies implemented by manufacturers and substantial fluctuations in exchange rates, are greater than the transaction costs when engaging in parallel imports of the same product, or when efforts are made to offset supply shortages in regions below the prevailing market price (Cavusgil and Sikora, 1988:75-77). This also explains why most, if not all, literature on parallel imports focuses on homogeneous products such as pharmaceuticals (see Ganslandt and Maskus, 2004; Kanavos and Costa-Font, 2005; Szymanski and Valletti, 2005). This simplistic assumption is certainly not applicable for heterogeneous products like automobiles. To cover the high costs of product development and the setting up of production facilities to cater to local demands, many global automobile giants‘ manufacturing strategy is to assemble vehicles at scale economies and offload them to their franchise dealers. To keep agency

that are diverted back into home markets by unauthorized distributors). The re-importation of genuine products, in which the products may not physically leave the country of production, are gray imports rather than ―true‖ parallel imports, as these imports compete with the products from authorized distribution channels rather than other authorized imports in home markets. See Michael (1998:26-27) and Weigand (1991:53-55) for further explanation of the various distribution channels in a gray market. 28 It has been established that there are approximately 200 parallel importers in Singapore (The Strait Times, 18 May 2007). The market share of parallel imported vehicles in the UK is a rough estimate based on 400,000 ―gray‖ Japanese import cars and 2.3 million new cars registered in the UK in 2006 (Auto Industry News, 30 October 2006a-b).

problems with their franchise dealers in check, manufacturers implement the market-division strategy and the associated penalty system. TNCs‘ manufacturing and distribution strategies partly contribute to the existence of regional differences in the pricing and availability of specific models and specifications of vehicles. These necessary conditions allow opportunistic parallel traders to engage in arbitrage. In addition, the asset specificity of franchise dealers, bounded rationality, and the opportunism of dealers and arbitrageurs all contribute to the existence and sustainability of parallel imports. Franchise dealers are unable to respond to the market demand as they are ―locked-in‖ with specific manufacturers (due to the non-deployable nature of their assets) and have to implement the official distribution strategies of manufacturers by stocking certain models and specifications of vehicles at pre-determined volumes every year. Instead of letting their capital be tied-up in stocks, rationally bounded and profit-oriented dealers are willing to risk the sanctions of manufacturers to offload their surplus stocks to opportunistic parallel traders directly or indirectly. Parallel imports in automobiles involve proprietary information that is well guarded by manufacturers, their franchise dealers, and parallel importers alike. In addition, data on parallel trade are notoriously difficult to come by because trade statistics do not distinguish between authorized and unauthorized intermediaries. In-depth interviews with the players involved in parallel imports could be a reliable way to collect the valuable information necessary to examine this current study‘s research objectives. Through personal networks, we conducted three rounds of field surveys in Hong Kong with franchise dealers and parallel importers in March 2006, December 2008, and January 2009 to ascertain how parallel imports could be sustained, and the potential policy implications of the market-division and other distributing policies on TNCs, franchise dealers, and parallel traders. All 10 interviewees have decade(s) of work experience as parallel importers and franchise dealers in Hong Kong. One of them is the founder of the most established parallel importer in Asia. The interviews were conducted in a semi-structured manner to facilitate conversational flow, with each interview lasting for at least an hour. The paper is organized as follows. In the next section, we review the mechanisms and debates on parallel imports. We then examine how the interaction between the manufacturing and distribution strategies of automobile manufacturers and price factors facilitate the existence of parallel imports. A detailed diagnosis of agency costs and their impacts on the sustainability of unofficial distribution networks in automobiles then follows. The concluding section points out the theoretical and policy implications of the research. Parallel imports: their mechanisms and debates Before we review the theoretical debates on parallel imports, it is essential to have an overview of the relevant regulations of parallel imports. According to the doctrine of national exhaustion, the right (trademark protections) of an intellectual property‘s owner to control distribution ends only upon the first sale within a country; therefore, the owner of such a right is allowed to exclude parallel imports from other countries.29 Countries with national exhaustion are segmented markets, as original manufacturers have complete authority to distribute goods and services directly or indirectly through authorized dealers. This is not the case with international exhaustion, where the right of

29 Three specific theories in trademark laws are used to explain the legality of the gray market. Under the theory of universality (trade identity), a trademark is an indication of a product‘s origin; thus, gray marketing is allowed. Under the theory of exhaustion, a trademark owner surrenders all rights after a product‘s first sale so there is no illegality in gray marketing activities. Under the theory of territoriality, a trademark is effective only in the registered country, so the gray marketing of this trademarked product could be legal in non-registered countries (Clarke III and Owens, 2000:274; Duhan and Sheffet, 1988:78).

the owner of the intellectual property to control distribution is exhausted upon the first sale anywhere; thus, parallel imports are allowed.30 As there is no specific regulation on parallel imports under The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) of the World Trade Organization (WTO), the specific regulation of parallel imports is up to the discretion of each member country (Hoekman and Mavroidis, 2003:15). In the case of regional exhaustion, where the right of the owner of the intellectual property to control distribution ends upon the original sale within a group of countries, such as the European Union (EU) (but not the first sale outside the region; hence, parallel imports outside the region are not allowed), parallel trade in the region is allowed (Maskus 2000; Maskus and Chen, 2004:551). Regional price differentiation and its potential limitations There are two major strands of research on parallel imports. The first strand focuses on the theoretical discussions of parallel imports, such as the works of Barfield and Groombridge (1998), Gallini and Hollis (1999), Hur and Riyanto (2006), Li and Maskus (2006), Malueg and Schwartz (1994), and Maskus (2000), and so on. Game theory-based models, developed by Ahmadi and Yang (2000), Dutta, Bergen, and John (1994), Maskus and Chen (2004), Richardson (2002), and Yang, Ahmadi, and Monroe (1998), are the most important theoretical works on parallel imports. Dutta, Bergen, and John (1994:91) concluded that the optimal enforcement policy for manufacturers is to tolerate some level of parallel imports as this reduces the transaction costs of self-enforcing contracts with distributors. Ahmadi and Yang (2000) further argued that some manufacturers knowingly use parallel imports to increase their global market share in volume.31 Other literature focuses on the impacts of parallel imports upon TNCs and their authorized dealers. The literature highlights a number of negative effects of parallel imports. TNCs‘ authorized dealers could end up competing with parallel traders, which may erode that brand‘s prestige. Moreover, parallel imports may strain the relationship between manufacturers and authorized dealers, partly because of the erosion of market share and profit margins, and partly because of the disruption of marketing strategies (Cavusgil and Sikora, 1988:76; Cespedes, Corey and Rangan, 1988:75-77; Palia and Keown, 1991). Another thread of argument proclaimed that the existence of parallel imports actually facilitates the penetration of the market by manufacturers because parallel imports help improve a brand‘s price competitiveness (Maskulka and Gulas, 1987; Michael, 1998; Weigand, 1989, 1991). Similar arguments are also outlined by Bucklin (1990, 1993). Bucklin (1993:401) argued that parallel imports could increase manufacturers‘ market share and profits so the state should not prohibit the occurrence of parallel imports. The existing literature largely uses regional price differentiation to explain the existence of parallel imports. This prevailing thought assumes homogenous products and geographical variation in the price elasticity of demand, and results in consumer surplus appropriation.

30 There is no trademark infringement if the parallel traded goods are not ―materially different‖ from authentic goods authorized for sale in the country. In May 1988, the US Supreme Court upheld the legality of gray market imports under Section 526 of the Tariff Act of 1930 (after the K-Mart vs. Cartier case). This specific law allows the importation of trademarked products as long as the trademarks are owned by the same entity, or the foreign trademark is applied under the authorization of the US owner (Cavusgil and Sikora, 1988:83-84. See also Clarke III and Owens, 2000:277-278; Duhan and Sheffet, 1988; NERA, 1999; Palia and Keown, 1991:48; Palmeter, 1988). 31 However, the profitability of manufacturers may not increase as profitability depends on the sizes and profit margins of the market segment of parallel imports. Knox and Richardson (2002:137) argued that parallel imports are welfare enhancing for free-trading countries.

Parallel traders can profit from arbitrage when the differences in price between different markets, including differences due to substantial fluctuations in exchange rates, are greater than the costs engaged in the parallel imports of the same product.32 Regional price differentiation could also exist when an authorized distributor sells excessive stock to parallel marketers outside their designated territories to become eligible for a volume-discount pricing scheme or to meet sales quotas that are assigned by the manufacturer (Cavusgil and Sikora, 1988:75-77; Cespedes, Corey and Rangan, 1988:75-77; Maskulka and Gulas, 1987). This also explains why most literature on parallel imports is focused on homogeneous products, especially pharmaceuticals. While the aforementioned literature provides valuable insights into the mechanism of parallel imports in general, it nonetheless failed to explain the existence of parallel imports in heterogeneous products satisfactorily, as the analytical framework of regional price differentiation may not be capable of explaining the impact of factors other than the recommended retail price (RRP) that contribute to the existence of parallel imports. Consumers‘ demand is a function of RRP and non-RRP factors, including the specifications and availability of certain models of products. The behavior of customers is thus monetarized and could be partially reflected in the price elasticity of different regional markets. This is especially the case of automobiles, as car purchasing could be an emotional decision for customers (Sandqvist, 1997). Transaction cost economics and agency costs

Transaction cost economics (North 1990; Williamson 1979, 1989) could yield insights into the causes of parallel imports in automobiles. Transaction cost economics analyzes the contractual issues of a transaction that arise out of the existence of bounded rationality, the opportunism (the opportunistic or self-interested behavior) of agents, and asset specificity, the unique character of a durable asset that may not be redeployed to alternative uses (Williamson 1979, 1989). Fama and Jensen (1983:302) argued that a firm is the nexus of written and unwritten contracts between property rights owners and the factors of production. These contracts specify the rights and obligations, appraisal criteria, and payoff (remuneration) functions of each agent in the organization, either in terms of fixed payoffs or incentive payoffs that are tied to specific performance benchmarks. Agency problems often arise because the preparation and enforcement of contracts involve agency costs, the costs of protection against opportunistic behavior of agents under the conditions of informational asymmetries and incompleteness (Jensen and Meckling, 1976:308-310). The imperfect enforceability of contractual agreements is a natural consequence of the opportunistic behavior of agents and the bounded rationality of decision makers (Williamson, 1989). Apart from involving the enforceability of contractual agreement, the high transaction costs associated with certain economic activities (which could represent as much as 35-40 percent of the costs of activities; see North, 1990) explain the existence of parallel trade, that is, parallel imports will not exist if the enforcement of contracts carries no cost. Agency problems obviously existed in the manufacturer-franchise dealer relationship as their agendas may not be always in harmony. The following sections examine how the interactions

32 Another conventional explanation for parallel imports is based on the free-rider theory. It examines the issue from three perspectives: the availability of trademarked products in markets, the profit incentives attributed to price differences, and the low legal barriers to ship products from one place to another (Duhan and Sheffet, 1988).

between manufacturers‘ manufacturing and distribution strategies, the asset specificity, bounded rationality, and opportunism of authorized dealers and parallel traders contribute to the sustainability of parallel imports. Integrated manufacturing and distribution strategies of global automobile giants This section examines how global automobile giants attempt to integrate official manufacturing and distribution strategies, which could consequently contribute to the existence of parallel imports in their products. Modular system manufacturing and product localization The global automobile industry is facing two major challenges: overcapacity and product localization. The industry has been suffering from an excessive production capacity of 40 percent as car factories are built according to marketing predictions, with a lead in investment decisions of one to two decades. To keep per unit production costs down and to cover the high costs of product development, automobile assemblers are under intense pressure to maximize economies of scale with their existing production lines, and this result in the production of cars close to manufacturing capacities. Manufacturers are desperate to shift as much stock as possible to keep their plants operating as closing them down is politically and economically costly. The mass production in forms of Fordism is intrinsically incompatible with a market where the customers are demanding less than homogeneous vehicles in terms of specifications. [insert Figure 1 about here] To fulfill the market demand for heterogenized vehicles in terms of models and specifications, global automobile giants are increasingly tailoring their products for local markets through the application of modular systems in vehicle-assembling technologies (flexible specialization) (Figure 1). Product localization is illustrated by the case for passenger vehicles assembled for the Japanese Domestic Market (JDM). These JDM models are different from other mass-produced Japanese vehicles in two main aspects. First, JDM models are specially designed for a domestic (niche) market where Japanese automobile giants do not expect a mass market overseas. Typical examples include the first generation of petrol-electric hybrids, such as Toyota Prius and Honda Insight, which were originally designed for the stop-go traffic of Tokyo before being exported to target the trendy North American and European ―green‖ markets. Second, JDM models are used to test consumers‘ responses in the ultra-competitive Japanese markets before their worldwide launches. Thus, they normally have higher specification levels, such as an Engine Control Unit (ECU) mapped for high-octane petrol (98 to 100-octane) commonly available in Japan (but which may not be the case elsewhere), and luxury, state-of-the-art automated gadgets as standard equipment (Field survey, March 2006, December 2008). Manufacturing and ―market-division‖ distribution strategies To recover their substantial investment in product localization, manufacturers normally implement certain forms of distribution strategies in various regional markets. The dealers in franchise networks can price the vehicles (in consultation with manufacturers) according to the local market‘s price elasticity. Dealers, however, normally have to stock certain models and specifications of vehicles determined by manufacturers. For instance, Asian dealers are only allowed to sell vehicles assembled in Asia, and this could lower the investment risks of manufacturers‘ assembled plants in the region. In order to deal with agency problems (especially free-rideable services provided by franchise dealers) and to maintain the distribution system in an orderly manner, automobile manufacturers normally implement the ―market-division‖ marketing strategy by dividing the world into different regional markets, with each market monopolized by the corresponding exclusive franchise dealer (de facto regional monopoly) (see Antia and Frazier, 2001; Bergen,

Heide and Dutta, 1998; Dutta, Bergen and John, 1994). Dealers normally have to sign contracts with manufacturers forbidding them to re-sell their allocated cars in other countries (Field survey, December 2008).33 Manufacturers also use other means of punishment, such as withholding (a part of) bonuses, delaying the delivery of newly launched models, cancelling volume discount pricing, and not supplying certain models (such as right-hand drive models with speedometers in miles/hour), to regulate the market-division strategy (Field survey, December 2008; see also Antia, Bergen and Dutta, 2004; Raff and Schmitt, 2005). This prevents inter-regional competition between different regional monopolies and maximizes the profits of each franchise dealer within its own designated market. In spite of all these restrictions, parallel imports in automobiles account for double-digit market shares in a number of major markets (Antia, Bergen and Dutta, 2004:68; Raff and Schmitt, 2005:2-3). The market-division distribution strategy is fundamentally ineffective because of its intrinsic contradiction with other official manufacturing systems implemented by manufacturers. Volume discount and market ―presence‖ strategies

The official manufacturing strategy of automobile giants implies market maximization for manufacturers as they have to shift as many cars as possible to recover high development costs. The resultant volume discount pricing and regional price discrimination lead to arbitrage and thus the existence of parallel imports in automobiles (Figure 1). To shift as many assembled cars as possible, manufacturers have pre-determined volume discount (per model) agreements with their franchise dealers worldwide; that is, dealers could receive bonuses or special discounts by ordering certain units per model per year. Some volume brand manufacturers also have special volume discount deals with vehicle fleet management companies (including car rental companies serving private individuals and service providers for company cars) partly to maintain their market ―presence‖ (see below). For example, vehicle fleet management companies account for almost half of all new car registrations in the UK (SMMT, 2008). Obviously, a mismatch between the demand and supply in a particular model of car in certain markets could exist. A gray market for a product exists when a franchise dealer sells excessive stock to parallel traders outside their designated territories in order to become eligible for a volume-discount pricing scheme or to meet the sales quotas assigned by the manufacturer (Field survey, December 2008, January 2009; see also Antia, Bergen and Dutta, 2004; Maskulka and Gulas, 1987). In the UK, one major car supermarket was selling the Nissan Patrol 3.0 Di SE automatic (a top specification model) at £19,999, a massive discount of almost 40 percent over the RRP (Telegraph Motoring, 17 February 2007). An oversupply of vehicles due to a ―market presence‖ (a de facto form of market maximization) distribution strategy employed by some manufacturers could contribute to the opportunities of arbitrage by parallel importers. It is not uncommon for manufacturers to deliberately oversupply to certain regional markets in order to keep a presence there. For instance, Mercedes-Benz is known to systematically ship excessive stocks to Barbados so that their

33 The 1980 Interband Competition Act in the US allows American automobile assemblers to grant exclusive franchise rights to dealers in given locations. However, this law may not be enforceable outside of the US as no such law exists elsewhere (The New York Times, 26 January 2000).

―presence‖ in the market is recognized. A number of these unsold cars are subsequently re-exported into the UK. Regional price discrimination Regional price discrimination could be a result of price reduction by manufacturers or differentiated pricing by manufacturers or dealers. For products with short lifecycles or those that require sale economies, sales teams are under constant pressure to sell off excessive stocks to distributors (including parallel traders) before the cost of the product is written off in the company balance sheets. This price reduction by manufacturers and the subsequent fire-sale by parallel importers further erode the price of the product. These may even lead to a vicious cycle in which the accumulation of excessive stocks prompts price discounts by the manufacturers, thus entailing further fire-sales by parallel importers. Regional price discrimination reflects the price elasticity of demand: dealers charge lower prices in price elastic markets and vice versa. The RRPs of automobiles are normally lower in Vancouver, Canada than in the US, and this contributes to the 200,000 parallel imported vehicles into the US (Automobile News, 4 March 2002:12). Parallel imports in automobiles are still common in the EU despite the comparable after-tax RRP. For instance, parallel traders ―export‖ more than 25,000 automobiles a year from Belgium to other European countries even though there is no local automobile assembler (Weigand, 1991; Yang, Ahmadi and Monroe, 1998). Regional differentiation of vehicle availability The spatial differentiation of vehicle availability, especially on newly launched models and different vehicle specifications and models, is the major non-RRP factor that contributes to the parallel imports in automobiles (Figure 1). Despite all the hype surrounding globalization and the power of TNCs, bottlenecks in manufacturing and distribution systems are not uncommon. Parallel imports in automobiles could exist if there is a significant time lag in the launch of certain models or regional quotas in some markets. This market for parallel imported vehicles is highly dynamic as the (strong) demand only lasts for as long as the bottleneck in the distribution channel exists. For instance, customers in Hong Kong could buy the newly launched Toyota models (such as the Alphard and MkIII Previa MPVs) through parallel importers within 10 days after the first launch of such models in Japan, even faster than some dealers in Japan could get their stocks. Once the official dealer in Hong Kong is able to distribute the same model and specification of vehicles, the price premium demanded by parallel importers disappears. Parallel imports are a means for customers to overcome the constraints in distribution networks, specifically, the time lag in the launch of certain models in different markets. Under these circumstances, price inelastic customers are willing to pay a premium to get their coveted vehicles, especially premium brand ones, earlier than the general public. This creates the niche market of specialized parallel traders. Market maximization, profit maximization, and agency costs After examining the roles of integrated manufacturing and distribution strategies on the existence of parallel imports, it is crucial to investigate the importance of agency problems on franchise dealers and parallel importers, and how these issues contribute to the sustainability of parallel imports. Asset specificity of franchise dealers To deal with agency problems, manufacturers control their franchise dealers through certain transaction-specific investments. To qualify as franchise dealers, franchisees have to invest in certain transaction-specific, non-redeployable physical and human assets that are specialized and unique to the task (Figure 1). It is a mechanism that exchange partners use as a private ordering mechanism to reduce opportunism. It is common that an automobile manufacturer

requires a franchisee to invest his or her own money in branding the franchise location to fulfill certain pre-determined standards; for example, the showroom is matched with the brand‘s image, and the workshop is equipped with specialized diagnostic computers. These transaction-specific investments make it costly for the franchisee to offer an alternative brand or to switch to a different brand without significant reinvestment in changing the asset-specific equipment. For example, the newly appointed dealer for Ferrari in Singapore, Ital Auto (Komoco), is expected to invest US$7 million to establish the new franchise (The Strait Times, 19 July 2009:18). In other words, dealers are “locked-in” with specific manufacturers although it is illegal for manufacturers to forbid their dealers in the EU to sell other marquees, according to the EU‘s Block Exemption Regulation that had been implemented since 2002. As mentioned earlier, dealers can only sell specific models and specifications of vehicles in pre-determined quotas assigned by manufacturers when the volume-discount agreements are signed in each financial year. The determination of quotas is largely based on the product lifecycle of the manufacturer‘s plants locally (Field survey, December 2008, January 2009). Under this circumstance, franchise dealers are sure to be less able than parallel traders to respond to the changes in market demand. This is especially the case for vehicles of ―non-mainstream‖ models and specifications. Bounded rationality and opportunism of dealers and traders

The interests of manufacturers and dealers may not always be compatible with one another when they are pursuing their own agenda. Market maximization is the unavoidable consequence of assembling vehicles in scale economies by automobile giants, while profit maximization is the most vital objective of dealers (Figure 1). This interesting manufacturer-dealer relationship could be demonstrated by the reluctance of dealers to invest in their facilities to cater to the market demand for niche models and other pro-active market maximization distribution strategies of manufacturers. After all, franchise dealers earn the majority of their profits through after-sales services (with an average gross profit margin of 63.7 percent in the UK) rather than relying on the wafer-thin gross profit margin of 4.6 percent for selling vehicles (AIGT, 2002:3). The lower the investment on the training of mechanics and stock (including components) keeping, the higher the profit margins of dealers on the provisions of vehicle maintenance and other after-sales services. In addition to the niche models, franchise dealers are reluctant or even refuse to stock the ―bare-bone specification‖ models of vehicles in certain markets due to the asset specificity of providing full dealer support for such models and the bounded rationality of minimizing the capital tied-up in stock keeping. These ―bare-bone specification‖ models are normally entry models and vehicle specifications that may not command a mass market, but look (almost) exactly the same in physical appearance as the higher-end models. These vehicles are targeted for customers who are on relatively tight budgets but prefer to purchase European brands (and their associated prestige) with lower specifications. For instance, the basic 3-series models (318) of BMW are popular in the UK, but their smaller engines would struggle with the hilly roads in Hong Kong. These basic models of BMW are only available from parallel traders as they do not fit into the marketing, pricing (which protracts it as a premium brand), and financing of the franchise dealers in Hong Kong. To maximize their market shares in highly competitive markets, it is not unusual for premium brand manufacturers to pressurize their franchise dealers to implement a number of proactive pricing and marketing strategies. For instance, dealers of BMW in Japan have reduced their RRPs seven times in two years until they are almost the same as those in Germany (Weigand 1989). Some manufacturers, such as Mercedes-Benz, Peugeot, and Renault, have implemented the ―market area‖ distribution strategy by taking over the dealerships in selected major cities in

Europe.34 In addition to compete with their rivals for market share, this strategy could assist manufacturers to have more direct control over the distribution of its products and lower the agency costs in dealing with dealers. To compete for market share with their arch rival BMW in Asia effectively, Mercedes-Benz had even taken back the pricing rights from their franchise dealers in Singapore and Hong Kong and converted their dealerships to exclusive retailers in 2001 and 2004, respectively (see Lee and Lim, 2002 for the case in Singapore). By supplying parts to non-franchised garages directly, some opportunistic franchise dealers not only can maximize their profits but also fulfill the manufacturers‘ market maximization policy. The dealers of two German limousines in Hong Kong actually act as ―unofficial importers‖ of parts for non-franchised workshops, including those operated by parallel traders, and specialized parts suppliers, with a special volume discount for bulk purchases (Field survey, March 2006, December 2008). There are several interesting features in this strategy. First, this is part of a very effective market maximization strategy in conjunction with the reduction of RRP. Potential customers, especially those ―marginal‖ customers who are just about able to afford such luxury limousines, will not be put off by the high maintenance costs of owning such a premium brand of vehicles. Second, by using the unofficial suppliers of genuine parts and a network of non-franchised garages, franchise dealers could minimize operating costs, in the provision of after-sale warranty and post-warranty maintenance services, by keeping a smaller team of mechanics and keeping a significantly less inventory of parts. The cost saving for the two German limousine dealers could be relatively substantial due to high land costs and the shortage of well-trained mechanics in Hong Kong. As there are plenty of service specialists available at other independent garages, dealers could charge higher prices for their maintenance services in order to protect their profit margin and the brand premium without worrying about complaints from disgruntled customers. Third, dealers could earn decent profits by being the ―unofficial importers‖ of the genuine parts for non-franchised garages at minimal marginal costs and high cash flow. The widespread usage of genuine parts by independent specialist garages also lowers the chance of complaints from disgruntled customers who may suffer from embarrassing breakdowns. An example of this would be mechanical breakdowns that are more likely due to poor fitments rather than fitting poor quality pattern parts. This cost-effective market maximization strategy employed by dealers will not ruin the reputation of these two brands as reliable and luxury limousines. Conclusions and Implications Instead of heavily attributing the existence of parallel imports in homogenized products to regional price differentiation as suggested by conventional literature (see Antia et al., 2006; Barfield and Groombridge, 1998; Bergen, Heide and Dutta, 1998; Cavusgil and Sikora, 1988; Hur and Riyanto, 2006; Li and Maskus, 2006; Malueg and Schwartz, 1994; Maskus, 2000), we argue that the official manufacturing and distribution strategies of TNCs in the form of regional market quotas, localized models, and specifications are important non-RRP factors that are monetarized and contribute to the existence of parallel imports in heterogeneous products. In the automobile sector, we have argued that the integrated manufacturing and distribution strategies of manufacturers partly contribute to the existence of regional differences in pricing and the availability of specific models and specifications of vehicles. These necessary conditions

34 Ferrari also took back and internalized its import and distribution rights from authorized dealers in Japan in 2007.

allow opportunistic parallel traders to engage in arbitrage (due to regional differences in RRP and non-RRP). In addition, agency problems such as the asset specificity of franchise dealers, the bounded rationality, and the opportunism of dealers and arbitrageurs all contribute to the existence and sustainability of parallel imports. Franchise dealers are unable to respond to the market demand as they are ―locked-in‖ with specific manufacturers (due to the non-deployable nature of their assets) and have to implement the official distribution strategies of manufacturers by stocking certain models and specifications of vehicles at pre-determined volumes every year. Instead of letting their capital be tied-up in stocks, the recalcitrant profit-oriented dealers with bounded rationality are willing to risk the sanctions from manufacturers to offload their surplus stocks to opportunistic parallel traders directly or indirectly. This is especially the case for those stocks approaching the end of their product lifecycles. Parallel imports compete in price as well as availability in terms of earlier delivery of newly launched models or supply of certain non-mass manufactured specifications/models. This could explain why some parallel imported automobiles could be more expensive than those from authorized channels of distribution. As long as the price premium (determined by price (in)elasticity of vehicles) can offset the transaction costs, parallel imports in automobiles between different regional markets can be sustained. This policy suggestion is consistent with the conjecture that parallel imports may not be incompatible with the market maximization strategy of TNCs. These findings contradict the findings of Cavusgil and Sikora (1988:76), Cespedes, Corey, and Rangan (1988:75-77), and Palia and Keown (1991) but are supported by the theoretical models on parallel imports proposed by Dutta, Bergen, and John (1994), Bucklin (1993), and Ahmadi and Yang (2000). In addition to gathering valuable market intelligence in terms of effectiveness in distribution networks, including the comparative efficiency of each dealer in the network and customers‘ demands at minimal additional marketing costs (Michael, 1998:28-30), manufacturers could also use parallel imports as supplemental channels to explore untapped markets that authorized dealers are unable to or find too costly to access.35 Manufacturers could maximize the global market share at relatively low costs, as there are no agreements between manufacturers and parallel imports traders, and therefore, traders have to use their own resources to develop the market. Parallel imports could induce new customers who are unwilling to buy the manufacturers‘ products through the high-priced channel managed by franchise dealers, to buy the said products. Using parallel imports to penetrate previously untapped markets by TNCs also happens in products other than automobiles. In addition to provide consumers with more choices, authorized dealers catering to service-sensitive customers and parallel traders catering to bargain hunters, the state could benefit from higher amount of sales and profits taxes through higher turnovers in manufacturers and/or dealers/traders. References Ahmadi, R., & Yang, R. 2000. Parallel imports: Challenges from unauthorized distribution channels. Marketing Science, 199(3): 279-294. Antia, K.D., & Frazier, G.L. 2001. The severity of contract enforcement in interfirm channel relationships. Journey of Marketing, 65(4)(October): 67-81. Antia, K.D., Bergen, M., & Dutta, S. 2004. Competing with gray markets. MIT Sloan Management Review,

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Figure 1: Manufacturing and Distribution Strategies, Distribution

Channels, Transaction Costs, and Parallel Imports in Automobiles

Source: Authors

PRICE factors:

RRP for homogeneous products:

regional price differentiation

Non-RRP for heterogeneous

products: specification & model

availability

AGENCY problems:

Asset specificity of dealers

Bounded rationality &

Opportunism of dealers &

parallel traders

UNOFFICIAL distribution

channel via

parallel imports

OFFICIAL manufacturing strategies:

Scale economy

Modular systems & product

localization

OFFICIAL distribution

channel via

authorized dealers

OFFICIAL distribution strategies:

Market-division with franchisees

Integrated manufacturing &

distribution strategies:

Regional price discrimination

Volume discount & market ‘presence’

Manufacturers

Authorized dealers

Parallel traders

Constructing A Research Model in Building Customer Trust to Enhance the Shopping Intention in Mobile Commerce

Chang-Yao Wu National Kaohsiung First University of Science and Technology,Taiwan

Szu-Yuan Sun

National Kaohsiung First University of Science and Technology,Taiwan

Key words: Mobile e-commerce, Trust, TAM, e-commerce Abstract The purpose of this study is to integrate trust-based antecedents and the technological attribute-based antecedents found in TAM to construct a theoretical model for mobile commerce. There are nine constructs, such as: Vendor characteristics, Website characteristics, Technology of wireless services, Technology of mobile devices, Familiarity, Trust, PEOU, PU, and Intention to shop, and fourteen hypotheses in the research model. This study will design a scenario to develop an m-commerce prototyping system for m-commerce shopping. The subjects will be asked to use the system to shop using mobile phone, after that, they continue to answer the questionnaires. SEM statistical technique and factor analysis module in SPSS will be used to validate the reliability and validity of the measurement and validate the research model and hypotheses.

Introduction Wireless and mobile networks have experienced exponential growth in terms of capabilities of mobile devices, middleware development, standards and network implementation, and user acceptance （Varshney & Vetter 2002）. Currently, more than 800 million cell phones and other mobile devices are in use worldwide, and out of those, more than 140 million users are in US alone (www.wow-com.com). The worldwide numbers are projected to rise to 1 billion soon, thereby exceeding the combined total of all computing devices several fold. In addition, countries with a lack of regular telecom infrastructure are likely to adopt wireless and mobile communications to serve both urban and rural areas. According to estimates by Gartner Group, in 2004, at least 40% of business-to-consumer e-commerce will be initiated from smart phones supported by WAP (Wireless Application Protocol). A study from the Wireless Data and Computing Service, a division of Strategy Analytics, reports that the mobile commerce market may rise to $200 billion by 2004. The report predicts that transactions via wireless devices will generate about $14 billion a year （Varshney & Vetter 2002. In the new decade, the call for information technology will be information, any time, any place and on any device. Accordingly, e-commerce is poised to witness an unprecedented explosion of mobility, creating a new domain of mobile commerce. Mobile commerce, or m-commerce, is the ability to purchase goods anywhere through a wireless Internet-enabled device. Mobile commerce refers to any transaction with monetary value that is conducted via a mobile network. It will allow users to purchase products over the Internet without the use of a PC. "If you look five to 10 years out, almost all of e-commerce will be on wireless devices" says Jeff Bezos chief executive and founder of Amazon.com (McGinity 2000). Consequently, within the next 5-vears, one-quarter of all electronic commerce will take place through wireless devices (Zabala 2000). Forecasts estimate the wireless web to be as large as the wired web of today and worldwide mobile commerce exceeding $200 billion by 2004 (M-commerce Times 2000; Shaffer 2000). Hoffman et al. (1999) showed nearly all customers refuse to provide personal information to a Web site at one time or another, a majority because they lack trust in the site. Mobile commerce, the emerging subset of e-commerce also known as mobile e-commerce or m-commerce, faces the

same problems troubling e-commerce. Gaining customer trust in mobile commerce, which uses wireless devices to conduct business transactions over the Web-based e-commerce system (Siau et al. 2001), is a particularly difficult task because of its unique features. Reichheld and Schefter (2000) stated that customers are financial imperative for electronic vendors (e-vendors), especially as attracting new customers is considerably more expensive than for comparable, traditional, bricks-and-mortar stores. Reichheld and Schefter recognized that a vital key to retaining these customers is maintaining their trust in the e-vendor and that trust is at the heart of relationships of all kinds (Mishra & Morrissey 1990; Morgan & Hunt 1994). Since mobile vendors also could be recognized as e-vendors, trust is as well an important research issue for m-commerce. According to Marcus (2001), US consumers are not ready to buy mobile services. They first need to be assured that their financial information is secure, and that wireless transactions are safe. The mass adoption of mobile commerce will not be realized until users begin to trust mobile services (Siau & Shen 2003). Varshney and Vetter (2002) showed that how well m-commerce applications become adopted by a business will depend on how fast these applications can be deployed, the cost-value ratio, acceptance of new technologies by users and businesses based on easy to use and uniform interfaces, and the building of trust necessary to conduct m-commerce transactions while on the move. This study examines customer trust as a primary reason for why customers accept mobile commerce. However, unlike the vendor-client relationship in traditional, bricks-and-mortar stores, the primary interface with m-commerce vendors is an information technology (IT), a mobile technology. Recognizing the dual nature of this interaction, this study integrates the customer trust and technology acceptance model (TAM) to investigate the impact of building customer trust on the acceptance of mobile commerce. Previous empirical studies relating to consumer adoption of m-commerce were focused on Task-Technology Fit (TTF), socio-technology perspectives, social cognitive theory, innovation theory and the perceived risk and Technology Acceptance Model (TAM). This study intends to integrate trust with TAM to investigate the impact of building customer trust on the acceptance of mobile commerce, especially from the perspectives of Vendor characteristics, Website characteristics, Technology of wireless services, and Technology of mobile devices. Accordingly, the purpose of this study is to integrate trust-based antecedents and the technological attribute-based antecedents found in TAM to construct a theoretical model for mobile commerce. In the future, the casual relationships between the constructs in the research model will be validated. Literature Review Building customer trust in mobile commerce

The concept of trust has been studied in disciplines ranging from business to psychology to medicine, and perspectives on it differ, but it can be loosely defined as "a state involving confident positive expectations about another's motives with respect to oneself in situations entailing risk" (Boon & Holmes 1991; Siau & Shen 2003). Trust is crucial in many such transactional, buyer-seller relationships, especially those containing an element of risk, including interacting with an e-vendor (Reichheld & Schefter 2000). Cultivating customer trust in e-commerce is a dynamic and time-consuming process, according to Fung and Lee (1999), it involves initial trust formation and repeated trials, until a firm loyalty is established. The key to form trust is getting customers to start transacting with the mobile vendor through reward attraction, or by demonstrating features such as convenience, cost efficiency, and personal necessity. Once they are convinced to buy, customers must also have positive, direct experiences of the vendor during their transactions for a trust relationship to begin to form (Siau & Shen 2003). How well m-commerce applications become adopted by a business will depend on how fast these applications can be deployed, the cost-value ratio, ac-

ceptance of new technologies by users and businesses based on easy to use and uniform interfaces, and the building of trust necessary to conduct m-commerce transactions while on the move (Varshney & Vetter 2002. Various factors may influence the complex process of building customer trust in Internet shopping. Buyer characteristics such as need, motivation, capacity, and willingness, along with seller characteristics such as ability, benevolence, and integrity, all play a role in Internet purchasing behavior (Ambrose & Johnson 2000). Customer perception of security and privacy control, integrity, and competence, as well as third-party recognition and legal framework, are important antecedents of trust in Internet shopping (Cheung & Lee 2000; Awad & Krishnam, 2006; Deng, Lu, Wang, Zhang & Wei, 2010). Elements of corporate branding, such as personal experience, familiarity, affiliation and belonging, transparency, factual signals and heuristic cues, may also be used to engender trust in Internet business (Einwiller & Gcissler 2000). Siau and Shen ( 2003) showed that as mobile technology evolves, focus will shift from engendering customer trust in technology to engendering trust in vendors. Technology trust and vendor trust are equally important in securing customer trust (see Figure 1). To understand the values leading to trust in mobile commerce, Siau et al. (2003) used the Keeney‘s (1992) Value-Focused Thinking (VFT) approach to help identify these values. After interviewing subjects using the value-focused thinking approach, Siau et al. derived the means and fundamental objectives. The objectives Siau et al. (2003) have obtained from interviewing mobile commerce users provide a comprehensive list of antecedents of trust in mobile commerce. In addition, the links between objectives depicted in the means-ends objective network suggest the causal relationships between the means and fundamental objectives. Siau et al. (2003) classified the various objectives in the means-ends objective network into categories, and proposed a conceptual framework that outlines the variables influencing trust building in mobile commerce. These variables are shown in Table 1 (Siau et al. 2003). Figure 1. Two components of customer trust in mobile commerce (sources: Siau & Shen 2003) Although some of the trust factors identified in Table 1 have been presented in the e-commerce literature, Siau et al.‘s (2003) identifies new antecedents that are unique to trust in mobile commerce. For example, technology related factors are considered particularly important in mobile commerce due to the immaturity of mobile technology and the unique user interface of mobile devices. As suggested by the subjects whom Siau et al. interviewed, technology is a main barrier of trust in the conduct of mobile commerce. There are three categories of technology related factors: technology relating to wireless services, wireless websites, and mobile devices. Some of the antecedents of trust in mobile commerce arise because of the unique interface and the limited features and functions of mobile devices. ―Familiarity‖ highlighted during Siau et al.‘s interviews include past experience with product vendor features in the conduct of mobile commerce. Gefen et al.(2003) proposed a theoretical model to integrate the trust and TAM in on line shopping. Gefen et al. showed a Web site is both an IT and the channel through which

Mobile

Technology

Mobile

Vender

Customer Trust in

Mobile Commerce

consumers interact with an e-vendor, technology-based and trust-based antecedents should work together to influence the decision to participate in e-commerce with a particular e-vendor. A Web site is, in essence, an information technology. As such, online purchase intentions should be explained in part by the technology acceptance model, TAM (Davis 1989; Davis et al. 1989). This model is at present a preeminent theory of technology acceptance in IS research. Numerous empirical tests have shown that TAM is a parsimonious and robust model of technology acceptance behaviors in a wide variety of IT (Gefen et al. 2003). Mobile commerce, the emerging subset of e-commerce also known as mobile e-commerce or m-commerce, faces the same problems troubling e-commerce. Gaining customer trust in mobile commerce, who uses wireless devices to conduct business transactions over the Web-based e-commerce system (Siau et al. 2001), is a particularly difficult task because of its unique features. Most researchers prefer to use TAM to explore the issue of mobile commerce (Deng et al., 2010; Park, Kim, and Lee, 2010; Hill and Troshani, 2010; Ho and Chou, 2010; Li and Yeh, 2010; Crabbe et al., 2009; Wang and Barnes, 2009; Parveen et al., 2009; Lin and Liu, 2009; Chen, 2009). This study will refer and modify Gefen et al.‘s (2003) research model (Figure 3 shown above) to integrate the customer trust and technology acceptance model (TAM) to investigate the impact of building customer trust on the acceptance of mobile commerce in on mobile shopping. Table 1. Constructs and Variables influencing trust building in mobile commerce

Constructs Variables

Mobile Vendor characteristics

1.Reputation 2.Brand reputation of product 3.Word-of-mouth referral 4.Physical availability 5.Privacy policy 6.Misuse of customer information 7.Legal regulations to protect mobile consumers 8.Third-party certification

Mobile Website characteristics

1.Website design 2Ease of input and navigation 3.Readability of display 4.Richness of information 5.Accuracy of information

Technology of Wireless services 1.Wireless connection speed 2.Accessibility of wireless services 3.Wireless coverage area 4.User interface of mobile device 5.Encryption of wireless transaction data Authentication/login

Technology of Mobile devices 1.Ease of input and navigation 2.Readability of display

Familiarity Past experience with product vendor

Research model and research hypotheses Since mobile on shopping is both an IT and the channel through consumers interact with an e-vendor, technology-based and trust-based antecedents should work together to influence the decision to participate in m-commerce with a particular mobile vendor. The research model is shown in Figure 2. This section will discuss the theoretical model and derives the hypotheses very detail. Figure 2 Research Model Trust and trust-related antecedents in m-commerce Trust is crucial in many such transactional, buyer-seller relationships, especially those containing an element of risk, including interacting with an e-vendor (Reichheld & Schefter 2000). Because of the absence of proven guarantees that the e-vendor will not engage in harmful opportunistic behaviors, trust is also a critical aspect of e-commerce (Gefen 2000; Kollock 1999; Reichheld & Schefter 2000). Such behaviors include unfair pricing, conveying inaccurate infor-mation, violations of privacy, unauthorized use of credit card information, and unauthorized tracking of transactions. Indeed, some researchers have suggested that online customers generally stay away from e-vendors whom they do not trust (Jarvenpaa & Tractinsky 1999; Reichheld & Schefter2000). When a social environment cannot be regulated through rules and customs, people adopt trust as a central social complexity reduction strategy (Luhmann 1979). The same argument also holds with the e-commerce and m-commerce.

Website

characteristics

Technology of wireless

services

Vendor

characteristics

Technology of mobile

devices

Familiarity

Trust

PEOU

PU Intention to

Shop

H1

H2

H3

H4

H5

H6

H7

H9

H11

H13

H14

H8

H12

H10

Gefen et al. (2003) has identified a number of trust antecedents: knowledge-based trust, institution-based trust (specifically, structural assurance beliefs and situational normality beliefs), calculative-based trust, cognition-based trust (specifically, categorization processes and illusion of control processes), and personality-based trust (specifically, faith in humanity and a trusting stance). This study classifies all the variables influencing trust building in mobile commerce listed in Table 1 (Siau et al. 2003) into the different kinds of antecedents of trust (see Table 2). For the sake of completeness, followings will discuss these briefly. Cognition-based trust examines how trust is built on first impressions rather than through experiential personal interactions (Meyerson et al. 1996). According to this research tradition, cognition-based trust suggest that individuals place more trust in people similar to themselves and assess trust-worthiness based on second-hand information and on stereotypes (Morgan & Hunt 1994). According to the definition of cognition-based trust, this study classifies ―Reputation‖ and ―Word-of-mouth referral‖ (which belongs to ―Vendor characteristics‖), into cognition-based trust (see Table 2). Familiarity is experience with the what, who, how, and when of what is happening. While trust reduces social complexity relating to future activities of the other party, familiarity reduces social uncertainty through increased understanding of what is happening in the present (Luhmann 1979). In m-commerce, consumer familiarity, for example, corresponds to how well a consumer comprehends the mobile Web site procedures, including when and how to enter credit card information (Gefen 2000). Trust, on the other hand, deals with beliefs about the mobile vendor's future intentions and behavior (Gefen 2000). Accordingly, familiarity with an a prior/trustworthy mobile vendor should increase consumer trust because more familiarity implies an increasing amount of accumulated knowledge derived from experience from previous successful interactions through the Web site (Gefen 2000). Ac-cording to the definition of knowledge-based trust, this study classifies ―Past experience with product vendor‖ (which belongs to ―Familiarity‖), into knowledge-based trust (see Table 2). Table 2. Trust and Trust-related Antecedents in M-commerce Trust-related Antecedents

Variables influencing trust building in m-commerce

Constructs influencing trust building in m-commerce

1.Cognition-based trust

Reputation Vendor characteristics

Word-of-mouth referral Vendor characteristics

2.Knowledge-based trust

Past experience with product vendor

Familiarity

3.Calculative-based trust

Misuse of customer information Vendor characteristics

4.Institution-based - Situation Normality

Physical availability Vendor characteristics

Website design Website characteristics

Ease of input and navigation Website characteristics / Technology of mobile devices

Readability of display Website characteristics / Technology of mobile devices

Richness of information Website characteristics

Wireless connection speed Technology of wireless services

Accessibility of wireless services Technology of wireless services

Wireless coverage area Technology of wireless services

User interface of mobile device Technology of wireless services

5.Institution-based - Privacy policy Vendor characteristics

Trust-related Antecedents

Variables influencing trust building in m-commerce

Constructs influencing trust building in m-commerce

Structural Assurances Misuse of customer information Vendor characteristics

Accuracy of information Website characteristics

Encryption of wireless transaction data

Technology of wireless services

Authentication/login Technology of wireless services

Legal regulations to protect mobile consumers

Vendor characteristics

Third-party certification Vendor characteristics

Based on economic principles, a second type of trust-building mechanism involves a calculative process (Hosmer 1995). According to the calculative-based trust paradigm, trust can be shaped by rational assessments of the costs and benefits of another party cheating or cooperating in the relationship (Williamson 1993). According to Shapiro et at. (1992), calculative trust is deterrence-based in that individuals will not engage in opportunistic behavior out of fear of facing the adverse consequences of being untrustworthy. In the context of mobile commerce, a customer can be expected to trust an e-vendor more when the customer believes that the e-vendor has more to lose than to gain by cheating or has nothing to gain by breaking customer trust. According to the definition of calculative-based trust, this study classifies ―Misuse of customer information‖ (which belongs to ―Vendor characteristics‖), into calculative -based trust (see Table 2). Another trust-building process that may apply to online settings is institution-based trust. This refers to one's sense of security from guarantees, safety nets, or other impersonal structures inherent in a specific context (Shapiro 1987). The two types of institution-based trust discussed in the literature are situational normality and structural assurances (McKnight et al. 1998). Situational normality is an assessment that the transaction will be a success, based on how normal or customary the situation appears to be (Baier 1986). Bricks-and-mortar stores that look like a store, with salespeople that look like salespeople, build customer trust, while stores that do not look that way erode customer trust. This is because a person's trust disappears when a situation is not normal (McKnight et al. 1998). In the context of the mobile commerce, this view carries weight in that a mobile Web site represents what customers expect based on their experience and knowledge of other similar mobile Web sites, and for this reason, they will be more inclined to trust the e-vendor. On the other hand, when the mobile Web site has a suspicious interface and requires customers to go through an unexpected procedure or provide atypical information, consumers will understandably be more inclined not to trust the e-vendor. Situational normality deals with the extent that the interaction with that vendor is normal compared with similar sites. According to the definition of institution-based - situation normality, this study classifies (1) ―Physical availability‖ (which belongs to ―Vendor characteristics‖), (2)―Website design‖, ―Ease of input and navigation‖, ―Readability of display‖, ―Richness of information‖ (which belongs to ―Website characteristics‖), (3) ―Wireless connection speed‖, ―Accessibility of wireless services‖, ―Wireless coverage area‖ (which belongs to ―Technology of wireless services‖), and (4) ―User interface of mobile device‖ (which belongs to ―Technology of mobile devices‖) into institution-based trust- situation normality (see Table 2). Structural assurances or structural safeguards refer to an assessment of success due to safety nets such as legal recourse, guarantees, and regulations that exist in a specific context (McKnight

et al. 1998; Shapiro 1987). According to this view, structural assurances built into the Web site, such as the Better Business Bureau's BBB Online Reliability seal (www.bbb.com), the TRUSTe seal of eTrust (www.etrust.com), or a 1-800 number, should build trust (Gefen 2000). In this view, trust emanates from the security that one feels about the situation as a result of such guarantees, safety nets, or other structures (McKnight et al. 1998; Shapiro 1987; Zucker 1986). On the Web, cues appear on the Web page, and may include seals of approval (McKnight et al. 1998), explicit privacy policy statements (McKnight et al. 1998), guarantees, affiliations with respected companies and "contact us" clickable icons. Having a third party like the reputable Better Business Bureau vouch for the e-vendor as a trusted vendor should arguably build trust in that such assurances have typically been one of the primary methods of building trust in business (Zucker 1986). Such third-party certifications should build trust online just as they do in other commerce activities (Zucker 1986). Accordingly, this study classifies (1) ―Privacy policy‖, ―Legal regulations to protect mobile consumers‖, ―Third-party certification‖ (which belongs to ―Vendor characteristics‖), (2) ―Accuracy of information‖ (which belongs to ―Website characteristics‖), and (3) ―Encryption of wireless transaction data‖, ―Authentication/login‖, (which belongs to ―Technology of wireless services‖), into institution-based trust - Structural assurances (see Table 2). Based on the discussion above, this study classifies all the variables influencing trust building in mobile commerce listed in Table 1 ( Siau et al. 2003) into the different kinds of antecedents of trust (see Table 2). That means all the Constructs influencing trust building in m-commerce, such as: Vendor characteristics, Website characteristics, Technology of wireless services, Technology of mobile devices, and Familiarity, are trust-related antecedents in mobile commerce context. Therefore, referring to Gefen et al.‘s (2003) research (see Figure 2), this study could derive the hypotheses H1 to H5 as follows: H1: Vendor characteristics will positively affect trust in m-commerce shopping. H2: Website characteristics will positively affect trust in m-commerce shopping. H3: Technology of wireless services will positively affect trust in m-commerce shopping. H4: Technology of mobile devices will positively affect trust in m-commerce shopping. H5: Familiarity will positively affect trust in m-commerce shopping. Gefen et al. (2003) showed that situational normality should increase PEOU since consumers' prior knowledge of how to use the Web will be directly applicable to the task of purchasing from the present e-vendor's Web site. Thus, little cognitive effort will need to be expended to learn how to use the present Web site. In this case, the Web site will be easier to use, i.e., requiring less cognitive learning effort, if existing well-established cognitive patterns apply. When, on the other hand, the specific site is unique, previously learned cognitive patterns may even hinder the process by leading the user into inefficient paths and, in doing so, render the Web site even harder to use. The same situation holds for m-commerce context. Since constructs of Website Characteristics and Technology of mobile devices contain the variables classified into the institution-based trust-situational normality, H6 and H7 are derived as follows: H6: Website Characteristics will positively affect PEOU in m-commerce shopping. H7: Technology of mobile devices will positively affect PEOU in m-commerce shopping. Indeed, the more familiar consumers are with a Web site as a result of prior visits, the more they will perceive the site to be easy to use. In that they already have an understanding of how to use the Web site as well as knowledge of the basic structure and procedures used on the Web site, they will need to expend less cognitive effort to utilize it. Supporting this proposition, research

shows that, with experience, users find an IT easer to use. Therefore, H8 is hypothesized as follows: H8: Familiarity will positively affect PEOU in m-commerce shopping. PEOU should also increase trust through the perception that the mobile vendor is investing in the relationship, and in so doing signals a commitment to the relationship (Gefen et al. 2003). This applies in both social settings (Blau 1964) and in buyer-seller relationships (Ganesan 1994). In a mobile environment, where the main interaction consumers have with the e-vendor is through the mobile Web site, an obvious way to signal such a commitment is through the character of the mobile Web site. If more effort is placed in configuring the mobile Web site so that it is usable and navigable, users will conclude that it is both easy to use and that the mobile vendor is investing in the relationship. Consequentially, PEOU can be posited that it contributes to trust. H 9: PEOU will positively affect trust in m-commerce shopping. Trust is a significant antecedent of participation in commerce in general, and even more so in online settings because of the greater ease with which vendors can behave in an opportunistic manner (Reichheld & Schefter 2000). Trust helps reduce the social complexity a consumer faces in e-commerce by allowing the consumer to subjectively rule out undesirable yet possible behaviors of the mobile vendor, including inappropriate use of purchase information. In this way trust encourages online customer business activity. The research results of Gefen et al.(2003) also proved that trust positively affects customers‘ intentions to use a B2C website. Therefore, H10 is derived as follows: H10: Trust will positively affect customers‘ intentions to shop in the m-commerce. Trust should also increase certain aspects of the perceived usefulness of a Web site. Trust should increase the perceived usefulness of the interaction through the Web site by increasing the ultimate benefits, in this case getting the products or services from an honest, caring, and able vendor, as expected. Gefen et al.‘s (2003) research result also validated the relationship between trust and perceived usefulness. H 11: Trust will positively affect PU in m-commerce shopping.

Mobile commerce is, in essence, a business application of information technology (IT). As such, mobile online purchase intentions should be explained in part by the technology acceptance model, TAM (Davis 1989; Davis et al. 1989). This model is at present a preeminent theory of technology acceptance in IS research. Numerous empirical tests have shown that TAM is a parsimonious and robust model of technology acceptance behaviors in a wide variety of IT. According to TAM, the intention to voluntarily accept, that is to use, a new IT is determined by two beliefs dealing with (1) the perceived usefulness (PU) of using the new IT and (2) the perceived ease of use (PEOU) of the new IT. PU is a measure of the individual's subjective assessment of the utility offered by the new IT in a specific task-related context. PEOU is an indi-cator of the cognitive effort needed to learn and to utilize the new IT. For initial purchases, it is likely that the social normative aspects weigh heavily on one's assessment of trust and on purchasing intentions. However, as consumers gain experience with the e-vendor, cognitive considerations based on first hand experience gain prominence and social normative considerations lose significance (Gefen et al. 2000), this study hypothesize that paths predicted by TAM apply also to mobile commerce. As in previous TAM studies, the

underlying logic is that IT users (in this case, online customers using a mobile Web site) react rationally when they intend to use an IT. The more useful and easy to use is the Web site in enabling the users to accomplish their tasks, the more it will be used: H 12: PEOU will positively affect PU in m-commerce shopping. H 13: PEOU will positively affect customers’ intentions to shop in the m-commerce.

H 14: PU will positively affect customers‘ intentions to shop in the m-commerce. Research method To examine the effects of trust and TAM on intentions to shop in mobile commerce environment, This study employed the field survey method. The sampling and instrument development and data analysis are described next. There are nine constructs in the research model of this study. These constructs are Vendor characteristics, Website characteristics, Technology of wireless services, Technology of mobile devices, Familiarity, Trust, PEOU, PU, and Intention to shop (see Figure 3). The instruments development for first five constructs, such as: Vendor characteristics, Website characteristics, Technology of wireless services, Technology of mobile devices, Familiarity, will adapt from the prior research results of Siau and Shen (2003) and Siau et al. (2003). The remaining four constructs, such as: Trust, PEOU, PU, and Intention to shop, will adapt from the prior work by Gefen et al. (2003). All items were measured on a 7-point Likert scale, with anchors ranging from strongly disagree (1) to strongly agree (7). This study will design a scenario to develop an m-commerce prototyping system for m-commerce shopping. The subjects will be asked to use the m-commerce prototyping system to shop using mobile phone, after that, they continue to answer the questionnaires. The research scenario for m-commerce shopping is to develop an mobile shopping system for Jo-Jeng-Lan gourmet company, which is a medium size gourmet company at Kaohsiung city and the business has over 100 years history. The key points in the m-commerce prototyping system are (1) it‘s a really system and it can work, but the functions of the system is limited. (2) The system will ask the subjects to enter the credit card number after they finish shopping. The purpose of the design is to investigate the subjects‘ perceived risk in mobile shopping. The brief description of this research scenario design is in the appendix of this project. This study will conduct two different kinds of survey. One survey is for college students at university in the southern part of Taiwan, the other one survey is for real customers at Jo-Jeng-Lan gourmet sales store. The number of subjects is estimated to be collected over 300. These two kinds of data will be compared in the data analysis stage. Data analysis for this study was performed using EQS for windows Version 6.0. EQS is a structural equation modeling approach similar to LISREL, where the covariance structure derived from observed data is used to simultaneously fit measurement equations and structural equations specified in the model. Such covariance-based approaches are appropriate for areas with strong a priori theory, where theory testing and refinement are the research goals, as was the case in this study. Model estimation was done in EQS using the maximum likelihood (ML) approach. Discussions and conclusion In the new decade, the call for information technology will be information, any time, any place and on any device. Accordingly, e-commerce is poised to witness an unprecedented explosion of mobility, creating a new domain of mobile commerce. Mobile commerce, or m-commerce, is the ability to purchase goods anywhere through a wireless Internet-enabled device. Mobile

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Relationship Marketing: Various Schools of thought and Future Research Agenda

Palto.Ranjan.Datta & Omar Ogyeni-University of Hertfordshire, UK Dixon.D, Manchester Metropolitan University, UK

Key words: CRM, Schools of thought, Customer retention, loyalty, corporate social responsibility, communication Abstract Relationship Marketing has emerged in business and academia over the past three decade as a new marketing school of thought which aims at building a long lasting bonded relationship with customers by identifying, anticipating and satisfying customer needs and wants profitably. The ultimate goal is to build trusted, committed, satisfied and informed long term partner through continuous value creation. Thus increasing customer loyalty and retention. It is the view of the researcher that CRM as an idea is still evolving. Although it was developed as a major source of attain organizational objectives (eg. Profit maximization etc) through the marketing route, the focus has now transcended to a holistic approach involving the organizational functions collectively. This has well been reflected in the writings of Gronroos over the years, and also Morgan and Hunt, Gummesson, Lancaster and Harket amongst others. Having said that, the researcher also consends that `communication` plays a vital role in building relational and transactional exchanges. Organisations these days have to be sensitive enough to what the customer thinks about them as an entity, rather than just the products. Customers will hesitate to be supportive of those organization without any involvement in community affairs as reflected in the vitally important concept of corporate social responsibility (CSR), and CSR is now a crucial sub function of communication, because it boosts company`s image and reputation. Morgan et al (2006) also pointed out the importance of CSR in relationship marketing. According to them customers will engage in relationship only with those organizations are socially responsible (Morgan et al, 2006, p-76). Indeed, this is reflected in corporate advocacy of many reputed organizations-Microsoft for example. The contention here is, therefore, CRM should be aligned with an organization`s communication strategy. This paper examines the nature of Customer Relationship Marketing (CRM), its definitions in various business context, and various schools of thought based on existing literature. A holistic definition of CRM is established and seven (7) schools of thought have been discussed with majot themes and contexts.

Determinant Attributes of Dissatisfiers of Store Brands in Food and Grocery Retailing - An Empirical Analysis in India

Dr. M. Ravindar Reddy School of Management, National Institute of Technology, Warangal

T. Naga Sai Kumar

School of Management,National Institute of Technology, Warangal

Key words: Consumer behaviour, Store brands in food & groceries, Customer consciousness & sensitivity, Common Minimum Amenities, Dissatisfiers Abstract: The purpose of this research paper is three fold.1) Exploring the determinant dissatisfiers of store brands. 2) Investigation of consumers behaviors in the world recession and 3) Investigation of retailers game plans and strategies toward the growth and development of their private labels in food &grocery retailing in Indian scenario. An exploratory research, that is qualitative in nature was adopted to identify and examine the crucial dimensions that act as major dissatisfiers and affect the store brand purchase behaviors. The exploratory research interviews with 25 retail store managers from super markets and hyper markets and also the extensive discussions with market experts, academicians, researchers have shed light on 7 factors. In the second phase, the field study survey method was used to study the preferences toward the store brands in food and groceries. A well structured and non-disguised questionnaire was made and used to collect data from consumers at super markets and hyper markets. The mall intercept method was adopted for these purpose.580 responses from consumers and 50 responses from retail heads were collected from 50 stores encompassing super and hyper markets in twin cities of Secunderabad and Hyderabad in Andhra Pradesh state, India. The analytical methods applied to test the hypotheses included ANOVA, Multiple Regression, Correlation and Factor analysis. The exploratory factor analysis findings proved the 7 variables described in the paper, were the determinant dissatisfiers of store brands in food and groceries. The Multiple Regression findings demonstrated that the aforesaid variables significantly affect the store brand purchase intentions. The results of this research paper indicate that a proper control of these dissatifiers will enhance the value of store brands and thus boosts up the GDP of the home country as well as the world.

Introduction: The recent times have seen a significant change in consumers‘ purchase behaviour and consumption pattern affected by unyielding food price inflation for the last three years. As consumers reign in their spending due to sustained increase in food prices, which has gone up, on an average, by 18 percent from August 2009 to August 2010 (` Report, 2010), they have become more discriminating; expect more value for their money; better service; and greater convenience. Furthermore, the considerable erosion of purchasing power of consumers has not only shifted their purchasing habits from national brands to store brands36 but also revised their definition of value to be much more focused on price in purchasing decisions for food and household products. Literature also shows that store brand performance may be linked to economic expansions and contractions (Lamey et al., 2007; Quelch and Harding, 1996). Consequently, the current economic environment encourages retailers to be more innovative in their efforts to formulate competitive retail strategies to address the evolving consumer needs and increase the profitability through the introduction of store brands (also commonly referred to as private label brands). While this demographic and economic shift continues to unfold, the emergence of private labels has become a new business model for retailers as they are

36 Store brands grocery items are products owned and branded by organisations whose primary economic commitment is distribution rather than production. These are also known as private labels or retailer‘s brands (Schutte, 196.9)

increasingly relying on private labels to bridge the gap in their product mix and targeting specific needs of food and grocery retail consumers in India. The store choice and patronage behaviour depend on store designs (Woodside and Trappey, 1992;Medina and Ward, 1999; Outi, 2001; Sinha and Banerjee, 2004, Sinha andUniyal, 2005; Carpenter and Moore, 2006) Nevertheless this opportunity offers a host of unique challenges particularly in determining the driving factors for store brand purchase decisions in emerging retail market. While store brands have historically and often been used as the lower-priced offering in the merchandise mix, store brands have now evolved to the point where items offer high quality ingredients, product performance, and packaging (DemandTec, 2010; Lamely et al., 2007). This has led consumers now understand that store brands can offer them not just better value, but qualitative distinctions. Previous research mention that those who shop for store brands were motivated by several factors including price, perceived product quality, value for money, store image, convenience, and shopping experience all interact to influence the degree of perceived shopping risk for store brands (Burt, 2000). However, in recent years, the increase in adoption and expansion of private label products across wide range of categories has resulted in changing portfolio of store brand consumers. That has made managing a private label portfolio quite complex for retailers. Further confounding this, the conspicuous differences in terms of socio-economic status, personal characteristics and food shopping behaviour among grocery shoppers complicate the prediction of consumer store brand predispositions (Mehrotra and Agarwal, 2009; Mittal and Mittal, 2009; Martinez and Montaner, 2008; Whelan and Davies, 2006; Baltas, 1997; Omar, 1996). Hence a reassessment of consumers‘ intention to buy private label products is pertinent in developed markets in general and emerging markets in particular. Past research suggests that situational factors such asPerceived amount of risk (Mitchell and Harris, 2005), The customer- task definition (Kenhove, 1999),The store- physical surroundings (Baker et al., 2002; Hyllegard et al., 2006), The temporal aspects (Nicholls et al., 1997) and The social surroundings (Beardonet al., 1989) affect consumer store options & decisions. The increasing shelf space and market share of private labels have become significant issues in Indian retail market (Mittal and Mittal, 2009) as retail chains are looking at 20-40 percent growth in their private label sales to boost bottomlines and bridge the gap in their product mix (Mitra, 2010) . It is substantiated by the projected growth rate 30 percent of the organised retail business by 2020 from the present 10-12 percent of the organised retail product mix (KPMG Report, 2009). The increasing trend towards acceptance of private label brands has exemplified the need to identify the attributes which make consumers do treat private label products differently from national brands in the face of intensifying competition for shoppers‘ food expenditure. Such understanding appears timely in light of retailers of all kinds are facing challenge in strategic positioning more than merely developing a product. Consequently, interest in consumers‘ specific perceptions of, preferences for, and responses to this particular store brand has become a subject of research in the fast changing socio-economic and psychographic scenario. In this connection, the factors affecting consumer‘s store brand choice behaviour and factors leading to retailers developing private labels have been examined extensively in Western literature (Anselmsson et al., 2008; Labeaga, Lado and Martos, 2007; Juhl et al., 2006; Harcar, Kara and Kucukemiroglu, 2006; De Wulf et al., 2005; Garretson, Fisher and Burton, 2002; Batra and Sinha 2000; Baltas, 1997). However, few empirical studies have been reported in the Indian food and grocery retailing focusing on which parameters consumers consider the most important during store brand purchase decision making. In the light of aforesaid facts and scarce empirical evidence, this research is prompted to identify the critical factors influencing store brand purchase behaviour so as to pursue an aggressive store brand strategy to meet the evolving needs of discerning consumers. This study further investigates the effect of store brand attributes on consumer propensity to purchase store brand products. Understanding the role of such factors on consumers‘ preferences can be a major strategic advantage to the retailers and

marketers (Kara et al., 2009). The results of this study may be important to retail grocery practioners in emerging markets by providing an understanding of the best fit of private label grocery brands in their business plans. The Store- option psychology was mainly focussed and investigated(Sinha and Banerjee, 2004, p.483) in India and it also considered issues related to consumers' store choice purchasing situations (Moore and Carpenter, 2006). Store choice evaluative criteria (Rosenbloom, 1983; Mitchell, 1998; Mitchell and Harris, 2005; Sridhar, 2007) was based on the various kinds of risks associated with store designs. The reminder of the paper is structured as follows: we first provide growth of private label scenario followed by theoretical background; review of literature pertaining to constructs proposed in the conceptual model; description of methodology, the results, discussions and implications, conclusions, and finally limitations and directions for further research will be presented. Growth of Store Brands Scenario Goods and services sold under a private label do not bear a manufacture‘s brand, but are generally associated with a particular retailer (Liljander, polsa and Riel, 2009). Globally, private labels contribute 17% of retail sales with a growth of 5% per annum (Nielson report, 2010). It is also estimated that Global private label sales will increase by $500 billion between 2010 and 2015 with some of the largest retail markets in the world almost hitting 50 percent private label penetration (Planet retail, 2010). International retailers like Wal-Mart of USA and Tesco of UK have 40% and 55% own label brands representation in their stores, respectively. As more and more retailers carry private labels, these labels continue to increase in importance in terms of market share particularly very dominant in Western Europe. There are reports to the effect that private labels account for more than 45 percent of the total consumer packaged goods (CPG) consumption in the Europe especially 53 percent in Switzerland, 43 per cent in United Kingdom, 39 percent in Germany, and 25 percent each in the US and Canada (Planet Retail, 2008; Martinez and Montaner, 2008)). In the most Asian markets, private label is still relatively underdeveloped with only Hong Kong having a share above 5 percent overall as shown in Figure 1.There has been significant investment by many leading retail chains into launching new private label products over the last five years and they are gaining acceptance particularly in the basic commodity categories (Nielson Report, 2010). Asian consumers are still largely brand loyal and retailers will need to increase their private label marketing support to build consumer trust in their own brands. Private label shares are both higher and expected to grow faster in economies where retail is more consolidated. However, the role of private labels is gaining significance in the developing markets with a growth rate of 11 percent per annum. Going by the trends in the more developed markets of Europe and Asia, a private label strategy has been seen to provide strategic opportunities for retailers in terms of enhancing category profitability, control over shelf space, increasing negotiation power of the retailer with manufacturers and creating consumer loyalty (Juhl et al., 2006; Ailawadi and Harlam, 2004; Baltas, 2003; Steenkamp and Dekimpe, 1997). While the private label strategy in developed markets has matured into a key differentiator, in India it is at a very embryonic stage accounting for 10-12 percent of total organised retail sales with limited presence beyond staples such as jams, pickles, sauces and some household products. India is still an under-branded country and in each category there is still a lot of scope for growth and development. Nevertheless, there is a growing trend towards acceptance of private label brands and thus their penetration is on the rise especially in the apparel, consumer durables, home care and FMCG segments in India. The main attraction for Indian consumers towards private brands instead of national brands is price difference of 20 to 40 percent and at the same time retailers are fetching gross margin of profit on private brands from 15 to 40 percent higher than national brands. Whereas in Europe, US, South Korea, and Singapore

private label products cost 20, 25, 31 and 13 percent less expensive than national brands respectively. However, the Indian retail industry is highly fragmented at the moment and dominated by traditional retail trade, the ‗kirana‘, accounting for 95% of retail sales and nearly 80% of FMCG sales. Presently, the Indian grocery retail market is valued at $325bn in 2009, and expected to be grown US$482bn by 2020 (IGD Retail Analysis, 2010). India will become the world‘s third largest grocery market by 2014. In this stage, the private labels that are launched play mostly the price game to compete with the branded products. At this stage, most private labels which have acceptance are at the bottom of the pyramid of retail products. However, as the retailers mature and gain experience they want to move up the pyramid where realizations are higher. Over the past five years, private brand products have made substantial inroads into number of product categories in Indian apparels, jewellery and food products. Private label sale is increasing specifically in food product category. Packaged food and staples account for 50 to 60 percent of a grocery retailer‘s revenue. Future Group‘s Big Bazaar retail chain private labels (Tasty treat, Premium Harvest, Fresh & Pure, Clean Mate and Care Mate) , account for 20 percent of the food category, overall the share of the private labels for the group pegged at 10 percent. Future group draws up to 60-70 per cent of the total revenues from 25 categories cover nearly 300 products under its own private brands. Store brands help retailers to increase sales which indirectly add to the bottom line (Profit). Another retail chain More for U from Aditya Birla Retail Company earns 10-12 percent of sales from the private label (More) products cover over 35 categories and has over 350 SKUs including biscuits, fruit juices and spices while pricing them almost 10 percent less than brand name goods. Retail chain Spencer‘s from RPG‘s Spencer Retail Ltd. earns 15-25 percent of sales from private label (Smart Choice) available in 600 SKU‘s from 20 brands. Another retail chain Reliance Fresh from Reliance retail private limited earns 15-20 percent of sales from private label (Reliance Select) covering 50 brands. The largest hypermarket chain ‗Vishal Mega Mart‘ from Vishal Retail earns 20-35 percent sales from private labels (V Needs and V Fresh) covering 25 brands in food category. As the Figure 2 shows the percentage share of private labels among the major Indian players, Trent has the highest degree (90 per cent) of private label penetration followed by Reliance Retail (80 per cent) and Pantaloon (75 per cent). As retailers accelerate investment in aggressive assortment, product and promotion strategies, it is expected that store brands to play a critical role in offering value and differentiation. Conceptual Background and Hypotheses: A brand is a name, term, sign, symbol, or design, or a combination of these intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors (Keller, 2003). Brands can help consumers interpret and recall large quantity of information about organisations that consumers have accumulated over time (Salmon and Cmar, 1987). Brand names also simplify consumer‘s decision making and reduce purchasing risk (Hu and Chuang (2009). Brand management is the process of creating value in the minds of consumers (Aaker, 1998). The importance of store brands has tremendously increased over the past two decades and contributed to changing many purchase and consumption behaviours, in particular in grocery stores (Binninger, 2008). This phenomenal growth and development of store brands have caused marketing academics and managers to explore this field of studies (Groznik, Heese, and Sebastian, 2010; Burt and Johansson, 2004; Semeijn et al., 2004; Shannon and Mandhachitara, 2005; Burt, 2000; Baltas, 1997). According to the Private Label Manufacturers‘ Association (PLMA), private label products encompass all merchandise sold under a specific retailer‘s brand. That brand can be the retailer‘s own name or created exclusively by that retailer. Literature review reports that store brands are interchangeably used as private labels, retailer‘s brand, and in-house brands (De Wulf et al.,

2005; Sethuraman, 2003; Ailawadi, Neslin and Gedenk, 2001). Ailawadi and Keller (2004) identified at least four tiers of private label brands. These include low quality generics; medium quality private labels; somewhat less expensive but comparable quality private labels; and premium quality private labels that are priced in excess of competitior brands. Depending on retail store strategy, the retailer may adopt any of the four types of private labels: the first type of private labels is called generic private labels emphasise on basic use of product and is available in simple packaging, low quality, lowest price, and limited advertising (Yelkur, 2000; Harris and Strong, 1985); the second type is called classic/copyright brands (mimic brands) which are positioned similar or slightly below smaller product brands available at 10-30 percent cheaper than national brands (Burt and Davies, 1999; Baltas, 1997); the third type is called premium store brands which are positioned like leading national brands (Kumar and Steenkamp, 2007; Richardson, Dick and Jain, 1994; Hoch, 1996); and fourth type is called value innovators in private labels which are the highest level in private label category providing functional quality on par with national brands and large discounts 20-50 percent below the brand leader. Research has shown that identical products sold under different brand names are perceived differently by consumers (Sullivan, 1990). The recent past study of Liljander, Polsa and Riel (2009) found that consumers responded in different manners to different types of store brands. The possible reasons for perception differences and heterogeneous preferences are degree of experience with private labels, differences in needs, differential response to marketing activities, perceived risk, different product importance, and overall quality perceptions of the product among consumers (Shannon and Mandhachitara, 2005; DelVecchio, 2001; Dick, Jain and Richardson, 1996; Livesey and Lennon, 1978). Store brands have significant role in retail strategy due to their increasingly important strategic role for retailers (Harcar, Kara and Kucukemiroglu, 2006; Burt, 2000; Horowitz, 2000). For example, private label ranks sixth among the top ten issues by Nielsen (Baltas and Argouslidis, 2007). They are often designed to compete against branded products, offering customers a cheaper alternative to national brands. It is also found that, increasingly, retailers and consumers alike are coming to believe that ―private label is a ‗brand‘ like any other in the market place‖ (Collins-Dodd and Lindley, 2003). As noted above, the identification of the private label consumers, understanding their attitudes and purchase behaviour toward private labels is a central issue for strategic brand management because of the increasing market share of private label products (Kara et al., 2009; Baltas and Argouslidis, 2007; Semeijn, Riel and Ambrosini, 2004; Baltas, 1997). Numerous studies have shown that customers‘ propensity to regularly buy store brands depends on a variety of different constructs, and specifically on a favourable attitude toward those products (Binninger, 2008; Dick, Jain and Richardson, 1996). Attitude towards private label products can be defined as a predisposition to respond in a favourable way to retailers‘ private label brands (Burton et al., 1998). In academia, purchase intentions have been widely used as a predictor of subsequent purchase and measure of the willingness to buy a product (Grewal et al., 1998). It has also been operationalised as the probability that a consumer will buy a product (Devlin et al., 2007). Purchase intention is one type of judgement about how an individual intends to buy a specific brand (Shih, 2010; Laroche, Kim and Zhou, 1996). In this context, since the classical work of Myers (1967), a number of studies have been undertaken to investigate the demographic and psychographic characteristics of buyers of store brand grocery products (e.g., Mehrotra and Agarwal, 2009; Dolekoglu et al., 2008; Baltas and Argouslidis, 2007; Harcar, Kara and Kucukemiroglu, 2006; Whelan and Davies, 2006; Baltas and Argouslidis, 2007; Jin and Suh, 2005; Garreston, Fisher and Burton, 2002; Ailawadi, Neslin and

Gednik, 2001; Sethuraman, 2000; Omar, 1996, Richardson, Jain and Dick, 1996; Hoch, 1996; Szymanski and Busch, 1987; Bellizzi et al., 1981; Szymanski and Busch, 1987; Murphy, 1978; Coe, 1971). The results of several studies have been inconclusive or yielded conflicting findings in terms of age, household income, family size; education and psychographic traits (functional and hedonic) (Baltas and Argouslidis, 2007, p.330). The recent past empirical study of Martinez and Montaner (2008), in the context of grocery shoppers in Spain, found that consumers socio-demographic were not powerful in identifying store brand consumers. However, psychographic traits were much more related to this behaviour. The Performance risk is that the product or store chosen might not perform as desired and thus not deliver the benefits promised (Mitchell, 1998, p173). The Financial risk refers to the consumer's concerns about how goods are valued and how much money might be wasted (Mitchell, 1998, p.174).The psychological disappointment at oneself for shopping at a store which is not consistent with one's self-image (Mitchell and Harris, 2005, p.824; Sridhar, 2007). Physical Surroundings The Physical surroundings are related to geographical and institution allocation (Babin and Babin, 2001) Social Surroundings The Social Surroundings relate the consumer with society , together with social roles, role attributes, and opportunities for interactions (Bajaj, 2005, p.240; Zhuang et al., 2006, p.19). Social surroundings also includes the presence of people in the interaction between consumer and others in the stores Temporal aspects include that how much time consumer spending for shopping grocery products in a particular store. Previous researchers also indicated that consumers‘ purchase intentions are primarily influenced by marketing activities such as price, promotions, product quality and its added values (Wulf, Schroder and Ossel, 2005; Richardson, Dick and Jain, 1994; Dodds, Monroe and Grewal, 1991). Several studies have examined the factors that facilitate store brand success (e.g., Mittal and Mittal, 2009; Hoch et al., 2006; Mires, Martin and Gutierrez, 2006; Sennou, Bontems and Réquillart, 2004; Cotterill et al., 2000; Dhar and Hoch, 1997; Raju et al. 1995). Bellizzi et al. (1981) find that store brand prone consumers are less sensitive to brands and advertising. Richardson, Jain and Dick (1996) argued that familiarity with store brands, extrinsic cues usage in product evaluation, perceived quality variation, perceived value for money, perceived consumer risk, income and family size were the important factors influencing store brand purchase. Miquel, Caplliure and Manzano (2002) consider the effect of consumer involvement and find that greater involvement leads to better knowledge, which in turn increases store brand proneness. More recently, Kara et al. (2009) finds that consumer‘s consciousness (i.e. value, budget, price and discount conscious), consumer‘s previous experience and consumer perceptions (i.e. product content and product sensory perception) have significant effect on store brand purchase behaviour. Nevertheless, in recent years, store brand products and store brand consumer have changed. Consumers simultaneously pursue greater value and greater quality. Whether competing on price or differentiating based on quality, selection or other factors, retailers are effectively using store brands for not only creating value for consumers but also differentiating their businesses. Having considered the extant literature and pilot study findings, this study has identified value for money, product attributes (price perception/quality perception), perceived consumer risk, service quality aspects, price promotional cues, retailer reputation and consumer demographics (income, education, family size, shopping frequency) as the determinants Dissatisfactors of store brand purchase behaviour for the proposed model shown in Figure 1.

Figure 1. Conceptual Model of Store Brand Purchase Behaviour

H5 H1 H2 H6 H3 H7 H4 V1: Perceived service Quality of store -sales personnel V2: Perceived Common Minimum Amenities V3: Perceived Price Discrepancy consciousness V4: Perceived Quality of service from the Customer help desk V5: Perceived Time Delay Consciousness V6: Perceived level of Inconvenience V7: Perceived quality of security aspects and security -consciousness

Perceived Service Quality of

store sales personnel

Store Brand

purchase

Behaviour

Perceived

Security Aspects

Perceived Price

Discrepancy

Conciousness

Perceived Service

quality of Consumer

Help Desk

Perceived levels of

inconvenience

Perceived Time

Delay

Consciousness

Perceived Common

itiesMinimum

Methodology:

Given the limited amount of information available on store brand purchase behaviour in Indian food and grocery retailing, this study has been conducted in two stages. In the first stage, an exploratory study (qualitative in nature) was carried out to identify the factors affecting store brand purchase behaviour. The exploratory interviews with store managers and extensive discussions with academicians/ researchers helped us to identify the factors: perceived value for money, Product attributes (price/quality perception), perceived consumer risk, retailer reputation, and price promotions besides demographics perceived to be affecting store brand purchase behaviour. The extensive literature survey supported the exploratory findings and also enables researchers to identify the likely effects of satisfaction. In the second stage, a non-experimental survey method (i.e. mall intercept) was adopted for collecting the data by administering structured questionnaires to five hundred and eighty respondents from thirty five supermarket stores in twin cities of Hyderabad and Secunderabad. To ensure randomness in sampling, the survey team approached every third adult shopper leaving the retail store, asked whether he or she is interested to participate in the retail marketing survey. To test the proposed hypotheses, exploratory factor analysis, correlations, and stepwise forward regression were applied to the data using the SPSS 16.0. In case of missing data, the missing entry was excluded from the data analysis. Measures: In developing measures to represent the customer store brand purchase behaviour, multiple-item measurement scales that have been validated and found to be reliable in previous research were used in this study. All constructs were measured on five-point Likert scales ranging from strongly disagree to strongly agree. In this study, structured non-disguised questionnaire was used to collect data on variables that are hypothesised to influence store brand purchase behaviour. The questionnaire refereed to food and grocery shopping in general and was not any product specific. Specifically, data collected on shopping behaviour (shopping frequency, shopping volume, spending per shopping trip, store choice, and brand sensitivity). Respondents rated each item on a 5-point Likert type scale, where 1 represented ‗strongly disagree‘ and 5 represented ‗strongly agree‘. The survey instrument also included questions about respondent‘s demographics such as age, gender, marital status, monthly, income level, education and household size. The dependent variable of this study is the store brand proneness, i.e., measure reporting the extent to which private labels are purchased, are more revealing (Richardson, Jain and Dick, 1996). The measurement of store brand proneness was based on the scale proposed by Ailawadi, Neslin and Gednik (2001). Three items such as how often they buy store brands, how often they look for store brands and how often there are several store-brand products in their shopping cart were measured on five-point Likert scale (1-never and 5-very often). The dependent variable consumers‘ intention to buy store brands was measured with one item on a five-point scale with the end points ―yes, definitely going to buy it‖ and ―no, definitely not going to buy it‖. Results:

A total of seven hundred retail customers were surveyed from 35 supermarket stores. Out of which, six hundred twenty were returned. This is an approximately eighty nine percent response rate. Out of this, five hundred and eighty questionnaires were found usable and rest were rendered invalid due to incomplete data. Table 1 presents the frequencies and percentages of the respondents-customers divided according to gender, age, marital status, education, monthly household income, socio-economic status,family size, distance travelled to store, and mode of transport used. Specifically, the final sample consisted of 330 female (56.9 percent) and 250 male (43.1 percent) with an average age of 33 years (range 20-60), modal age group 30-40 years and median age was 35 years. The majority of the sample is married (87.0 percent) with a mean family size 5.3. Relative to the educational level, majority (80 percent) of the sample, are

graduates or post graduates, which imply a fairly educated sample. The average monthly house hold income of the sample is Rs.18000. The socio-economic class of the sample is fairly represented from SEC A1, A2, B1 and B2.The average distance travelled to the store is 1.43 kms. The majority of the sample (55 percent) has used two wheeler motor cycle as a mode of transport for shopping. Of the sample, 49.5 percent of shopping trips were shorter than 10 min, while 80 percent of the shopping trips were no longer than 15 min. The majority of the respondents (49.5 percent) reveal that they always shop food and grocery products from supermarkets as they shop almost once in every week. Another 35 percent of the customers are frequent supermarket shoppers as they shop at least thrice in a week. Rests of the respondents are occasional supermarket shoppers. The average frequency of store patronage per person per month was 4.3. Table 1. Respondents’ demographic Profile

Variable Description Frequency Percent Mean S.D

Gender Male Female

250 330

43.1 56.9

- -

Age 20-30 years 30-40 40-50 50 - 60

169 221 144 55

27.6 38.1 24.8 9.5

34

8.96

Marital Status Married Un-married

505 75

87.0 13.0

- -

Education SSC/Diploma Degree PG & above

119 327 134

20.5 56.4 23.1

- -

Occupation House wife Employment Business Others

173 280 81 46

29.8 48.3 14.0 7.9

- -

Monthly Household Income

Rs 10000-15000 Rs 15000-20000 Rs 20000-25000 Rs 20000 & above

57 138 151 234

9.8 23.7 26.2 40.3

Rs 18000

Rs 4750

SEC A1 A2 B1 B2

136 148 151 234

23.4 25.5 29.4 21.7

- -

Family size 1-3 3-5 5 & more

162 178 240

27.9 30.7 41.4

5.3

0.76

Distance Travelled to Store

< 1 Km 1-2 Km 2-34 Km 3-4 Km >4 Km

156 187 126 71 40

26.8 32.1 31.0 12.2 6.9

1.43

0.50

Travel Time Taken to Store (in Min.)

< 5 5-10 10-15 15 and Over

128 159 174 119

22.0 27.5 30.0 20.5

13.5 1.34

Variable Description Frequency Percent Mean S.D

Mode of Transport Used

Two wheeler Four wheeler Public/Private transport

320 115 96 49

55.3 19.5 16.5 8.7

- -

Factors Identification and Analysis: To verify the relationships among the factors, the study performs factor analysis and reliability analysis using SPSS Statistical package. Factor analysis is undertaken to identify underlying constructs from among sets of many interrelated items. The KMO measure of sampling adequacy was 0.947 and Chi-square of Bartlett‘s test of sphericity was highly significant (p=0.000) with a value of 2145.82. Seven dimensions of store brand purchase behaviour were extracted, altogether explaining 86.4 percent total variance. Hypotheses Testing: The results of stepwise forward regression analysis examining the influence of seven variables, in explaining 75.3 percent of the variation observed in store brand purchase behaviour. All the antecedents were found to be significantly related to consumer store brand attitude. Therefore, the posited hypotheses H1, H2, H3, H4, H5, H6 and H7 are supported. The results of unstandardised beta coefficient for all emerged models indicate a strong and positive relationship between the antecedents and store brand purchase at 0.001 level. Furthermore, the results from all the models indicate the predicted, positive effects of antecedents on store brand purchase. Therefore, the resultant stepwise forward regression models are as follows: Y =1.917+ 0.622X1-------- (1) Y= 1.637 + 0.618X1+0.115X2------ (2) Y= 1.314 + 0.727X1 + 0.653 X2 + 0.624 X3 ------ (3) Y= 0.671 + 0.580X1 + 0.365X2 + 0.321X3 - 0.298 X4 ------- (4) Y= 0.257+0.547X1+0.305X2+0.254X3 - 0. 239X4+0.219 X5 ---- (5) Y= 0.287+0.493X1+0.272X2+0.238X3 - 0. 214X4+0.211 X5 + 0.208X6---- (6) Y= 0.378+0.482X1+0.255X2+0.245X3 - 0. 210X4+0.142 X5 + 0.138X6 +0.102X7---- -- (7) Whereas, Y= Store brand Purchase Behaviour ; X1=Perceived service Quality of Sales Personnel; X2=Perceived Common Minimum Amenities; X3= Perceived Price Discrepancy consciousness;; X4= Perceived Levels of Inconvenience; X5= Perceived consumer Time Delay Consciousness; X6=

Perceived Security Consciousness and X7=Perceived Quality of Service from Customer Help Desk Discussion and Implications:

The major emphasis of the proposed model is on store brand purchase behaviour in the context of Indian food and grocery retailing. Consistent with the hypotheses and with store brand literature, the identified store brand dissatisfier attributes were found to explain the level of store brand purchase behaviour in a retail setting. Understanding how preferences vary with consumer aspects is a decisive factor in developing successful retail strategies. The results of this study confirm that a generalised attitude toward store brands is an important determinant store brand evaluations. Importantly, store reputation or store image has significant effect on store brand purchase behaviour. The results imply that store brands are seen as extensions of store image and can, therefore contribute to store differentiation in the minds of consumers. There are substantial managerial implications of the study findings. The determinant attributes of store brands provide important insights to all private label manufacturers in India to increase their

foothold and successfully compete in the Indian retail market. The findings from consumer perception and satisfaction with store brands may enable retailers to formulate effective retail strategies for enhancing the acceptance of store brands in the retail market. The following major implications have been drawn from the study:

High-quality store brand items always drive momentum; retailers will have to increase their focus on merchandising strategies.

Continue to understand core shopper needs and align new product strategies accordingly. Consumer centric and highly integrated marketing campaigns are necessary to support store brands.

Competing on price alone no longer will be enough for retailers to win the store brand game.

As store brands continue to evolve, becoming an ever more important component of a retailer‘s strategy, it is imperative that retailers use the best tools and techniques to drive their store brand growth. Retailers need to increase their focus on merchandising strategies in bringing high-quality store brand items to market.

Retailers continue to understand core shopper needs and align new product strategies. Though price remains the driving factor in purchasing decisions yet competing on price alone no longer will be enough for retailers to win the store brand game.

It is important to determine the role of store brands in each category and identifying the promotional levers that work best for their store brands and, determining the optimal price gaps between their store brands and national brand equivalents.

The private label should provide the required functional as well as emotional attributes and benefits. Keeping in mind that it already has a price advantage, this ensures that it takes into account needs that are important to consumers and hence, offers a reliable point of difference from other category players.

Conclusions: In this study, using a conceptual model, we studied the relationship between consumer perceptions and the store brand purchase behaviour. This study results indicate significant relationships between the determinants and store brand purchase behaviour. The growth of private labels in the Indian retail industry is inevitable but retailers do need to keep a few things in mind. Promotion of own label and allocation of large shelf space at the expense of well-marketed national brands can depress the overall size and value of the category while on the other hand, joining hands with them and following principles of Requirements management can create a win-win situations for both. References: ASSOCHAM analysis (2010), ―Steep Rise on Food Prices,‖ available at: www.assocham.org/prels/printnews.php?id=2611. KPMG (2009), 'Indian Retail: Time to Change Lanes', http://economictimes.indiatimes.com/news/news-by-industry/services/retailing/Private-labels-to-continue-growing-in-retail-sector-KPMG/articleshow/4350105.cms Fabian Bergès-Sennou, Philippe Bontems and Vincent Réquillart. (2004), ―Economics of Private Labels: A Survey of Literature,‖ Journal of Agricultural & Food Industrial Organization, Vol. 2(3), pp.1-23. Ward, et al. (2002) Effects of the Private-Label Invasion in Food Industries, American Journal of Agricultural Economics, vol. 84, nr. 4, s. 961-973.

Francis J Mulhern; Jerome D Williams; Robert P Leone (1998), ―Variability of brand price elasticities across retail stores: Ethnic, income and Brand Determinants,‖ Journal of Retailing, Vol. 74(3), pp.427-446.

Dhruv Grewal; R Krishnan; Julie Baker; Norm Borin (1998), ―The effect of store name, brand name and price discounts on consumers' evaluations and Purchase Intentions,‖ Journal of Retailing, Vol. 74(3), pp.

331-351. Mitra Sounak (2010), ―Private label Shine in Retail‖ The telegraph, 31 May 2010.

APPENDIX Top Private Label Retailers in India

RETAILER GROCERY SALES 2009 (US$M)

NO. OF GROCERY STORES 2009

IGD GROCERY RETAIL MARKET SHARE (%)

Pantaloon Retail 1,211 686 0.36

Reliance Retail 401 981 0.11

Aditya Birla Retail 297 646 0.08

Dairy Farm 272 64 0.08

RPG 264 329 0.07 Source: IGD Retail Analysis

Managing Risk In CRM System Implementation For Hotel Services: An Action Research

Pei-Ju Chao, Shu-Chuan Chi Graduate School of Management, National Kaohsiung First University of Science and

Technology Szu-Yuan Sun

Department of Information Management, National Kaohsiung First University of Science and Technology

Keywords: Risk management, customer relationship management, action research, hotel services industry Abstract

Recently hotel businesses are facing a lot of competition. With information technology matured, hotel services CRM (Customer Relationship Management) information system may be a brilliant strategy to increase business performance. This aim of this qualitative study is to investigate the risk factors of CRM information system implementation for hotel services by means of action research. It includes five-step procedures: identify risk factors and determine proper tolerance, measure risks, monitor and report risks, control risks and oversee, audit, fine tune and realign risks in the process of the hotel services CRM information system implementation. The result of this study can provide a guideline for implementation of CRM information system to hotel services business or other businesses.

1. Introduction

The hotels owners in Taiwan are mostly the landlords or the constructional professionals. They were usually short of hotel management knowledge and did not seek for help from the professional analyst of management when they started running hotel businesses. A lot of researches about hotel services indicated that the critical factors to the successful hotel management are service, equipment, marketing, reputation, and market segmentation (Geller, 1985; Yesawich, 1988). The fast development and popularity of information technology (IT) in recent years has driven it becomes the powerful tool to increase organizational competence. Conner (1995) indicated that IT will become one of the essentials for hotel services competence. Information system would provide an advantage in improving service quality to the hotel services since it provides the information needed by the consumers and efficient administration for the organization and hence causes the differences on service and cost advantage (Schertler, 1994). Customer Relationship Management (CRM) is the one that the most important for the services industry among the enormous information systems. The hotel (called hotel A in the following) in the study is a middle sized hotel located in the downtown of Tainan city in southern Taiwan. Hotel A has suffered from the decreasing profit for many years since the modern and well equipped motels arising in the city and urban area. Being a successful organization with great share of the hotel services market in Tainan city hotel A stuck on its management style regardless the change of the social and economical environment. Until recent hotel A sensed the crisis cause by the competence of the hotel services and sought for professional assistance on satisfying the request from the customers. Hotel A then decided to have the CRM system implemented in the organization. Most researches on information system implementation were focusing on finding the critical successful factors (CSF). Less discussed uncertainties usually occurred in the implementation process. The goal of the study is to find out the problem and risk factors in the process of information system implementation and help hotel A deal with the following risk management activities: (DeMarco and Lister, 2004)

1. Risk discovery: Hold brain-storming discussion about risks may occur during the process of information system implementation, then analyze and categorize those risks. Make this procedure the routing for risk discovery to find out the new risks in a certain period of time. 2. Exposure analysis: quantify every risk based on the probability of the risk occurring and the degree of its impact. 3. Contingency planning: if risks occur, the actions to take. 4. Mitigation: the steps taken before the risk transiting to make the contingency planning effective. 5. Ongoing transition monitoring: after listing of the risks, those risks should be monitored carefully. In addition to those risk management activities, action research is used in the study to identify the risk factors of implementing CRM system for hotel services and find out the affections and changes of the business process after CRM implementation. Most of the researches on information system adopted quantitative methodology, e.g. survey research method. This study employs action research as the research method which is a qualitative method mostly used by the researches on the education issues. Checkland (1981) was the first one who adopted action research method on the research of the development of information system. By the procedure of action research, the researchers and hotel A employees are working together to find out the risk factors and fine tune and realign those risk factors to achieve the success of CRM system. 2.1 Literature review 2.1 Customer Relationship Management (CRM) System CRM system is the extension of Contact Management. In the early 1980, Contact management is to collect all the information from the contacts of customers. Ten years later, Contact management extended its customer care to include the functions of Call Center and data analysis. Along with the information technology development, Contact Management evolved to CRM system. The reasons of the evolvement of the Contact Management to CRM system are the change of the business environment, decreasing of the ratio of the customers remaining, shrinks of the profit, enlarging the business scope, and the global communication by internet. Kalakota and Robinson (1999) indicated CRM frame is based on the customer life cycle which includes three steps that are of being acquiring, enhancing, and maintaining. The definition of CRM system here is as: Along with the assistance of information technology, CRM is a system that integrates organizational functions, customer interaction, and enhanced data base technology, to search for customer needs and raise customer satisfaction and loyalty (Bhatia, 1999; Kalakota and Robinson, 1999). 2.2 Information System Implementation Information system implementation would more or less affect the organization. Desanctis and Courtney (1983) indicated the factors that cause the successful information system implementation are (1) top management participation, (2) intended user has desire to the information system, (3) user provides urgent problem, (4) forms computer team, (5) user participation in system design procedure, and (6) users are friendly to the information system and the team of the system implementation. Olikowski (1992) described the interaction among organization, organization members, and information technology in her Technological Construction Action Model.

System transformation or implementation in different organization requires different strategy. The proper strategy and steps to take for information system implementation are according to the characteristics of the organization and the experience and capability of the information department. Welti (1999) indicated three different kinds of information system implementation which are Big-bang, Roll-out, and Step-by-step. The following explains those three kinds of information system implementation.

(1) Big-bang: the organization replaces all of its information system with whole new Entrepreneur Resource Plan system.

(2) Roll-out: information system is implemented department by department. (3) Step-by-step: information system is divided by many modules. System is

implemented module by module. The advantage of this method of implementation is that the organization would gradually adopt new system and reduce the risk and loss accompanied the new information system implementation.

2.3 Risk Management Organization usually adopts Risk Management for reducing the impact should the organization faces risks. Vaughan (2000) mentioned Risk Management is a scientific method for predicting possible loss and designing and practicing the steps for preventing or reducing the impact of financial loss. Mehar and Hedges (1974) indicated two goals of Risk Management: (1) the goal for preventing loss, and (2) the goal for economic concern, reduction in anxiety, meeting externally imposed obligation, and social responsibility. Scholars have given abundant of discussions about Risk Management procedure. Those discussions has systemized Risk Management and thus led organization in performing Risk Management effectively. Culp and Planchat (2000) presented a concept of ―Risk Management as a Business Process‖. In the research, they included five activities in the process of Risk Management: (1) identify risks and determine tolerance, (2) measure risks, (3) monitor and report the risks, (4) control risks, and (5) oversee, audit, tune, and realign. The flow of Risk Management process is as Figure 1. The activities of identifying and measuring risks are the most difficult parts with no standard method to follow. The risks measuring method is therefore different from organization to organization. The common methods used are investigation, financial report, and expert consultation.

Oversee, Audit,

Tune, and Realign

Control Risks

Monitor and Report

the RisksMeasure Risks

Identify Risks And

Determine Tolerance

Figure 1 The internal risk management process

(from Christopher L. Culp (2001),‖The Risk Management Process- Business strategy and Tactics‖, Pg.210)

2.4 Information System Implementation and Risk

Alter (1978) identified eight critical risk factors after he interviewed the designers and users of 56 information systems. Those factors are stated below. (1) Designer is lack of similar system design experience. (2) No user or imposed user. (3) Many users or designers. (4) User, designer, or maintainer replaced often. (5) Lack of system support. (6) Can not confirm the system goal or user mode in advance. (7) Can not predict the impact of the team and mitigate the impact. (8) Encounter technological problem and cost consideration. The first factor is caused by the lack of consideration and skills of designers and thus the information system can not be successfully designed. The 1st, 2nd, 5th, and 8th factors are all categorized into the kind of ―Process Failure‖ risk. Those risk items could be traced and resolved during the development and implementation of information system. The 3rd and 4th risk factors which are caused by many users and change or replace user, designer, or maintainer are categorized into the kind of ―Contributing Factors‖ risk. The two factors could happen in any time during the information system life cycle. Alter (1978) also provided several strategies to prevent risk from disaster. For example, the problem of ―No user or imposed user‖ is known before system development, so three strategies could be planned to prevent the risk becoming disaster. The three strategies are ―acquire user participation‖, ―acquire user commitment‖, and ―sale the system‖. The strategy for prohibiting the maturing of risk factor ―lack of system support‖ could also be done in advance. 3. Methodology

This study is to investigate the risk factors of CRM information system implementation for hotel services by means of action research. The research structure is as figure 2. Action research method was developed by social psychologist Kurt Lewin. Lewin indicated that action research is a method that combines scientist‘s wisdom and practitioner‘s capability in a cooperation way of doing research. Action research has four elements of characteristics: (1) cooperation of researcher and practitioner, (2) feasible problem solving method, (3) change the real situation, and (4) development of theory (Holter and Schwartz-Barcott, 1993). According to different research domain, action research has developed into several different types. In the organizational research domain, the most used type of action research is ―participatory action research‖. It is a method that the employees of organization participate the research process, from the research design, action means discussion, through final result presentation (Whyte et al. 1991).

Action planning Action taking Evaluating

Planning CRM

system

Implementation

StrategiesDiscuss CRM

system

Implementation

Strategies

Field observe

process of

CRM system

Implementation

Reflect

Re-planning &

Discuss CRM

system

Implementation

Strategies

Interview and

Document

Figure 2 Research Structure

Action research is a qualitative research. It emphasizes at the process of the construction of social events and the explanation of human experience under different cultural and social system. Research content includes five steps: (1) planning, (2) action taking, (3) observing, and (4) evaluating. The data collection and analysis are in several ways. One is the research diary that the researchers jotted down the contents of conversation with the employees of hotel A and observation of the business process of hotel A. Another is the audio data which were recorded during the interview. The research flow is as figure 3. Research process started from background introduction, literature review of CRM, information system (IS) implementation, and risk management, research method, research practice in action research cycle, case analysis and results, and conclusions and limitations.

Background

Introduction

Literature

Review

Customer

Relation

Management

Research

PracticeMethodology

Risk

Management

IS

Implementation

規劃

（Planning）

觀察

（Observing）

評估行動之

結果

（Evaluating

the result of the

action）

行動

（Acting）

Planning

ActingObserving

Evaluating

Case Analysis

& Results

Conclusions &

Limitations

The Action Research Cycle

Figure 3 Research Processes

4. Research Practice 4.1 Case Study Hotel A is located in downtown Tainan city. It is fifty years old. Its restaurant is roomy and can provide 670 customers eat in at the same time. It provides single, double, deluxe double, three-person, and four-person rooms. Some rooms are equipped with internet access. The situation is the decoration has faded away and can not compete with other new and well decorated hotels. Hotel A thus lost its old customers and can not draw the attention of the new customers. Even though hotel A is facing its difficulty, it holds the competences as:

(1) It is located in downtown Tainan city. It is near the train station and other public transportation.

(2) Hotel provides parking space for customers. It is hard for finding a parking spot in downtown Tainan city. Customers would love the service.

(3) The restaurant provides variety delicious meals. (4) Room price is cheaper than other hotels.

4.2 The Action Research Cycle

The researchers held the interviews with the relative employees of hotel A in order to find out the risk factors the hotel may face during the process of CRM system implementation. The following presents the interview contents in four steps of Action Research process. (1) First cycle action planning

Hotel A wish to employ computer and information system to suit customer needs to compete with other hotels. Hotel information system could include many sub systems, such as room service, meal service, procurement system, and customer relationship management system. Hotel A decided to adopt Customer Relationship Management first to keep the old customers. The chosen method for CRM system implementation is the one that combines ―roll-out‖ and ―step-by-step‖. “Is it expensive the CRM system? Our company is only a middle-sized hotel. We would like to use the computer for the business process, but are afraid of the system that is too expensive to afford. Besides, If the system is complicated, my workers would spend too much time on learning the operation of the system. My workers and I are all not familiar with the operation of computer. We expect the custom-made CRM system.” (The 3rd week, manager 1) CRM system is in variety recently. The researchers decided to design a CRM system prototype for hotel A after data collection and interviews with the employees of hotel A. (2) First cycle action taking After knowing the company is going to adopt the information system, two employees responded as following: “I respect boss’s decision in adopting the computer system for the hotel business operation. Just we are all so familiar with the customers. If the customers came in team, they usually have no special request since they would state request to tourist bureau. We won’t get the chance of contacting with them in direct way.” (The 5th week, employee 3) “I agree with the idea of using computer in the hotel operation. We are in the 21st century, the computer era. In the century we should build up strong relationship with information system, especially in the competitive service industry. I believe information system would make our work much easier.” (The 5th week, employee 1) Those opinions are from the future users of CRM system. According to the CRM implementation method of integrating ―roll-out‖ with ―step-by-step‖, the hotel service department would be the first department in adopting CRM system. In the early stage of implementation, the manual operation is still used along with the CRM information system to avoid delaying the process due to the system unfamiliarity. The researchers trained the employees to quickly pick up the CRM system and to reduce the resistance to the CRM system from the employees. In the interview and other informal conversation, researchers keep diffusing the information about the functions of the CRM system, its easy operation and learning characteristics, and its

ability to simplify the business process. Most of employees thus are gradually familiar with the CRM system and its capabilities. (3) First cycle observing Hotel A used to collect only the basic data of customers since the manual operation could not do any further. “After we use the CRM system, register counter could provide better service to customers and the customers are satisfied with our services. E.g. when a customer checks in, we can find out the information about whether the customer has ever lived in or is he/she a smoker and arrange a room for him/her by his/her favorite.” (The 13th week, employee 3) “I am still a little fright of computer operation. When the computer or the system is down, who can help me to deal with the situation? I think some problems would emerge after the implementation.” (The 13th week, employee 2)

After the CRM system implemented, the employees asked for help on system operation and help build up customers‘ data. The employees who resisted the use of the CRM system now would use the system to query customers‘ information. The system is maintained in good condition. The customers of hotel A could be categorized into two groups. One is individual and the other is tourist bureau. CRM system could well manage the data of those two groups and thus suit their different needs. The two groups of customers are all satisfied with the service of the hotel. They stated they may come again next time. (4) First cycle evaluating “I think it was a good idea about using CRM system. From the system, I realize the characteristics and the favorites of our customers. This information is a great help to our planning of marketing strategy. A fine marketing strategy could bring us new customers. Another important advantage of the CRM system is that I can get the data I need once I make query to the system. It is so convenient and neat.” (The 10th week, manager 1) In the first cycle of evaluating, hotel A analyzed customers‘ data in order to find out the characteristics of customers and build up the effective marketing strategy. After hotel department implemented the CRM system, the top management decided to have the CRM system implemented in restaurant department also. 4.3 Case Analysis and Results This study has resulted five risk factors when hotel A had the CRM system implemented. The five risk factors are (1) the cost of the CRM system has exceeded the budget for purchasing the system, (2) delay of the CRM system development, (3) user resistance on using the CRM system, (4) the CRM system maintenance, and (5) the performance of the CRM system implementation is behind the expectation. (1) The cost of the CRM system has exceeded the budget for purchasing the system Since hotel A is a middle-sized hotel and is facing the situation of decreasing profit gained, top management has a lot of concerns about the cost of the CRM system development. Hotel A holds only a small budget for the CRM system development. (2) Delay of the CRM system development The custom-made CRM system for hotel A takes a lot of time to develop. The small budget and lack of labors caused the delay of the CRM system development. (3) User resistance on using the CRM system

Hotel A is fifty years old and its employees are not familiar with computer operation. They are scared of using the digital machine for the business process. (4) Short of hands of maintaining the CRM system Hotel A employees are not comfortable with the computer operation and thus is hard to find a skillful employee to maintain the CRM system. (5) The performance of the CRM system implementation is behind the expectation The top management of hotel A was eager to see the efficient performance of the CRM system implementation. The problem is the employees need time to get acquainted with computer the digital device that has never or seldom use. 5. Conclusions and limitations This study is to investigate the risk factors of CRM information system implementation for hotel services by means of action research. By the cycle of action research, researchers and employees who use the CRM system worked together to identify and well manage the risk factors during the process of the CRM system implementation at hotel A. In the first cycle of the action research, researchers found that the CRM system gained strong support from the top management of hotel A and it is treated a quite important system for the hotel services at hotel A. The strong top management support is the critical factor that caused the CRM system implementation successful. In the case study, the risk factors have been identified during the implementation of the CRM system at hotel A are (1) the cost of the CRM system has exceeded the budget for purchasing the system, (2) delay of the CRM system development, (3) user resistance on using the CRM system, (4) short of hands of maintaining the CRM system, and (5) the performance of the CRM system implementation is behind the expectation. Under constraint of labor and time, the researchers chose hotel A in representing the middle-sized hotel organization. It may not be representative in inferring the risk factors to general hotel services industry. Also, with the limitation of interview time, this study may not find out all of the risk factors in the CRM system implementation process in hotel services industry. More research is needed in this research area. References Alter, S., and Ginzberg, M. (1978), ―Managing Uncertainty in MIS Implementation,‖ Sloan Management Review, 20(1), pp. 23-31. Checkland, P., (1981), ―Systems Thinking, Systems Practice‖, New York: Wiley. Conner, F. (1995), ―WestinRoom2000,‖ Cornell Hotel and Restaurant Administration Quarterly, 36(4), pp.14-15. Christopher L. C. (2001),‖The Risk Management Process-Business strategy and Tactics‖, John Wiley & Sons. Desanctis, G. and Courtney, J. F. (1983),‖Toward Friendly User MIS Implementation,‖ Communication of the ACM, 26(10), pp.13-21. DeMarco, T., and Lister, T. (2004), ―Waltzing with Bears – Managing Risk on Software Projects,‖ Chinese edition by EcoTrend. Geller, A. N. (1985), ―Tracking the Critical Success Factors for Hotel Companies,‖ Cornell Hotel & Restaurant Administration Quarterly, February, pp76-81

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& Y. S. Lincoln（Eds.）, ―Handbook of qualitative research‖（pp. 105-117）, Oaks, California: Sage.

Holter, I. M., and Schwartz-Barcott, D.（1993）, ―Action Research:What Is It? How Has It Been Used and

How Can It Be Used in Nursing?‖, Journal of Advanced Nursing, 18, pp.298-304. Kalakota, R and Robinson M. (1999),‖e-Business-Roadmap for success‖, Addison Wesley.

Lindgren, R., Henfridsson, O., and Schultze, U., (2004), ―Design Principles for Competence Management Systems: A Synthesis of An Action Research Study‖, MIS Quarterly, 28(3), pp.435-472.

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Application‖，Homewood，IL：R. D. Irwin.

Orlikowski, W. J.（1992）, ―The Duality of Technology: Rethinking the Concept of Technology in

Organizations‖, Organization Science, 3(3), pp.398-425. Schertler, W. (1994), ―Impact of new information technologies on tourism industry and business,‖ Information and communications technologies in tourism. Proceedings of the International Conference in Innsbruck, Austria. Springer, Berlin. Susman, G. I., & Evered, R. D. (1978). ―An Assessment of the Scientific Merits of Action Research‖, Administrative Science Quarterly, 23, pp.582-603. Vaughan, E.J. (2000), ―Risk Management‖, New York: John Wiley & Sons, Inc.. Welti, N. (1999), ―Successful SAP R/3 Implementation: Practical Management of ERP Project‖, Addison-Wesley. Whyte, William Foote, Davydd J. Greenwood and Peter Lazes (1991), ―Participatory Action Research: Through Practice to Science in Social Research,‖ In William Foote Whyte (ed.) Participatory Action Research. Newbury Park: SAGE Publications. Yesawich, P. C. (1988), ―Marketing in the 1980s‖, Cornell Hotel & Restaurant Administration Quarterly, February, pp.38-45.

The Impact of Trust Formation and Transference on Online Group-Buying Behavior

Meng-Hsiang Hsu Department of Information Management, National Kaohsiung First University of Science

and Technology, Taiwan, R.O.C Li-Wen Chuang

Graduate School of Management, National Kaohsiung First University of Science and Technology, Taiwan, R.O.C

Cheng-Se Hsu

Graduate School of Management, National Kaohsiung First University of Science and Technology, Taiwan, R.O.C

Keywords Online group buying, trust, trust transfer, perceived risk, Abstract

Today, who could we trust in online group buying？Few research on group buying rarely addresses the

issue of trust, trust transfer and perceived risk. This study expands the focus on the issue of trust to include the formation of four types of trust, trust transfer ,and perceived risk in an online group-buying environment. An investigation of the correlation between the formation of these four types of trust and the intention of online group buying requires using the theory of reasoned action (TRA), thereby exploring group-buying intentions of online consumers. The research model uses online questionnaires as the basis of its empirical study, which comprises a collection of 251 questionnaires. We do find three contributions: 1) To the consumer, seven key antecedents of the four types of trust by the consumer in the online group-buying environment are positively significant; 2) Our research results show that the trust transfer of the online group-buying environment is positively significant to the consumer; and 3) the level of trust in “trust in website,” “trust in store” and “trust in initiator,” and attitude of participation in online group buying are found by research results to be positively significant to the consumer. Finally, our study offers several comments and suggestions regarding the theoretical and practical implications of the research, including research limitations and future research direction.

Introduction The worldwide financial recession of 2008 left the global economy in tatters. The average consumer adopted a conservative and discreet attitude toward each purchase, which popularized to the online group-buying phenomenon. Online group buying is defined as a purchase event in which a team of customers forms a collective to make purchases from a company. By using the C2B , consumers who do not know one another are able to gather sufficient funds through the online community to qualify for the most affordable price when making a purchase. Online group buying is a variable form of online shopping; however, it possesses all the advantages, such as convenience, speed, and unrestricted geography. The most significant advantage is the price. Several scholars have indicated that both the buying and the selling parties believe that they can obtain much more benefits from the use of online group buying activities (Anand & Aron, 2003; R. Kauffman & Wang, 2001). Numerous previous studies on online group buying, online shopping, and online auctions often focus only on price when considering consumer purchase intentions. Few have observed purchasing behaviors from the viewpoint of ―online group buying‖ and trust in the online group-buying environment (J. Chen, Chen, & Song, 2007; R. J. Kauffman, Laf, Lin, & Chang, 2009; R. J. Kauffman, Lai, & Ho, 2010; Li, Chawla, Rajan, & Sycara, 2004; Li, Sycara, & Scheller-Wolf, 2010). Though a consumer engaging in online group buying had initially considered price as the primary motivator for participation, with the accumulation of experience and time, and

the emergence of online virtual communities, factors that influence consumer decisions to partake in online group buying must be considered from multiple angles. Thus, this study focuses on exploring the overall level of trust from the viewpoint of the consumer as the formation of the four types of trust (Blau, 1964; Gefen, 2000; Lewis & Weigert, 1985; Luhmann, Poggi, & Burns, 1979) and the trust transfer phenomenon (Doney & Cannon, 1997; Stewart, 2003) in online group-buying environments. In addition, the correlation between the formation of the four types of trust and online group-buying intention is also explored. This study uses TRA theory to analyze and discuss consumer online group-buying behavior. We attempt to answer the following questions, such as what the factors are that impact the willingness of the consumer to participate in online group buying, what benefits the consumer can gain by participating, and what motivations drive consumers to participate in online group buying. The study has three main research goals: 1)Investigate the factors that form the four types of trust in an online group-buying environment to see whether the level of trust affects consumer knowledge on the risks involved in group buying. 2)Investigate the relationship between the consumer and the ―trust transfer from website to store,‖ and between the consumer and the ―trust transfer from initiator to members,‖ in an online group-buying environment. 3)Investigate whether the level of trust of the consumer regarding the website, store, initiator, and members affects the relationship between consumer participation and group-buying attitude, as well as between group-buying attitude and group-buying intention. The study revealed three findings: 1) To the buyer, the antecedents of the four types of trust by the consumer in the online group-buying environment are positively significant, such as trust in the ―security privacy‖ and ―IT quality‖ of the website, trust in the ―reputation‖ of the store, trust in the ―feedback mechanism‖ and ―interaction‖ of the initiator, and trust in the ―identity‖ and ―shared vision‖ of members; 2) The research results show that the trust transfer of the online group-buying environment is positively significant to the consumer, such as trust transfer from the website to the store and from initiator to members; and 3) the level of trust in ―trust in website,‖ ―trust in store‖ and ―trust in initiator,‖ and attitude of participation in online group buying are found by research results to be positively significant to the consumer. Since previous studies failed to provide an in-depth analysis of online group-buying environments from the perspective of complete trustworthiness, this exploratory study is designed to assist researchers for enhancing their understanding of group-buying behavior. Manufacturers can use the results of this study as a reference, which used a group-buying methodology from the vantage point of the consumer, to plan and develop appropriate group-buying services and strategies, as companies attempt to close in on the ultimate value priced by the consumer. Theoretical Foundations For the seller, online group buying not only reduces costs, but also increases customer-buying intention and raises product customization and value-added capabilities (Armstrong & Hagel III, 1996). For a consumer, in addition to gaining available bargaining space and reducing purchase cost, buying online as a group can yield the benefit of economies of scale normally reserved for large enterprises (J. Chen, Chen, & Song, 2002; Dodge, 2000). Therefore, both the consumers and the sellers can gain from online group-buying activities (Li, et al., 2004; Rha & Widdows, 2002). This study thus defines an online group-buying community as a group of online consumers sharing their needs for products and service; the collective relies on their strength in numbers and cohesion, using their group-buying power to achieve purchase at discount rates. The theory of reasoned action (TRA theory) is widely accepted model in social psychology to explain virtually any human behavior. Ajzen and Fishbein suggested that behavioral intention is, in turn, predicted by the individual‘s attitude toward the behavior and subjective norms.

According to previous studies on online shopping behavior (S. Jarvenpaa, Tractinsky, & Vitale, 2000; Lim, Sia, Lee, & Benbasat, 2006; Teo & Yu, 2005), results generated from TRA theory suggest that the theory can explain or predict individual attitudes and intentions. Jarvenpaa el al. (2000) used TRA theory to investigate the attitudes and intentions of consumers who shop online, and produced excellent explanations and results. Teo and Yu (2005) conducted a related study on shopping attitudes and intentions in electronic commerce. The results showed that an attitude for shopping has a positive and significant effect on the intention to shop. Based on these results, this study used ―attitude‖ and ―intention‖ to measure consumer behavior in online group-buying activities. Research model and hypotheses Sitkin and Pablo (1993) suggested that incidence of risk behavior must certainly be influenced from numerous the antecedents. They used a variety of characteristics to describe these factors: characteristics of individual consumers, characteristics of the opposing party to the transaction, and characteristics of the environment have influenced consumer consciousness regarding the size of the risk involved in the transaction environment. Therefore, the level of trust being influenced varies. Our study proposes the hypothesis as follow. Past studies indicated that the biggest concerns of consumers regarding online shopping are issues related to network security privacy (S. L. Jarvenpaa, Tractinsky, & Saarinen, 1999; Swaminathan, Lepkowska White, & Rao, 1999). Similarly, these uncertainties can arouse suspicion in the consumer, thereby affecting their behavior (Drennan, Previte, & Sullivan Mort, 2006). Thus, when the consumer engages in group activities, security privacy is an essential factor that could determine whether a consumer places trust in a group-buying website. This study proposes the following hypothesis: H1: Consciousness of “security privacy” affects the level of trust of a consumer in a website.

Website interface can create an overall impression of the website for the user. In online group buying, since no actual face-to-face contact exists, the only interaction for the consumer is with the website platform. Website design plays a crucial role in attracting the consumer (Lai, Zhuang, & Kaohsiung, 2002), and the quality of a website is significant for instilling customer trust in a store (McKnight, Choudhury, & Kacmar, 2003). Thus, this study proposes the following hypothesis: H2: Consciousness of “IT quality” affects the level of trust of a consumer in a website.

The size of a company affects its first impression on the customer (S. Jarvenpaa, et al., 2000). Doney and Cannon (1997) indicated that the size of a company can provide a ―whether the seller can be trusted‖ signal to the buyer, and therefore, the consumer can become aware that this store has a certain amount of experience and capability that could help them feel safe in a transaction. Thus, this study proposes the following hypothesis: H3: Consciousness of “size” affects the level of trust of a consumer in a store.

A reputation of a business affects the trust of a consumer in that business because it represents the ability, benevolence, and integrity of that business (Doney & Cannon, 1997; S. Jarvenpaa, et al., 2000). Online group buying also functions in a similar manner; each group buying launched by the initiator requires a large number of consumers to join before the group-buying objective can be achieved. The reputation of a store is critical for encouraging consumers to join the group because a consumer uses reputation to assess whether the store is reliable. Thus, this study proposes the following hypothesis:

H4: Consciousness of “reputation” affects the level of trust of a consumer in a store.

A feedback mechanism is used to collect information on past trading behaviors of a seller. Such a mechanism can prevent sellers from engaging in opportunistic behavior in the market place (Ba & Pavlou, 2002). Online group buying also provides a feedback mechanism, which includes a setup for positive and negative evaluations, and the establishment of a blacklist. If consumers believe that feedback mechanisms are effective in managing initiators whom they believe are taking responsibility for the completion of matters related to group buying while not behaving opportunistically, the level of trust in the initiator is elevated. This study establishes the following research hypothesis: H5: Consciousness of “feedback mechanism” affects the level of trust of a consumer in an initiator. Trust is developed from interactive relationships (Bigley & Pearce, 1998). In an online group-buying environment, a product only receives a brief description and a few photos, which does not suffice for the consumer to experience the quality of the product before making a purchase, resulting in unavoidable product risks. Furthermore, if the initiator can respond in a timely and detailed manner, and is able to establish a good communication environment for the consumer, the initiator can enable the consumer to elevate the level of trust in the initiator. This study proposes the follow hypothesis: H6: Level of “interaction” with an initiator affects the level of trust of a consumer in that initiator. Mael and Ashforth (1992) showed that when a person identifies with a group, that person feels a part of that group. In interactions between people, any exchanges occurring for a long duration produce feelings of closeness with the group, resulting in a sense of belonging. Online group-buying communities are places where members sharing common beliefs and similar values/interests can gather, allowing them to feel as a group. Members are more than happy to contribute to the group, to help members achieve their goals. Thus, this study proposes the following hypothesis: H7: Consciousness of the “identity” of a member affects the level of trust of a consumer in these members. A trusting relationship is based on the consistency of value (Sitkin & Roth, 1993). When members of a group possess common goals and values, they tend to trust each other. Therefore, a shared vision and common values can inspire trust in the development of relationships (Tsai & Ghoshal, 1998). Members in a group sharing a vision and common values are encouraged to behave in a manner that is beneficial to the entire group. By using a shared vision to measure each member, this study found that the more consistent the vision of each member, the higher the level of trust between them. Thus, this study proposes the following hypothesis: H8: Consciousness of a “shared vision” between members affects the level of trust of a consumer in these members. Trust transfer is a process that involves the transfer of trust from a trustworthy object to an unfamiliar object (Doney & Cannon, 1997) . In an online group-buying environment, the trust of a consumer in a website leads to that consumer trusting a store located within it. Because IT quality includes the improvement of online security measures, most consumers feel that when the structure of a website is sufficiently sound, their products are protected (Stewart, 2003). Similarly, the trust of a consumer in the initiator also results in that consumer trusting the participating members of the group because the consumer believes that the ability and benevolence of the initiator helps members achieve their group-buying objectives. This study accordingly proposes the following hypothesis:

H9: The higher the level of consumer “trust in website,” the higher the “trust in store.” H10: The higher the level of consumer “trust in initiator,” the higher the “trust in members.” Recent online shopping-related studies indicate that, regarding the relationship between the formation of trust in group buying and group-buying risks and attitudes, risk awareness is the main factor affecting the online shopping behavior of consumers (S. L. Jarvenpaa, et al., 1999; Swaminathan, et al., 1999). When consumer awareness on the level of risk involved in a transactional environment becomes higher, the attitude of that consumer toward the transaction becomes lower. Studies indicated that online shipping involves risks, such as finance, product performance, psychology, and time (Forsythe & Shi, 2003). The initiator leaves the customer with the stress of potentially accepting the risk, which affects the decision to join the group. Therefore, Perceived risk of group buying and attitude of participation in online group buying are found to have significant impact on the consumer. Thus, this study proposes the following hypothesis: H11a: The higher the level of consumer “trust in website,” the lower its impact on “Perceived risk.” H11b: The higher the level of consumer “trust in store,” the lower its impact on “Perceived risk.” H11c: The higher the level of consumer “trust in initiator,” the lower its impact on “Perceived risk.” H11d: The higher the level of consumer “trust in members,” the lower its impact on “Perceived risk.” H12: The higher the level of awareness of “Perceived risk” by the consumer, the lower its impact on “attitude of group-buying.” In an online group-buying environment, consumers believing that group buying can save time and money maintain that the group-buying model is indeed useful. Therefore, consumer attitudes concerning participation in group buying are a positive influence, which strengthens the intention of the consumer to join the group buying. This study used TRA theory to investigate the level of trust of consumers in website, store, initiators, and members, to assess whether such a level of trust affects attitudes and intentions towards participating in group buying. Thus, this study proposes the following hypothesis: H13a: The higher the level of consumer “trust in website,” the higher its impact on “attitude of group-buying.” H13b: The higher the level of consumer “trust in store,” the higher its impact on “attitude of group-buying.” H13c: The higher the level of consumer “trust in initiator,” the higher its impact on “attitude of group-buying.” H13d: The higher the level of consumer “trust in members,” the higher its impact on “attitude of group-buying.” H14: The higher the level of consumer participation in “attitude of group-buying,” the higher its impact on participation in “intention of group-buying.” This study proposes its research framework in light of these relationships. As is shown in figure 1. Methodology This study used members of the ―ihergo‖ group-buying community as subjects, and employed online questionnaires to collect information and test various hypothesis. Experts and scholars assisted during the pretest to monitor questionnaire items for their situational relevance, logic, and readability, which removed questionnaire items that were deemed inappropriate before updating the remainder. The experiment then required developing and extending a pilot test for online questionnaire survey to double check the proposed research model with practicality. Firstly, existing literature was reviewed to ascertain that previously cited questionnaires are still valid for use in the current research case, or to help

update the questionnaire items, to create an improved measurement from this model structure. Members of the ―ihergo‖ group buying were then invited to fill out the online questionnaire to verify the normal use of the questionnaire survey system. The questionnaire items are shown in Appendix A We based our survey items on previous research . Reputation was measured with three items adapted from Jarvenpaa et al. (2000 and Doney and Cannonn 1997). Size was measured with three items adapted from Jarvenpaa et al. (2000 IT quality was measured with three items adapted from DeLone and McLean (2003). Security Privacy was measured with three items adapted from Kim et al (2008). Interaction was measured with three items adapted from Doney and Cannon (1997). Feedback Mechanism was measured with three items adapted from Ba and Pavlou (2002 and Gefen (2004). Identity and Shared Vision were measured with the items adapted from Chiu et al.(2006). Trust in store was measured with three items adapted from Jarvenpaa et al. (2000). Trust in website was measured with three items adapted from Pennington et al.(2003). Trust in initiator was measured with four items adapted from Ba and Pavlou(2002) and Doney and Cannon (1997). Trust in members was measured with four items adapted from Jarvanpaa et al. (1998). Perceived risk was measured with three items adapted from Gefen (2002). Attitude of group buying was measured with three items adapted from Jarvenpaa et al.(2000) and Lim et al. (2006). Intention of group buying was measured with four items adapted from Jarvenpaa et al.(2000) and Lim et al. (2006). All scales used a 1-5 Likert Scale with anchors ranging from strongly disagree to strongly agree. The ―ihergo‖ group-buying community is the most well known online group-buying website. The turnover in 2010 exceeded 1.1 billion. 1,151 questionnaires were collected, and after removing invalid questionnaires that were repeated or meaningless, 251 valid questionnaires remained. Participating in the questionnaire was the decision of the members. When compared to those whose participation were involuntary, the responses from those whose participation were voluntary revealed more meaningful information (Gosling, Vazire, Srivastava, & John, 2004). Table 1 shows various descriptions of statistics and reliability of the construct. Data analysis Since PSL has the model validation capability for handling small to medium samples (Chin, 1998). Thus, our study considers PLS as a suitable system analysis tool for application in the proposed research model. This study used internal reliability, convergent validity, and discriminate validity to measure the reliability and validity of the proposed model. Most scholars use 0.7 as the recommended threshold for reliable dimensions (Chin, 1998). Table 1 shows that the reliability of various dimensions are distributed between 0.83~0.97. All dimensions in this study were greater than 0.7, as recommended by scholars, indicating a fairly sound reliability. Validity verification includes testing for convergent validity and discriminate validity. This measurement method mainly uses factor loading and average variance extracted (AVE) for assessment. Factor loading of each dimension should reach the threshold value of 0.7, while AVE value should reach 0.5 (Fornell & Larcker, 1981). Discriminant validity is mainly used to determine whether a difference between dimensions exists. Results from summarizing the analyzed information from this study revealed that factor loading values ranged from 0.72~0.97 and AVE values ranged from 0.62~0.92, which met the aforementioned criteria. The correlation coefficient of each dimension was less than 0.9. Thus, this research model possesses a certain level of validity.

This study compiled 251 samples, which exceeds the threshold value of ten times the number of independent variables required to start affecting dependent variables (Barclay, Higgins, & Thompson, 1995). The bootstrap resampling method was used to resample the samples until 500 samples remained (Chin, 1998), obtaining the t value to judge the significance of the model path. Results are shown in Table 3. Figure 1 summarizes the structural path analysis in our hypotheses. Table 3 summarizes the result of our research hypotheses. Regarding the explanatory power of independent variables over dependent variables, Falk and Miller (1992) suggested that when R2 is greater than 10 %, it has independent explanatory power. In this study, the explanatory power of each dimension over other dimensions is between 31 % and 56 %. Concerning the path coefficient, Chin (1998) stated that the minimum value should be greater than 0.2, with an ideal value above 0.3 (Ifinedo, 2007). In this study, the path coefficient value β ranged from 0.26 to 0.71, which is a rather sound fit of the overall model.

Constuct Item Factor loading Composite reliability Cronbach’s α AVE

AT1 0.72

AT2 0.87

AT3 0.88

FB1 0.89

FB2 0.92

FB3 0.93

ID1 0.94

ID2 0.92

INT1 0.91

INT2 0.92

INT3 0.88

INTT1 0.88

INTT2 0.94

INTT3 0.92

INTT4 0.94

IQ1 0.76

IQ2 0.85

IQ3 0.87

PP1 0.92

PP2 0.9

PP3 0.89

REP1 0.92

REP2 0.9

REP3 0.9

RI1 0.97

RI2 0.96

RI3 0.96

SIZ1 0.93

SIZ2 0.91

SIZ3 0.9

SV1 0.9

SV2 0.92

SV3 0.82

TRM1 0.8

TRM2 0.81

TRM3 0.83

TRM4 0.84

TRU1 0.84

TRU2 0.84

TRU3 0.89

TRU4 0.91

TRV1 0.84

TRV2 0.83

TRV3 0.86

TRW1 0.74

TRW2 0.81

TRW3 0.8

0.89 0.84 0.67

0.91 0.86 0.77

0.83 0.69 0.62

0.92 0.89 0.75

0.88 0.8 0.71

0.82

0.97 0.96 0.92

0.94 0.9 0.84

0.93 0.84 0.86

0.87 0.77 0.69

0.94 0.85

0.82

0.96

0.87 0.77 0.68

0.94 0.9 0.83

Size

Shared Vision

Trust in

Members

Trust in

Store

Trust in

Initiator

Trust in

Website

IT Quality

Security

Privacy

Reputation

Perceived Risk

0.93 0.89

0.89

0.82

0.93

Feedback

Mechnism

Attitude of

Group buying

Table 1 Descriptive statistics

Identity

Interaction

Intention

0.93 0.89

Constuct AT FB ID INT INTT IQ PP REP RI SIZ SV TRM TRU TRV TRW

AT 0.82

FB 0.49 0.91

ID 0.62 0.52 0.93

INT 0.37 0.58 0.48 0.91

INTT 0.55 0.42 0.54 0.31 0.92

IQ 0.55 0.44 0.57 0.34 0.37 0.83

PP 0.49 0.38 0.49 0.44 0.37 0.57 0.91

REP 0.53 0.32 0.42 0.38 0.27 0.48 0.5 0.91

RI -0.41 -0.23 -0.31 -0.34 -0.28 -0.35 -0.51 -0.47 0.96

SIZ 0.42 0.29 0.35 0.3 0.2 0.37 0.38 0.59 -0.47 0.92

SV 0.4 0.38 0.6 0.44 0.43 0.36 0.37 0.26 -0.25 0.22 0.88

TRM 0.46 0.48 0.6 0.51 0.5 0.39 0.44 0.41 -0.49 0.36 0.49 0.82

TRU 0.4 0.57 0.43 0.72 0.41 0.34 0.46 0.38 -0.41 0.39 0.35 0.49 0.87

TRV 0.57 0.35 0.44 0.36 0.29 0.54 0.57 0.65 -0.39 0.44 0.26 0.46 0.39 0.84

TRW 0.5 0.51 0.54 0.41 0.43 0.6 0.69 0.45 -0.45 0.37 0.37 0.48 0.45 0.48 0.71

notes: 1.Diagonal:Square Root of AVEs reported along diagonal in bold.

Off-diagonals: Correlation between latent variables .

2.AT:Attitude of group buying ;FB:Feedback mechnism ;ID:Identity ;INT:Interaction ;INTT:Intention of group buying ;IQ:IT quality ;PP:Security privacy

;REP:Reputation ;RI:Perceived risk ;SIZ:Size ;SV:Shared vision ;TRM:Trust in members ;TRU:Trust in initiator ;TRV:Trust in store ;TRW:Trust in website.

Table 2 Discriminant validity

Table 3 Results of PLS Analysis and Summary of Hypothesis Test

Hypothesis Path SupportedPath coefficient(t-vaule) R2

H1 Security Privacy → Trust in website Yes 0.3(10.39)*** 0.54

H2 IT Quality → Trust in website Yes 0.52(5.50)***

H3 Size → Trust in Store No 0.06(0.91) 0.46

H4 Reputation → Trust in Store Yes 0.51(7.28)***

H5 Feedback Mechanism → Trust in Initiator Yes 0.22(3.38)*** 0.56

H6 Interaction → Trust in Initiator Yes 0.59(9.35)***

H7 Identity → Trust in Members Yes 0.38(6.30)*** 0.45

H8 Shared Vision → Trust in Members Yes 0.17(2.75)***

H9 Trust in Website → Trust in Store Yes 0.22(3.53)***

H10 Trust in Initiator → Trust in Members Yes 0.27(4.39)***

H11a Trust in Website → Perceived risk Yes -0.19(3.27)*** 0.33

H11b Trust in Store → Perceived risk Yes -0.12(1.74)*

H11c Trust in Initiator → Perceived risk Yes -0.14(1.89)*

H11d Trust in Members → Perceived risk Yes -0.27(3.40)***

H12 Perceived risk → Attitude of group buying Yes -0.09(1.70)* 0.42

H13a Trust in Website → Attitude of group buying Yes 0.20(3.31)***

H13b Trust in store → Attitude of group buying Yes 0.35(5.18)***

H13c Trust in Initiator → Attitude of group buying No 0.07(1.17)

H13d Trust in Members → Attitude of group buying Yes 0.12(1.78)*

H14 Attitude of group buying → Intention of group buyingYes 0.55(12.05)*** 0.31

Notes: *Significant at the 0.05 level.

**Significant at the 0.01 level.

***Significant at the 0.001 level.

Security

Privacy

IT Quality

Figure 1 Results of path coefficients.

Trust in

Website

R2=0.54

Perceived

Risk

R2=0.33

Size

Reputation

Trust in

Store

R2=0.46

Feedback

Mechanism

Interaction

Trust in

Initiator

R2=0.56

Attitude of

Group

Buying

R2=0.42

Identity

Shared

Vision

Trust in

Members

R2=0.45

Intention of

Group

Buying

R2=0.31

0.3***

0.52***

0.06

0.51***

0.22***

0.59***

0.38***

0.17***

-0.19***

0.20***

-0.12*

0.22***

0.27***

0.35***

-0.14*

0.07

0.12*

-0.27***

-0.09*

0.55***

Discussion This study proposed a theoretically based model, which comprises four trust types and trust transfers, online group-buying attitudes, and online-group buying intentions. This paper provided an understanding of the effects of the consumer regarding the formation and transfer of trust in online group buying, as well as the influences that the four types of trust and trust transfer in online group buying have on the intention of the consumer to participate in online group buying. Research shows that IT quality positively affects the level of trust of consumers in a group-buying website, which is consistent with previous findings. Everard and Galletta (2006) indicated that the quality of an online business affects the trust in that online business. The study also confirmed that security privacy is also positive effects on the level of trust in group-buying websites. This result agrees with previous studies (S. C. Chen & Dhillon, 2003; Teo & Yu, 2005). A website having a comprehensive privacy protection policy reduces feelings of uncertainty on the part of the consumer, and strengthens the level of trust in the online store. Thus, consumer awareness of security privacy and IT quality of a group-buying business website affects the level of trust in that business website. Reputation positively influenced the level of trust of the consumer in the group-buying store, which is consistent with past findings (Doney & Cannon, 1997; Ganesan, 1994; S. L. Jarvenpaa, et al., 1999), and indicates that reputation is a crucial factor in online transaction platforms. However, size had not significantly affected the level of trust of the consumer in a group-buying store, failing to meet the expectation of this study. The reasons could be that the information that the store has provided to the market is presented in a professional and systematic manner, such as a complete shopping process guide or a list of customer service phone numbers, which might have enabled the consumer to perceive that the store can be relied upon rather than to question the size of the business.

The study found that the feedback mechanism has a positive influence on the level of trust in a group-buying initiator, which is consistent with previous research. Ba and Pavlou (2002) suggested that feedback mechanisms exist under risky environments, and is designed to accumulate behavior information regarding both buyers and sellers during past transactions. Furthermore, the study also found that an interaction has a significant influence on the level of trust in the group-buying initiator, which is consistent with results from study conducted by Tsai and Ghoshal (1998). The research indicated that the degree of closeness in interaction strongly influence the development of trust within an organization. Thus, the awareness of a feedback mechanism and interaction as applied to the initiator is a significant factor for consumers or members when forming trust. Our study found that identity and shared vision positively influence the level of trust in group-buying members. This result is consistent with that of Tsai and Ghoshal (1998). When a group has a more defined sense of identity, they have a higher rate of cooperation. Similarly, online group buying is where a group of consumers who share the same goals and a sense of value gather. Their common shopping needs permit them to share a common sense of obligation and reward, and to abide by any contracts between two parties. Therefore, consumer awareness of identity and the shared vision of group-buying members affect the level of trust in group-buying members. Regarding trust transfer relationships in online group buying, this study found that consumers placing their trust in websites influence their trust in a store, and consumers who place their trust in an initiator influence their trust in members, which is consistent with the study by Stewart (2003). Thus, the consumer performs a transfer of trust to the store. And the consumer performs a transfer of trust to these members. Finally, this study found that the levels of trust of the consumer ―in website,‖ ―in store,‖ ―in initiator,‖ and ―in members‖ significantly influence the level of awareness in group-buying risks. This result is consistent with arguments made by Ganesan (1994) and Mayer et al. (1995). Since the level of trust of a consumer highlights the ability of that consumer to accept risks when transacting at this site, if the consumer becomes aware that the level of risk involved at the transaction environment is higher than can be managed, the attitude of the consumer to transact is lowered, which is consistent with the hypothesis H12 in this study. Furthermore, this study found that the level of trust of the consumer in the ―website,‖ ―store,‖ and ―members‖ significantly influences the level of attitude of the consumer to participate in group buying. This result is consistent with the study conducted by Lim et al. (2006) on online bookstores, indicating that trusting beliefs influence attitudes on online shopping. However, the level of the consumer on ―initiator trust‖ does not affect the attitude to participate in online group buying. This study found that group-buying attitude significantly affected the intention of the consumer to participate in group buying, meaning that within the group-buying community, a consumer believes that participation in group buying brings contentment and intimate meaning, consequently providing individuals with an elevated willingness to engage in group buying. This study is consistent with research results from the study conducted by Hausenblas et al. (1997). Therefore, attitude influences intention. Conclusion This study examines the intention of consumer participation in online group buying from the viewpoint of trust. In addition to discovering factors influencing the intention of the consumer to participate in group buying, the other two crucial findings are the formation of trust and trust transfer, and their related influences. The generation of trust formation is dependent on whether an online group-buying website, store, initiator, or members are worthy of the trust that would

lead to consumer awareness of trusting the other side. Businesses must face the questions as to whether IT quality and security privacy measures are sufficiently comprehensive, and whether this would lead to the willingness of the consumer to use it. The reputation of a business is even more crucial for creating consumer group-buying intentions. The exchange and recognition between the initiator and the members in a group-buying community influence the consumer to decide whether to engage in group-buying activities. In addition, the trust transfer in online group buying indirectly influences the willingness of the consumer to participate in group buying, and affects the perceived amount of risk involved in group buying. The higher the level of trust in group-buying participation, the lower the risk of group buying because consumers believe that trust in a website, a store, an initiator, and members can help lower the risks involved in joining a group-buying community. Therefore, in practice, this study contributed chiefly in providing businesses with an enhanced understanding of the consumer, with an alternative manner of considering online transactions. Compared to traditional online businesses, this viewpoint increased the amount of opportunities for successful transaction. In addition to allocating resources to the webpages, technology in security privacy was also enhanced to reduce risk in transactions. Research limitations and future research However, other possible factors may also influence consumer intentions to participate in online group-buying, for example: agency theory, social capital theory, social exchange theory ,and social cognitive theory. Future research should focus on these relationships that mutually influence the development of trust. References Anand, K. S., & Aron, R. (2003). Group buying on the web: A comparison of price-discovery mechanisms. Management Science, 49(11), 1546-1562. Armstrong, A., & Hagel III, J. (1996). The real value of on-line communities. Harvard business review, 74(3),

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Swaminathan, V., Lepkowska White, E., & Rao, B. P. (1999). Browsers or buyers in cyberspace? An investigation of factors influencing electronic exchange. Journal of Computer Mediated Communication, 5(2). Teo, T. S. H., & Yu, Y. (2005). Online buying behavior: a transaction cost economics perspective. Omega, 33(5), 451-465. Tsai, W., & Ghoshal, S. (1998). Social capital and value creation: The role of intrafirm networks. The Academy of Management Journal, 41(4), 464-476.

Appendix A: Items/scales of the model variables

Reputation

1 The store of Ihergo has a good reputation.

2 The store of Ihergo is known to be concerned about customers.

3 The store of Ihergo has a reputation for being honest.

Size

4 The store of Ihergo has a large size.

5 The store of Ihergo is avery large company .

6 The store of Ihergo is the industry's biggest suppliers on the web.

IT Quality

7 I feel ease of use on the system of the Ihergo.

8 I feel usefulness on the information of the Ihergo.

9 I am satisfied with the service that the Ihergo provides.

Security Privacy

10 The Ihergo website implements security measures to protect Internet shopperst of group buying.

11 I feel safe in making group buying on the Ihergo Website.

12 The Ihergo website usually ensures that my personal information is protected.

Interaction

13 I feel that the initiator of Ihergo could understand my needs.

14 I feel that the initiator of Ihergo is appropriate and correct to answer members question

15 I feel that the initiator of Ihergo could keep us informed about matters relating to group buying.

Feedback Mechanism

16 I feel that the Ihergo could provide the correct feedback rating of initiator.

17 I feel usefulness that the Ihergo could provide past trading behaviors of initiator.

18 I feel Credibility that the Ihergo could provide the feedback rating of initiator.

Identity

19 I have a strong positive feeling toward the Ihergo .

20 I am proud to be a member of the Ihergo .

Shared Vision

21Members in the Ihergo community share the vision of helping others solve their problems

of group buying.

22Members in the Ihergo community share the same goal of promoting promoting group

buying more convenient from each other.

23Members in the Ihergo community share the same value that seeking the benefits of group

buying is pleasant.

Trust in store

24 The store of Ihergo is trustworthy.

25 The store of Ihergo wants to be known as one who keeps promises and commitments.

26 This store’s behavior meets my expectations.

Trust in website

27On the Ihergo Web site, I believe the proper technology has been put into place that would

assure me of an error-free transaction.

28

On the Ihergo Web site, I believe the appropriate safeguards (technologies such as

encryption and privacy protection measures) have been put into place that would ensure

me of a successful transaction.

29 There is enough information on the Ihergo Web site to assure me that this vendor is legitimate.

Trust in initiator

30 I feel that the initiator of Ihergo wants to be known as one who keeps promises and commitments.

31 I feel that the initiator of Ihergo could keep us informed about matters relating to group buying.

32 I feel that the initiator of Ihergo could meets member's expectations.

33 I feel that the initiator of Ihergo is trustworthy.

Trust in members

34 I has confidence in one another in finishing group buying.

35 I don't doubt the members of Ihergo in stopping group buying.

36 I feel that the members of Ihergo hasn't been repeatedly informed to complete group buying.

37Members in the Ihergo community share the goal of helping others solve their problems of

group buying.

Perceived risk

38 I feel that group buying of Ihergo isn't risky at all.

39 I feel that group buying of Ihergo don't suffere a significant loss at all.

40 There will be no problem at all in group buying of Ihergo .

Attitude of group buying

41 I like the idea of using the Internet to shop from Ihergo.

42 Using the Internet to shop from Ihergo is a good idea.

43 I think the outcome of buying from Ihergo using Internet should be positive.

Intention of group buying

44 I am considering purchasing from Ihergo now.

45 I would seriously contemplate buying from Ihergo.

46 It is likely that I am going to buy from Ihergo.

47 I am likely to make future purchases from Ihergo’s Web site.

The Impact of Conformity, Group Efficacy and Trusting Beliefs on Online Group-Buying Behavior

Meng-Hsiang Hsu National Kaohsiung First University of Science and Technology, Taiwan

Cheng-Se Hsu*

National Kaohsiung First University of Science and Technology, Taiwan

Keywords E-commerce, Group buying, Group efficacy, Trusting beliefs, Conformity Abstract As the widespread use of group-buying websites increases, so does the need to assess factors leading to group-buying behavior. In this study, a model based on the extended Theory of Planned Behavior (TPB) was chosen to study the psychological factors affecting behavioral decisions. We directed our efforts to investigate how consumers’ group-efficacy beliefs, trusting beliefs and conformity beliefs affect their decision-making processes in group buying. Specifically, we examined four dimensions of trusting beliefs (trust in websites, trust in e-vendors, trust in leaders and trust in members) in the extended TPB model. This study used data from a survey of 239 members of an online group-buying site to test the proposed model. The result provides a strong support for the model. Finally, this study discusses the implications of these findings and offers direction for future research.

1. Introduction The advances in Internet technology as well as the proliferation of virtual communities have facilitated the rapid growth of electronic commerce (e-commerce), thus accelerating the exchange of information between buyers and sellers more quickly without the limitation of time and space. Among the many online business models, online ggroup buying has sprung up as a major player in online shopping business in recent years. Group buying, also known as collective buying or team buying, offers products and services at significantly reduced prices on the condition that a minimum number of buyers would make the purchase. According to smartmoney, there have been more than 500 group-buying sites worldwide by August 2010. In Taiwan alone, there are approximately 26 group-buying sites currently, with sales totaled over $238 million in 2010, and expected to climb to a high of over $298 million in 2011, with an annual sales growth of 30%, according to MIC (Market Intelligence & Consulting Institute). As the significant number of these websites grows, it is imperative to investigate the adoption of online group-buying sites. Group efficacy is one of the key factors affecting the adoption of group buying. Online group-buying efficacy (OGBE), or the belief in a group‘s ability to organize and execute transactions over the Internet, is a potentially important factor in efforts to complete online group buying. This is probably not a critical issue in individual online shopping, where consumers make purchase decisions based on their own judgment. However, issues such as collaborative information exchange, collective bargaining power, and social interaction, are probably considered as surplus of online group-buying efficacy. Research findings in the area of group efficacy have established strong links between group efficacy and group performance (Gist and Mitchell, 1992; Peterson et al., 1996; Silver and Bufiano, 1996; Gibson, 1999; Pescosolido, 2001). However, little work has been done to examine the relationship between group efficacy and group buying. Hence, understanding the group-buying behavioral pattern and the role of online group-buying efficacy constitutes an important research issue. Past literature has recognized trust as a major antecedent of participation in online interactions and transactions because it serves as a central mechanism to reduce perception of uncertainty

and risk. While prior studies indeed take trust into account, they fail to address the issue of trust as a multifaceted concept with wider implications, which gradually has attracted researchers‘ attention. For example, Stewart (2006) categorizes trusting beliefs into trusting beliefs in linker and trusting beliefs in linkee, while Turel et al. (2008) categorize forms of trust into trust in service representative, trust in e-customer service and trust in other party. Furthermore, Teo et al. (2008-9), who examine the role of trust in e-government success, classify trust into trust in government, trust in technology, and trust in e-government website. In group buying, it is assumed that there are several potential trustees and corresponding trust relations consumers need to take into consideration. For example, the stakeholders of an online group-buying transaction should include group leaders, members, e-vendors and websites. Therefore, extrapolating from the above argument, we propose four dimensions of trusting beliefs to examine its role in online group buying. In an attempt to deal with situations where people may lack complete capability to exercise control over the behavior of interest, Ajzen (2002) extends the Theory of Planned Behavior (Ajzen, 1988, 1991) by including efficacy beliefs as a behavioral control variable. For researching online group-buying behavior, this addition is significant because it relates the causal link between online group-buying efficacy and online group-buying behavior. The theory of planned behavior is a widely applied model in a variety of decision-making areas such as e-service acceptance (Hsu and Chiu, 2004) and e-commerce (Lim, et al., 2006). Additionally, the TPB has been extensively applied to discuss an individual‘s adoption and usage of a new technology (e.g., Bhattacherjee, 2000; Venkatesh and Morris, 2000). Despite the fact that the TPB (Ajzen, 1988, 1991) is assumed to explain and predict an individual‘s acceptance of IT, its extended model is very well suited to further our understanding of online group-buying behavior due to its strong theoretical anchors and its inclusion of efficacy beliefs. 2. Theoretical Background and Research Model This study aims to validate a proposed model in an online group-buying site. The research model is depicted in Figure 1. Before proceeding with the development of the specific hypotheses relating to the research model, literature on the central concept of efficacy beliefs is first reviewed. 2.1 Efficacy Beliefs in Information Systems The Social Cognitive Theory (SCT) holds that successful past performance contributes to high level of efficacy beliefs, which subsequently determines how people will perform and respond in the face of obstacles or adverse conditions. When encountering difficulties, people with low efficacy beliefs will harbor considerable doubts about their capabilities, whereas those with a strong sense of efficacy will direct their cognitive and motivational resources to tackle the challenges (Bandura, 1986, 1997). Propose by Bnadura (1986), two sets of expectations guiding behavior are outcome expectations and efficacy beliefs, the latter of which can be further divided into self-efficacy and group-efficacy. While self-efficacy is interpreted as the belief in one‘s abilities to organize and undertake courses of actions required to deal with prospective situations (Bandura, 1997), group-efficacy is regarded as members‘ judgment of the group‘s capabilities to carry out a job at hand (Little and Madign, 1997). For the past decade, some research has included self-efficacy to study individual behavior toward information technology, with the results stating that individual‘s use of information technology is highly affected by his/her efficacy (Kuo et al., 2004; Hsu et al., 2007b; Srivastava et al., 2010). Compeau and Higgins (1995), one of the first researchers applying both the Social Cognitive Theory and the concept of computer self-efficacy (CSE) to the study of end-user computer training and usage, point out that four factors ( i.e., prior performance, CSE, outcome expectations, behavior modeling) are hypothesized to directly and indirectly influence

performance on computer training outcome. Studies in this stream also demonstrate the significant relationship between CSE and computer usage (e.g., Hsu et al., 2007a; Ball and Levy, 2008; Simmering et al., 2009; Waheed and Jam, 2010). Another research stream is concentrated on the construct of Internet self-efficacy (ISE), the belief that one can successfully organize and carry out courses of Internet to produce given attainments. Prior literature in this stream has asserted the significant relationship between ISE and Internet use (e.g., Eastin and LaRose, 2000; Hsu and Chiu, 2004). Not until recently has the concept of self-efficacy been applied to the domain of knowledge sharing, which is called knowledge sharing self-efficacy (KSSE). Some researchers have employed KSSE to investigate its effect on knowledge sharing intention, and discover that self-efficacy plays a critical role in shaping knowledge contribution (e.g., Bock and Kim, 2002; Kankanhalli et al., 2005; Hsu et al., 2007b). Based upon Bandura‘s notion of group efficacy and the above-mentioned studies, we believe that applying the concept of online group-buying efficacy to examine consumers‘ behavior in group buying is considered appropriate. With it, like-minded people, sharing a common interest, are connected and form social networks (Ba, 2001) so as to provide access to those interested. On account of this, this study introduces the concept of online group-buying efficacy (OGBE) as a behavioral control variable to deal with the situation in which people face the challenges of buying as a group. Heretofore, while the wide applications of the TPB has laid stress on the impact of self-efficacy on individual behavior in various contexts, little attention has been paid to study how group-efficacy affects consumers‘ decision-making processes of group buying. Realizing a lack of empirical research on this topic, this study draws on the extended TPB to examine a model that captures the roles of trusting beliefs, conformity, online group-buying efficacy, attitude toward group buying, and buying intention, which in turn, affects buying behavior. For this reason, the first objective of the study is to examine the effects of the four dimensions of trusting beliefs on attitude toward group buying. The second objective is to examine the effect of group-buying efficacy on both consumers‘ buying intention and buying behavior. Finally, the third objective is to examine the causal relationships of conformity with two other constructs, attitude toward group buying and buying intention. To the best of our knowledge, this is the first study that attempts to integrate these two research streams for assessing online group buying. 2.2 Research Model and Hypotheses The research model used to guide the study is shown in Figure 1. This model is formulated based on the extended TPB. Five independent variables and a single dependent variable (buying behavior) are included in the model. Online group-buying efficacy (OGBE) is posited to directly influence group buying intention and behavior. Conformity is posited to directly influence attitude toward group buying and buying intention. Trusting beliefs (trust in e-vendors, trust in websites, trust in leaders and trust in members) are posited to directly influence attitude toward group buying, which in turn is posited to directly influence buying intention. Buying intention is posited to directly influence buying behavior.

Conformity

Attitude toward

Group Buying

Trust in e-Vendors

Trust in Websites

Trust in Leaders

Trust in Members

Online Group-Buying

Efficacy

Buying Intention Buying Behavior

H4H5

H6H1

H3H2

Conformity

H7a

H7b

H7c

H7d

Conformity

Attitude toward

Group Buying

Trust in e-Vendors

Trust in Websites

Trust in Leaders

Trust in Members

Online Group-Buying

Efficacy


H4H5

H6H1

H3H2

Conformity

H7a

H7b

H7c

H7d

Figure 1

This study chooses the extended Theory of Planned Behavior (TPB) (Ajzen, 2002) as the guiding framework for developing the research model. The TPB postulates that an individual‘s behavior is determined behavioral intention, which in turn is jointly determined by attitude toward the behavior, subjective norm, and perceived behavioral control. Ajzen (2002) extends the original TPB by containing items that access efficacy beliefs in measuring perceived behavioral control. According to Hsu and Chiu (2004), Ajzen‘s extended TPB is particularly suited for the current work given that it is especially tailored to elucidate the role of efficacy beliefs on the volitional behavior. Obviously, online group buying is considered a volitional behavior; thus, drawing upon the extended TPB to study online group-buying behavior is rather appropriate. The rational for the factors and the relationships among the factors are described in the following sections. As hypothesized in the model, buying intention is posited positively to influence buying behavior. The link between intention and actual behavior has been widely tested, including information technology usage and adoption, with an emphasis on the framework of the TRA, TPB, and TAM. For example, Chen et al. (2002) point out that a consumer‘s behavioral intention to use a virtual store is a strong predictor of his or her actual use of that virtual store. Apart from this, since the TRA is a generic theory of planned actions, this link should also be applicable to online group-buying behavior. Therefore, the following hypothesis is proposed. H1: Consumers with higher buying intention will demonstrate higher buying behavior. The relationship between self-efficacy and behavioral has found support from a volume of literature. For example, Fu et al. (2010) show that self-efficacy emerges as a major driving force for behavioral intention in the context of selling the new-to-market product. Consistent with the result, Smith and Fortunato (2008) reveal that rater self-efficacy relates positively with employee intention to provide honest upward feedback ratings. Prior literature has provided empirical evidence for the positive association between self-efficacy and behavioral intention (e.g., Eastin and LaRose, 2000; Ball and Levy, 2008; Tsai and Coleman, 2009; Waheed and Jam, 2010; Eri et al., 2011). Besides, research on self-efficacy demonstrates a significant positive relationship between self-efficacy and actual behavior. For example, Wilson et al. (2009) demonstrate there is a significant relationship between entrepreneurial self-efficacy and actual entrepreneurial behavior. Several other researchers have also provided empirical evidence to support this tenet (e.g., Joo et al., 2000; Eastin and LaRose, 2000; Agarwal et al., 2000; Hsu and Chiu 2004). Despite the fact that the above-mentioned research does not address the influence of OBGE on intention and behavior, the findings in various domains indeed provide strong justification for further

investigation of the relationship among OGBE, buying intention, and buying behavior. Therefore, the following hypotheses are proposed. H2: Consumers with higher OGBE will demonstrate higher buying intention. H3: Consumers with higher OGBE will demonstrate higher buying behavior. Subjective norm, in the TPB, refers to ―the perceived social pressure to perform or not to perform the behavior (Ajzen, 1991).‖ Corresponding with this view, Karahanna et al. (1999) describe two types of social influence, one of which is normative influence, referring to individuals conforming to expectations of others. By all accounts, conformity is synonymous with subjective norm or normative influence mentioned above given that conformity is defined as the tendency of individuals to create a group norm and to comply with it (Burnkrant and Consineau, 1975). The rationale for conformity is that following others often brings about better and more accurate decisions, especially under uncertainty (Crutchfield, 1955; Mackie, 1987; Cialdini, 2001). A number of prior studies note that conformity has a significant effect on attitudes in different domains (e.g., Malhotra and McCort, 2001; Lee et al., 2008). For example, Lee (1990) indicates a causal relationship between the social influence factor (face saving and group conformity) and attitude. Research on conformity also shows that conformity has a significant impact on intentions across a wide range of studies. For example, investigating the effect of conformity tendency on pedestrians‘ road-crossing intentions, Zhou et al. (2009) sustain that pedestrians would be much more likely to cross the road when some other pedestrians cross, suggesting that conformity has a strong influence on people‘s behavioral intention. In the context of online consumer reviews, Park and Lee (2008) hold that the number of positive online consumer reviews is positively associated with the perceived product popularity, which in turn positively affects purchase intention. Taking these views into the context of group buying, the following hypotheses are proposed. H4: Consumers with higher conformity will demonstrate more favorable attitudes toward online group buying. H5: Consumers with higher conformity will demonstrate higher buying intention. A volume of prior literature has provided empirical evidence for the positive association between attitude and intention in the context of e-commerce (e.g., Jarvenpaa et al., 2000; Chen et al., 2002). The definition of attitude toward behavior is the degree to which a person holds a favorable or unfavorable evaluation or appraisal of the behavior in question (Ajzen, 1991). In accordance with the TRA (1975), favorable attitude toward an act or event would give rise to positive intention to perform the act or adopt the event. Bhattacherjee (2000) shows that attitude plays a vital role in shaping intention to use electronic brokerage services. Furthermore, Chen and Dibb (2010) pose a direct influence of attitude toward the website on consumers‘ behavioral intention. In view of these considerations, we expect a relationship between attitude toward online group buying and buying intention. Therefore, the following hypothesis is proposed. H6: Consumers with more favorable attitudes toward online group buying will demonstrate higher buying intention. Past literature has identified trust to be on one of the crucial enablers of e-commerce transactions (e.g., Pennington et al., 2003; Pavlou and Gefen, 2004; Gefen et al., 2008) and e-loyalty (Cyr, 2008). In the context of online group buying, the role of trust is even more imperative as shopping tasks require a high level of interdependence among members, which, therefore, may generate synergy in the form of cooperation as well as interaction among members (Kets De

Vries, 1999; Fiore et al., 2001). McKnight et al. (1998) divide the trust concept into two constructs, trusting beliefs and trusting intention. Trusting beliefs, adopted from McKnight et al. (1998) and Mayer et al. (1995), refer to a potential online shopper‘s beliefs in online stores‘ benevolence, competence, honesty or predictability. Based on the TRA (Fishbein and Ajzen, 1975), beliefs directly affect attitude and the higher the level of trust is, the more favorable attitude and behavior are (Anderson and Narus, 1990). Chen and Dibb (2010) note that trust is believed to lead a positive consequence, such as formation of positive attitude toward the website. Evidence concerning this relationship has been collected in the context of both online and offline shopping (e.g., Weiner and Mowen, 1986; Macintosh and Lockshin, 1997; Jarvenpaa et al., 2000). Arguably, in the context of online group buying, it is reasonable to state that customers‘ trusting beliefs will affect their attitudes toward group buying. Thus far, an amount of research on trust has treated trust as a general and unidimensional concept that integrates trust-related dimensions all together, thus leading to a failure to address trust as a multifaceted concept. However, trust should be regarded as a multifaceted concept with wider implications, which has gradually attracted researchers‘ attention. For example, Morgan and Hunt (1994) who categorize trust into trust in the salesperson and trust in the seller organization. In similar fashion, Turel et al. (2008) categorize forms of trust into trust in service representative, trust in e-customer service and trust in other party, while Stewart (2006) categorizes trusting beliefs into trusting beliefs in linker and trusting beliefs in linkee. Another example is Teo et al. (2008-9), who examine the role of trust in e-government success, classify trust into trust in government, trust in technology, and trust in e-government website. Likewise, in the context of online group buying, there are several potential trustees and corresponding trust relations consumers need to take into consideration. To be specific, consumers may be concerned about the integrity, competence, predictability, and benevolence of those involved in online group buying. Owing to this, extrapolating from the above arguments, we propose four dimensions of trusting beliefs, ―trust in e-vendors,‖ ―trust in websites,‖ ―trust in leaders‖ and ―trust in members‖, and expect that trust in e-vendors, websites, leaders, and members will have a positive effect on attitude toward group buying. Therefore, the following hypotheses are proposed. H7a: The higher the level of consumer trust in e-vendors, the higher its impact on attitude toward group buying. H7b: The higher the level of consumer trust in websites, the higher its impact on attitude toward group buying. H7c: The higher the level of consumer trust in leaders, the higher its impact on attitude toward group buying. H7d: The higher the level of consumer trust in members, the higher its impact on attitude toward group buying. 3. Research Methodology

The current study was conducted at an online group-buying site, ihergo (at www.ihergo.com). Online survey was used to collect data. The purpose of the study was to provide evidence of the model‘s predictive relevance.

3.1 Measurement Development

Operational definition and measurement items are adapted from relevant literature wherever possible. Trust in websites is measured by three-item measures adapted from Pennigton et al. (2003). The three items measuring trust in e-vendors are taken from Jarvenpaa et al. (2000). Trust in leaders is assessed using items from Doney and Cannon (1997). The four items for trust in members are adapted from Jarvenpaa et al. (1998) and Staples and Webster (2008). Measures used for attitude toward group buying and buying intention are both based on Jarvenpaa et al. (2000) and Lim et al. (2006). The three items for buying behavior are adapted from Hsu et al. (2007b). Conformity is assessed using items adapted from Bearden et al. (1989). Online group-buying efficacy is measured by eight-item measures adapted from Jung and Sosik (2002). All items are measured by using a five-point Likert scale with anchors ranging from strongly disagree (1) to strongly agree (5). We collected demographic variables tied to online group-buying behavior: gender, age, education completed, length of membership, most frequently shopped items, and experience of being a leader. 3.2 Data Collection This research model was tested from members of an online group-buying site called ihergo (at www.ihergo.com). Opened in March, 2007, it is one of the most well-known online group-buying site in Taiwan. By September, 2009, its members have amounted to 240,000 with over 5,000 communities. So far, the sales volume has exceeded $16 million, with the highest sales in a single month exceeding $2.3 million. On average, over 1,000 buying groups are formed every day, calling for members to join and make a purchase. The questionnaire was posted on the front page of ihergo from May 16th, 2010 to June 15th, 2010, with a time-span of 31 days. Members were cordially invited to support this survey. With an aim to encouraging participation, 33 randomly selected respondents were offered in incentive in the form of 7-11 gift certificates amounting to $5, $15 and $30 dollars respectively. The first page of the questionnaire explained the purpose of this study and ensured confidentiality. By the time this survey was concluded, 261 questionnaires were collected. The exclusion of 22 invalid questionnaires resulted in a total of 239 complete and valid ones for data analysis. Of the 239 respondents, 229 (96%) were females and 139 (58%) were between 25 and 35 years of age. About 112 (47%) reported having membership less than 3 months. Approximately 181 (76%) reported having the experience of being a leader. The most frequently shopped item was gourmet food, accounting for 95%. About 124 (52%) reported having complete at least a bachelor‘s degree. 4. Data Analysis and Results 4.1 Measurement Model For data analysis, we use Smart PLS 2.0 while using SEM (Structural Equation Model) to validate the research model. PLS has been widely applied in MIS research, and is considered appropriate to analyze complex relationships and models under development (Fornell and Bookstein, 1982). Moreover, it uses a nonparametric approach to evaluate both variance explained by and relationships within a structural equation model (Gefen et al., 2000; Vendatesh and Morris 2000). Compared to LISREL, PLS is more suitable for relatively lean sample sizes (Chin, 1998) and non-normal distribution of the data (Limayem et al., 2007). Therefore, we consider SmartPLS particularly useful for analyzing the data in our study. With respect to validity, both convergent and discriminant validity of the scales are tested. Convergent validity is performed through factor loadings and average variance extracted (AVE). According to Fornell and Larcker (1981), when (1) all indicator loadings should be significant and exceed 0.7, (2) construct reliabilities should exceed 0.8 and (3) average variance extracted (AVE) by each construct should exceed the variance due to measurement error for that construct (i.e., AVE should exceed 0.50), convergent validity is proved. In the sample, all loadings are above the 0.7 threshold, the composite reliabilities of the constructs range between

0.85 and 0.96, and AVE range from 0.63 to 0.87. Hence, the sample demonstrates a reasonable convergent validity level of the measured items. In terms of discriminant validity of the scales, if the square root of Average Variance Extract (AVE) of each construct is larger than its correlations with the other construct, discriminant validity is proved (Fornell and Larcker, 1981; Chin, 1998). All the diagonal values exceed the inter-construct correlations in the sample, which corresponds with the criteria needed to establish discriminant validity. With respect to measurement items‘ reliability, composite reliability (CR) is employed to assess the consistency of each construct. The value of composite reliability in the sample is above 0.8, which exceeds the recommended level of 0.7 (Pavlou and Fygenson, 2006); thus, this demonstrates a reasonable reliability level of the measured items. 4.2 Structural Model We test the hypotheses through the PLS structural model. The purpose of a PLS structural model is to represent the relationships among various latent constructs. To estimate the statistical significance of the parameter estimates, we implement bootstrapping procedure with replacement using 500 subsamples (Chin, 1998). Path estimates and t-statistics are calculated for hypothesis testing. The data support all the hypotheses, except for H5 stating that consumers with higher conformity will demonstrate higher buying intention. As expected, buying intention significantly and positively affects buying behavior, with a path coefficient of 0.54. Consequently, hypothesis 1 is supported. Furthermore, online group-buying efficacy is positively associated with both buying intention and buying behavior, with path coefficients of 0.29 and 0.11 respectively, supporting hypothesis 2 and 3. As anticipated, conformity is positively associated with attitude toward group buying, with a path coefficient of 0.15, supporting H4 accordingly. However, contrary to our expectations, the path from conformity to buying intention was not significant with a path coefficient of 0.01. As a result, hypothesis 5 is not supported. As anticipated, attitude toward group buying has a significant positive effect on buying intention, with a path coefficient of 0.49, thus supporting hypothesis 6. Finally, trust in e-vendors, trust in websites, trust in leaders and trust in members are all positively associated with attitude toward group buying, with path coefficients of 0.14, 0.33, 0.14, and 0.14 respectively, supporting hypothesis 7a, 7b, 7c and 7d.

Conformity

Attitude toward

Group Buying

Trust in e-Vendors

Trust in Websites

Trust in Leaders

Trust in Members

Online Group-Buying

Efficacy


0.15**0.01

0.49*** 0.54***

0.11*0.29***

Conformity

0.14*

0.33***

0.14*

0.14*

*p<0.05

**p<0.01

***p<0.001

Conformity

Attitude toward

Group Buying

Trust in e-Vendors

Trust in Websites

Trust in Leaders

Trust in Members

Online Group-Buying

Efficacy


0.15**0.01

0.49*** 0.54***

0.11*0.29***

Conformity

0.14*

0.33***

0.14*

0.14*

*p<0.05

**p<0.01

***p<0.001

5. Discussion 5.1 Findings We empirically tested the extended TPB in an online group-buying site and underscored the importance of three beliefs (i.e., trusting beliefs, conformity beliefs and efficacy beliefs) as driving forces for online group-buying behavior. Overall, the results provide robust support for the proposed model, and a number of findings are worth discussing. As far as efficacy beliefs are concerned, the results of this study provide a robust support for applying the extended TPB to online group buying. The study presents that OGBE triggers buying intention as well as buying behavior, which is in line with prior studies (Eastin and LaRose, 2000; Ball and Levy, 2008; Tsai and Coleman, 2009; Waheed and Jam, 2010; Eri et al., 2011) arguing that efficacy beliefs are key roles in shaping behavioral intention. Our findings show that trust is a focal concept in online group buying. In congruence with prior studies (Fishbein and Ajzen, 1975; Jarvenpaa et al., 2000; Chen and Dibb, 2010), trust is found to have a significant positive impact on attitude toward group buying. The findings are similar to the notion proposed by Gefen et al. (2003) depicting that trusting beliefs affect PU (perceived usefulness) and PEOU (perceived ease of use) in the e-commerce context because both findings indicate that when online shoppers utilize e-service, their attitude and perception toward these services will affected by trust. Another point is the relationships among attitude, behavioral intention, and actual behavior. The present study, in consistence with past studies (e.g., Lim et al., 2006; Hsu and Chiu, 2004), demonstrates that attitude toward group buying is a strong predictor of buying intention, which in turn is a significant determinant of buying behavior. Nevertheless, contrary to our expectation, our data do not support H5, which hypothesizes a direct positive relationship between conformity and buying intention. This implies that consumers‘ decisions in group buying are not affected by normative influence or, to be specific, important referents. A plausible explanation is that consumers, having full volitional control over their purchase decisions, are always free to shop through either online stores or brick-and-mortar stores. Under this circumstance, consumers will not necessarily conform to others in making decisions. Another possible explanation is that the execution of such group transactions has past the stages of the IT adoption process. According to the innovation diffusion theory (Rogers, 1995), an IT adoption creates uncertainty in the beginning, but as the level of uncertainty declines over time, the impact of social influence on intention will diminish to nonsignificance. Nevertheless, conformity indeed has a significant indirect effect on buying intention through attitude toward group buying, implying that attitude is affected by social influence and consumers with more favorable attitude are more apt to execute a transaction. 5.2 Contributions to Research and Practice The findings of this study have various implications for research as well as for practice. For research, this study provides an initial step toward the application of online group-buying efficacy (OBGE) to the study of consumer behavior in online group buying. Our research confirms that OBGE is a meaningful construct within the context of online group buying. The results show that consumers with higher OBGE are more likely to carry out transactions as a group, implying that increasing consumers‘ OBGE is critical to the success of online group buying. From the practitioners‘ standpoint, management of online group-buying sites is better off providing some strategies (e.g., information exchange mechanisms) to increase consumers‘ OBGE so that they would believe they are capable of conducting a transaction successfully as a group. For this reason, building a shopping environment favorable to the improvement of efficacy beliefs should become a key task for managers of online group-buying sites that heavily rely on groups for making transactions.

In addition, this study broadens our understanding of trusting beliefs in online group buying by incorporating four dimensions of trusting beliefs as a predictor of attitude toward group buying. The results reveal that the four dimensions of trusting beliefs are significant antecedents, which is a valuable contribution in the sense that it enables us to precisely capture trust as a multi-faceted concept. For practice, the four dimensions together offer the management several promising avenues to improve consumers‘ OGBE. For example, past research posits that leadership has great potential to advance a group‘ sense of efficacy (Zaccaro et al., 1995), and that leadership exhibits a significant effect on group efficacy through verbal persuasion and modeling of efficacious behavior (Kozub and McDonnell, 2000). Both assertions signal the important relationship between leaders and group efficacy. In this sense, online group-buying sites are suggested to provide strategies for leaders to establish leadership as well as trust. Once consumers have trust in leaders, leadership will be demonstrated, which is believed to positively affect OGBE. 5.3 Limitations Our findings provide valuable insights into consumers‘ buying behavior in online group buying and offer an impetus for future research. However, several limitations of this study should be recognized. First, data collection in this study is constrained in members of the online group-buying site; therefore, whether our finings could be generalized to all types of online group-buying site is disputable. A promising avenue for future research is to replicate this study across a wide variety of online group-buying site to verify the generalizability of our findings. Another possible criticism of this study is that our sample only comprises active members of the online group-buying site, exclusive of those who had already ceased participating due to certain reasons, which will lead to sample selection bias (Heckman, 1979). As a result, this study should be regarded as only explaining buying behavior of current members of the online group-buying site. Further research is necessary to examine whether the results can be generalized to nonparticipants. Another potential limitation is that this study only examines an online group-buying site in Taiwan; hence, the validity can only apply to the broad context where the studies have been conducted. Generalizability to other countries is limited. Replicating this research in other countries would provide not only insight into culture differences but also a more robust test of the model. 5.4 Future Research

Even though trust has been extensively studied with respect to its relationship with intention, the results seem rather confounding and inconsistent. For example, Lee and Turban (2001) find that trust in the technology medium is not significantly related to customers‘ intention to do online shopping. In contrast, Jarvenpaa et al. (2000) find that trust in online stores can directly affect customers‘ intention to buy. These conflicting results yielded by researchers imply that the effect of trusting can vary drastically under diverse contexts. Given that numerous studies have theorized multiple facets of trust (Morgan and Hunt, 1994; Stewart, 2006; Turel et al., 2008; Teo et al., 2008-9), a promising avenue for future research is to examine trust from a micro perspective, instead of treating trust as a unidimensional concept. This will definitely advance our understanding of various dimensions of trust and also help us accurately examine its relationships with other constructs. We, accordingly, call for further clear-cut classification of trust when examining trust in a specific context. There also exist great opportunities to apply the four dimensions of trust in our study to other disciplines, including the IS field, to investigate their impact on individual behavior. For

example, integrating the four dimensions of trust into knowledge sharing behavior in virtual communities could be an interesting research topic. In specific, trust in leaders, trust in members and trust in websites can be employed to investigate its respective effect on knowledge sharing intention and behavior. 5.5 Conclusion By integrating trusting beliefs with the extended TPB, this study proposes and tests a model to assess online group-buying behavior. The proposed model is a parsimonious and accurate depiction of the way consumers develop attitude and intention to carry out a transaction as a group through trusting beliefs, conformity beliefs, and online group-buying efficacy beliefs. The findings suggest that the three beliefs significantly affect decision-making processes of online group buying. It is hoped that these findings will serve as a catalyst for action. Future researchers, as well as the stakeholders involved in online group buying, will find our proposed model a fertile ground for further refinement and development to understand the multi-faceted concept of trust in online group buying. Reference Agarwal, R., Sambamurty, V., Stair, R., 2000. The evolving relationship between general and specific computer self-efficacy: an empirical investigation. Information Systems Research 11 (4), 418-430. Ajzen, I., 1991. The theory of planned behavior. Organizational Behavior and Human Decision Processes 50 (2), 179-211. Ajzen, I., 1998. Attitudes, Personality and Behavior. Dorsey Press, Chicago, IL. Ajzen, I., 2002. Perceived behavioral control, self-efficacy, locus of control, and the theory of planned behavior. Journal of Applied Social Psychology 32 (4), 665-683. Anderson, J.C., Narus, A., 1990. A model of distributor firm and manufacturer firm from working partnerships. Journal of Marketing 54 (1), 42-58. Ba, S., 2001. Establishing online trust through a community responsibility system. Decision Support Systems 31 (4), 323–336. Ball, D.M., Levy, Y., 2008. Emerging educational technology: assessing the factors that influence instructors‘ acceptance in information systems and other classrooms. Journal of Information System Education 19 (4), 431-443. Bandura, A., 1986. Social Foundation of Thoughts and Action: A Social Cognitive Theory. Prentice-Hall, Englewood Cliffs, NJ. Bandura, A., 1997. Self-efficacy: The Exercise of Control. Freeman, New York, NY. Bearden, W.O., Netemeyer, R.B., Teel, J.E., 1989. Measurement of consumer susceptibility to interpersonal influence. Journal of Consumer Research, 15 (4), 473-481. Bhattacherjee, A., 2000. Acceptance of e-commerce services: the case of electronic brokerages. Systems, Man and Cybernetics, Part A, Systems and Humans 30 (4), 411-420. Bock, G.W., Kim, Y.G., 2002. Breaking the myths of rewards: an exploratory study of attitudes about knowledge sharing. Information Resources Management Journal 15 (2), 14-21. Burnkrant, R.E., Counsineau, A., 1975. Informational and normative social influence in buyer behavior. Journal of Consumer Research 2 (3), 206-214. Chen, J., Dibb, S., 2010. Consumer trust in the online retail context: exploring the antecedents and consequences. Psychology & Marketing 27 (4), 323-346. Chen, L.D., Gillenson, M.L., Sherrel, D.L., 2002. Enticing online consumers: an extended technology acceptance perspective. Information and Management 39 (8), 705-719. Chin, W.W., 1998. Issues and opinion on structural equation modeling. MIS Quarterly 22 (1), 7–16. Cialdini, R.B., 2001. Influence: Science and Practice (4th ed.). Allyn & Bacon, New York, NY. Compeau, D.R., Higgins, C.A, 1995. Computer Self-Efficacy: development of a measure and initial Test. MIS Quarterly 19 (2), 189-211. Crutchfield, R.S., 1955. Conformity and character. American Psychologies 10 (5), 191-198. Cyr, D., 2008. Modeling web site design across cultures: relationships to trust, satisfaction, and e-loyalty. Journal of Management Information Systems 24 (4), 47-72. Doney, P.M., Cannon, J.P., 1997. An examination of the nature of trust in buyer-seller relationships. Journal of Marketing 61 (2), 35-51.

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Corporate Governance and Business Conference CGBC-2011, BOSTON, USA

List of Authors & Institutions Represented Author`s Name Institution, Country Abdulrahim Soomro Birbeck, University of London

Charitou, A. Georgiou, I. Soteriou, A.

Aston Business School, Aston University University of Cyprus,Cyprus University of Cyprus

Chang-Yao Wu Szu-Yuan Sun

National Kaohsiung First University of Science and Technology, Taiwan National Kaohsiung First University of Science and Technology, Taiwan

Dr. Zahra Lashgari Mohammad Javad Heidari

Islamic Azad University Central Tehran Branch, Tehran Iran Islamic Azad University Central Tehran Branch, Tehran Iran

Dr. Mohammad Istiaq Azim Joyce Chua Ai Mei

Swinburne University of Technology, Hawthorn, Australia Swinburne University of Technology, Hawthorn, Australia

Dr. Hasan Salih Suliman Al-Qudah

Philadelphia University, Jordan Philadelphia University, Jordan

Dr S E Zamani Head of Centre for International Researches, Tehran, Iran

Dr. Mohsin Habib Dr. Raymond Li

University of Massachusetts University of Massachusetts

Dr. Godfrey Yeung, Dr. Vincent Mok,

National University of Singapore Hong Kong Polytechnic University, Hong Kong

Dr. M. Ravindar Reddy T. Naga Sai Kumar

National Institute of Technology, Warangal, India National Institute of Technology, Warangal, India

Dr Azlina Hanif Professor Dr Rokiah Alavi Dr Jarita Duasa Dr Gairuzazmi Mat Ghani^

Faculty of Business Management, UiTM Shah Alam, Malaysia International Islamic University, Gombak, Malaysia International Islamic University, Gombak, Malaysia International Islamic University, Gombak, Malaysia

Farrukh Suvankulov, Fatma Ogucu,

Department of Economics, Zirve University , Turkey Zirve University, Turkey

Isita Lahiri Gairik Das

University of Kalyani, Kalyani, India IISWBM, Kolkata, India

José G. Vargas-Hernández, Centro Universitario de Ciencias Económico Administrativas U de G, Mexico

Jui-Che, Tu Shu-Ping Chiu Wei-Cheng Chu

National Yunlin University of Science and Technology, Taiwan, ROC National Yunlin University of Science and Technology, Taiwan, ROC Shu-Te University of Science and Technology, Taiwan, ROC

Loran Chollete Cathy Ning

University of Stavanger, Stavanger, Norway Ryerson University, Toronto, Canada

Laurence J. Stybel Suffolk University, USA

M. Ravinder Reddy Surendar Gade P. Ramlal

School of Management, National Institute of Technology, Warangal Department of Management Studies, S R Engineering College, Warangal School of Management, National Institute of Technology, Warangal

Mian Sajid Nazir, Imran Haider Naqvi Muhammad Musarrat Nawaz

COMSATS Lahor, Pakistan COMSATS Lahor, Pakistan COMSATS Lahor, Pakistan

Meng-Hsiang Hsu Li-Wen Chuang Cheng-Se Hsu

National Kaohsiung First University of Science and Technology, Taiwan National Kaohsiung First University of Science and Technology, Taiwan National Kaohsiung First University of Science and Technology, Taiwan

Meng-Hsiang Hsu Cheng-Se Hsu

National Kaohsiung First University of Science and Technology, Taiwan National Kaohsiung First University of Science and Technology, Taiwan

Pawan Jain Mohamed Mekhaimer

Doctoral Student, The University of Memphis Doctoral Student, The University of Memphis

Palto.Ranjan.Datta Omar Ogyeni Dixon.D,

University of Hertfordshire, UK University of Hertfordshire, UK Manchester Metropolitan University, UK

Pei-Ju Chao, Shu-Chuan Chi Szu-Yuan Sun

National Kaohsiung First University of Science and Technology, Taiwan National Kaohsiung First University of Science and Technology, Taiwan National Kaohsiung First University of Science and Technology, Taiwan.

Shaolong Tang Jacqueline W. Wang

Beijing Normal University-Hong Kong Baptist University United International College. The Hong Kong Polytechnic University

Shi-Wei Chou Yu-Chieh Chang

National Kaohsiung First University of Science of Technology, Taiwan Department of marketing department, Shu-Te University, Taiwan

Umar R Butt MacMaster University, Hamilton

Yu Chuan Huang Yao Jen Cheng

National Kaohsiung First University of Science and Technology National Kaohsiung First University of Science and Technology

Corporate Governance and Business Conference CGBC-2011, BOSTON, USA

INDEX

Name / Affiliation / Country Topic / Page Number Loran Chollete University of Stavanger, Stavanger, Norway

Asymmetric Dependence in US Financial Risk Factors?

Cathy Ning, Ryerson University, Toronto, Canada. Asymmetric Dependence in US Financial Risk Factors? Farrukh Suvankulov, Zirve University, Turkey.

Have firms with better corporate governance fared better during the recent financial crisis in Russia?

Fatma Ogucu, Zirve University, Turkey. Have firms with better corporate governance fared better during the recent financial crisis in Russia?

Pawan Jain, The University of Memphis, USA. Corporate Governance and Market Liquidity: An Empirical Analysis.

Mohamed Mekhaimer, The University of Memphis, USA.

Corporate Governance and Market Liquidity: An Empirical Analysis.

Dr. Mohammad Istiaq Azim Swinburne University of Technology, Hawthorn, Australia.

Linking Remuneration to Directors' Performance During the Global Financial Crisis.

Joyce Chua Ai Me Swinburne University of Technology, Hawthorn, Australia.

Linking Remuneration to Directors' Performance During the Global Financial Crisis.

Laurence J. Stybel, Suffolk University, USA. The Board‘s Role During Final Phases of M&A Deal Making. Dr. Zahra Lashgar, Islamic Azad University Central Tehran Branch, Tehran Iran

Studying The Relationships Among Institutional Investors As One Criterion For Corporate Governance And Accounting Parameters On The Dividend Ration

Mohammad Javad Heidari, Islamic Azad University Central Tehran Branch, Tehran Iran

Studying The Relationships Among Institutional Investors As One Criterion For Corporate Governance And Accounting Parameters On The Dividend Ration

Umar R Butt, MacMaster University, Hamilton Profits, Financial Leverage and Corporate Governance. Shaolong Tan, Beijing Normal University-Hong Kong Baptist University United International College.

The impacts of cross-docking on supply chain management: Cost reduction through consolidation

Jacqueline W. Wang, School of Accounting and Finance , The Hong Kong Polytechnic University

The impacts of cross-docking on supply chain management: Cost reduction through consolidation

Dr. Hasan Salih Suliman Al-Qudah, Philadelphia Universit, Jordany.

Planning of Long Term Care Services to Elderly at the Hashemite Kingdom of Jordan; Its reality and challenges

Dr S E Zamani, Head of Centre for International Researches, Tehran, Iran.

Business Policies, Strategies And Performance

Dr Azlina Hanif, Faculty of Business Management, UiTM Shah Alam, Malaysia.

The impact of non-tariff barriers on imports in Malaysia‘s manufacturing sector.

Professor Dr Rokiah Alavi, Kulliyyah of Economics and Management Sciences, International Islamic University, Gombak, Malaysia.

The impact of non-tariff barriers on imports in Malaysia‘s manufacturing sector

Dr Jarita Duasa, Kulliyyah of Economics and Management Sciences, International Islamic University, Gombak, Malaysia.


Dr Gairuzazmi Mat Ghani, Kulliyyah of Economics and Management Sciences, International Islamic University, Gombak, Malaysia.


Shi-Wei Chou, Department of Information Management, National Kaohsiung First University of Science of Technology, Taiwan.

Relational value, service mechanisms, and realized performance: An empirical study of ASP in Taiwan.

Yu-Chieh Chang, Department of marketing department, Shu-Te University, Taiwan

Relational value, service mechanisms, and realized performance: An empirical study of ASP in Taiwan.

Abdulrahim Soomro, Birbeck, University of London, UK.

Relations between States and International Economic Institutions.

M. Ravinder Reddy, School of Management, National Institute of Technology, Warangal, India

Special Economic Zone: Initiation and Inhibition.

Surendar Gade, Department of Management Studies, S R Engineering College, Warangal, India

Special Economic Zone: Initiation and Inhibition..

P. Ramlal, School of Management, National Institute of Technology, Warangal, India

Special Economic Zone: Initiation and Inhibition.

Charitou, A. Aston Business School Aston University

Board Composition and Value: The Case of Quality Excellence.

Georgiou, I., Department of Public and Business Administration University of Cyprus


Soteriou, A. Department of Public and Business Administration University of Cyprus


Yu Chuan Huang Department of Risk Management and Insurance National Kaohsiung First University of Science and Technology, Taiwan.

Manipulation of Security Prices and its Impact on the Market.

Yao Jen Cheng Department of Risk Management and Insurance National Kaohsiung First University of Science and Technology, Taiwan.

Manipulation of Security Prices and its Impact on the Market.

Mian Sajid Nazir, COMSATS Lahor, Pakistan. Role of Rate of Return, Inflation & Deposits on Loan Supply: An Empirical Study of Banking Sector in Pakistan.

Imran Haider Naqvi, COMSATS Lahor, Pakistan.

Role of Rate of Return, Inflation & Deposits on Loan Supply: An Empirical Study of Banking Sector in Pakistan.

Muhammad Musarrat Nawaz, COMSATS Lahor, Pakistan.

Role of Rate of Return, Inflation & Deposits on Loan Supply: An Empirical Study of Banking Sector in Pakistan.

José G. Vargas-Hernández, Centro Universitario de Ciencias Económico Administrativas U de G, Mexico.

Strategies and Performance of New Mexican Emerging Multinational Enterprises.

Dr. Mohsin Habib, University of Massachusetts

The Impact of Corporate Financial Structure on Operating and Market Performance - An Empirical Study of Chinese Public Firms

Dr. Raymond Liu, University of Massachusetts The Impact of Corporate Financial Structure on Operating and Market Performance - An Empirical Study of Chinese Public Firms

Jui-Che, Tu, National Yunlin University of Science and Technology, Yunlin, Taiwan, ROC


Shu-Ping Chiu, National Yunlin University of Science and Technology, Yunlin, Taiwan, ROC


Wei-Cheng Chu, Shu-Te University of Science and Technology, Taiwan, ROC


Isita Lahiri, University of Kalyani, Kalyani, India.

Manufacture Owned Brand Vs Private Label Brand: Where Does the Buying Wind Blow?

Gairik Das, IISWBM, Kolkata, India. Manufacture Owned Brand Vs Private Label Brand: Where Does the Buying Wind Blow?

Dr. Godfrey Yeung, Department of Geography National University of Singapore.

Manufacturing and Distribution Strategies, Distribution Channels, and Transaction Costs: The Case of Parallel Imports in Automobiles

Dr. Vincent Mok, School of Accounting and Finance Hong Kong Polytechnic University Hong Kong.

Manufacturing and Distribution Strategies, Distribution Channels, and Transaction Costs: The Case of Parallel Imports in Automobiles

Chang-Yao Wu, National Kaohsiung First University of Science and Technology, Taiwan.

Constructing A Research Model in Building Customer Trust to Enhance the Shopping Intention in Mobile Commerce.

Szu-Yuan Sun, National Kaohsiung First University of Science and Technology, Taiwan.

Constructing A Research Model in Building Customer Trust to Enhance the Shopping Intention in Mobile Commerce.

Palto. Ranjan. Datta, University of Hertfordshire, UK.

Relationship Marketing: Various Schools of thought and Future Research Agenda.

Omar Ogyeni, University of Hertfordshire, UK Relationship Marketing: Various Schools of thought and Future Research Agenda.

Dixon.D, Manchester Metropolitan University, UK

Relationship Marketing: Various Schools of thought and Future Research Agenda.

Dr. M. Ravindar Reddy, School of Management, National Institute of Technology, Warangal, India.

Determinant Attributes of Dissatisfiers of Store Brands in Food and Grocery Retailing - An Empirical Analysis in India.

T. Naga Sai Kumar School of Management, National Institute of Technology, Warangal, India.

Determinant Attributes of Dissatisfiers of Store Brands in Food and Grocery Retailing - An Empirical Analysis in India.

Pei-Ju Chao, Graduate School of Management, National Kaohsiung First University of Science and Technology


Shu-Chuan Chi, Graduate School of Management, National Kaohsiung First University of Science and Technology, Taiwan.


Szu-Yuan Sun, Department of Information Management, National Kaohsiung First University of Science and Technology, Taiwan.


Meng-Hsiang Hsu, Department of Information Management, National Kaohsiung First University of Science and Technology, Taiwan, R.O.C, Taiwan.


Li-Wen Chuang, Graduate School of Management, National Kaohsiung First University of Science and Technology, Taiwan, R.O.C, Taiwan.


Cheng-Se Hsu, Graduate School of Management, National Kaohsiung First University of Science and Technology, Taiwan, R.O.C, Taiwan.


Call for Paper Journal of Business & Retail Management Research

ISSN (Print) 1751-8202

The JBRMR, a scholarly and refereed journal, provides an authoritative source of information for scholars, academicians, and professionals in the fields of business and retail management and is publicised twice a year. The journal promotes the advancement, understanding, and practice of business & retail management. It is peer reviewed and is the main research platform of The Academy of Business & Retail Management (ABRM). Scholars across borders are encouraged in advancing the frontiers of management education, particularly in the area of retail trade. Contributions should therefore be of interest to scholars, practitioners and researchers in management in both developed and developing countries targeting a worldwide readership through both print and electronic medium Although broad in coverage, the following areas are indicative and nurture the interests of the Academy with a ―retail‖ underpinning:

» Business ethics and legal issues

» Business environment

» Business policies, strategies, and performance

» Business and retail research

» Business security and privacy issues

» Consumer behaviour

» Emerging advances in business and its applications

» Innovation and product development

» International business issues

» Management and retail marketing

» Marketing management and strategies

» Relationship management

» Risk Management

» Retail Management and communication

» New venture start-up

» Retail buying

» MIS and Retail Management

» Demographics and Retail Business

» HRM and Retail Business

» Innovation in Retail Management

» Law and management

Preference will be given to papers which are conceptually and analytically strong and have empirical relevance. For the April 2012 issue, submission of manuscripts should be made by 30th November, 2011. All papers will be reviewed according to the Journal‘s criterion. The Journal‘s website is www.jbrmr.com. For further information please call: Dr P.R. Datta on +44(0)20 8909 2100 or write to him ([email protected]). Alternatively, you can contact Mr Mark T. Jones on +44(0)20 8909 1117 ([email protected]), Director for External Affairs

http://www.jbrmr.com/

mailto:[email protected]


Academic conference dates for your diary

ITARC – London 2011

7th – 8th November 2011

International Trade Academic Research Conference

ROGE – Pune 2012

1st – 2nd February 2012

International Conference on the

Restructuring of the Global Economy

ICIRM – Istanbul 2012

23rd – 25th April 2012

International Conference on Investment & Retail Management

These conferences will be jointly organised by the Academy of Business & Retail Management,

the Journal of Business & Retail Management Research and the London College of Management

Studies.

For further details please visit our website or contact:

Academy of Business & Retail Management

Brent House, 214 Kenton Road, Harrow, Middlesex HA3 8BT

Tel +44 (0) 2089091117 Fax: +44 (0) 2089092120

E-mail: [email protected]


Relationship Marketing: Various Schools of thought and Future Research Agenda

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