Sumit K. Majumdar

Capital structure and performance: Evidence from a transition economy on an aspect of corporate governance

This paper examines the relationship between the levels of debt in the capital structure and performance for a sample of Indian firms. Existing theory posits a positive relationship; however, analysis of the data reveals the relationship for Indian firms to be significantly negative. The structure of capital markets in India, where both short-term and long-term lending institutions are government-owned, is hypothesized to account for the finding of this relationship, and it asserted that corporate governance mechanisms which work in the West will not work in the Indian context unless the supply of loan capital is privatized.

NETWORK EFFECTS AND THE ADOPTION OF NEW TECHNOLOGY: EVIDENCE FROM THE U.S. TELECOMMUNICATIONS INDUSTRY

This paper examines variations in the adoption of new technology by firms operating in a network-based industry: telecommunications. These variations are explained as a function of three network effects: the first is the conversion effect, driven by operations-related increasing returns to scale; the second is the consumption effect, driven by demand-side increasing returns to scale; the third is an imitative effect. We expect the conversion effect to be felt more strongly during earlier phases of a technology’s evolution, while a strong consumption effect is felt throughout. The imitative effect is also expected to be felt throughout. These hypotheses are examined with respect to electronic switching adoption in the local operating sector of the U.S. telecommunications industry. An analysis of the variations in adoption levels of the 40 largest firms over a period lasting from 1973 to 1987 supports our expectations, except for the imitative effect.

ON THE UTILIZATION OF RESOURCES: PERSPECTIVES FROM THE U.S. TELECOMMUNICATIONS INDUSTRY

The issue of resource utilization is important in the resource-based stream of work, since the ability of firms to utilize resources is a key indicator of their competitive abilities. This paper specifies why some firms might be better at utilizing resources than others. Thereafter, it demonstrates how to empirically ascertain differences in resource utilization patterns between firms using the U.S. telecommunications industry as a context. The data envelopment analysis procedure (DEA), which is a firm-level resource utilization measure, is used. This procedure can be useful for the resource-based approach research agenda since performance is measured in resource terms. DEA is applied to measure variations in different dimensions of resource utilization for the firms making up the local operating sector of the telecommunications industry. The use of DEA to guide empirical research and address theoretical issues within the resource-based paradigm is illustrated, using the resource utilization index for the telecommunications firms as the measure of strategic performance.

Sluggish giants, sticky cultures, and dynamic capability transformation

Abstract Using a theoretical framework derived from contemporary literature this paper investigates whether large and culturally dominant firms can transform their capabilities over time. Strategic capabilities, as articulated in theory, include resource accumulation and resource configuration. To these is added the capability of resource utilization which comes about because of tacit and inimitable intra-firm coordination skills and is a key performance measurement metric. This article evaluates whether large firms in the U.S. telecommunications industry have been able to effect a transformation in their strategic performance over a 16 year period of time: 1975 to 1990. Since the late 1960s and early 1970s many measures have been undertaken to restructure the industry environment, and these culminated in the 1984 divestiture by AT&T of this 22 Bell Operating Companies (BOCs) to seven Regional Holding companies (RHCs). Simultaneously a series of steps opened competition in many markets for not only the RHCs but for the other local operating companies, of which there are approximately 25 large ones, which in many cases are bigger than some of the companies belonging to the RHC fold. The local operating companies have faced a major transformation in their environment in the last 10 years. Once protected monopolies, they now face increasing competition in many market segments, which were once their profit sanctuaries enabling them to cross-subsidize many unprofitable operations. For the larger operating companies once owned by AT&T there was the shock of divestiture and re-birth, providing them an opportunity to engage in entrepreneurially oriented behavior. Thus, the U.S. telecommunications industry provides a useful laboratory within which to analyze performance and capability transformation. Additionally, one of the key issues that the literature is concerned with is the transformation in the performance of existing organizations. This article provides evidence on the key issue of corporate performance transformation for the principal firms that comprise one of the most important industries of contemporary times. It is a transformation that continues at an even faster pace today. The results show that in a dynamic setting size no longer materially influences negative performance. Inertia arguments about the ability of large firms to effect change are not validated in the context of a dynamic U.S. telecommunications industry. With a larger variety and pool of resources available, larger firms can undergo transformation through a process of dynamic learning as effectively as smaller firms. The relative transformation of the erstwhile Bell Operating Companies is a testimony to this assertion. The results have some implications for downsizing. Received wisdom means that less is better and smaller is swifter. Downsizing means dispersal of assets and resources, particularly human resources which embody firm-specific skills and knowledge. Which types of resources are lost in this process is critical to the eventual success of such endeavors. With downsizing, the ability of large firms to transform themselves via internal learning may be lost. Dynamic learning implies information scale economy exploitation, and to the extent that critical mass is reduced through downsizing there is lesser diffusion of information and knowledge. As a qualitatively important part of this human capital mass is reduced, there is less impact of future learning as firm-specific knowledge, which could be combined with emergent information to create new capabilities disappears. In such circumstances whether large firms can transform themselves successfully is a salient issue that ought to be further evaluated.

A matter of connections: OECD telecommunications sector productivity and the role of cellular technology diffusion

Abstract This article examines the impact of cellular technology diffusion on the competitiveness of the telecommunications sector for 23 OECD countries for the period 1980–1995. Cellular technology diffusion has proceeded rapidly in several OECD countries, providing substantial inter-connectivities with the fixed line telephone network, but there is substantial cross-sectional variation. Thus, consequences of cellular telephony on sector competitiveness, measured as relative productive efficiency, can be assessed. The results show that, controlling for a variety of other factors that can affect telecommunication sector productivity performance, cellular technology diffusion has a positive and significant impact on the competitiveness of the telecommunication sector. In addition, among the control items considered in our analysis, we find that liberalization of the competitive environment and privatizing the monopoly operator are factors positively enhancing productive efficiency. These are important findings highlighting the importance of micro-economic reforms in the telecommunications industry.

Convergence in telecommunications infrastructure development in OECD countries

Abstract We use a database of 22 member countries of OECD for the years 1980 to 1995 to explore the issue of convergence in the pattern of efficiency with which the telecommunications sector have been developed among OECD countries. Our approach uses data envelopment analysis (DEA) to explore the order of magnitude of performance differences between countries. We then test for σ-convergence using Friedman’s (1992) [Friedman, M., 1992. Do old fallacies ever die? Journal of Economic Literature 30, 2129–2132] suggestion that the coefficient of variance is a useful measure for this task. Thereafter, we use two rank tests – the Wilcoxon Matched-Pairs Signed Rank Test and Kendall’s Coefficient of Concordance – to evaluate the presence of β-convergence or intra-distributional mobility. Our empirical investigation suggests that OECD countries have σ-converged and also, to some extent, β-converged in their development of telecommunication infrastructures. Our empirical exploration further indicates that OECD countries have distinctly σ-converged in efficiency with which they have provided the fixed and cellular telecommunications infrastructure. Our data do not support the presence of β-convergence, or leapfrogging, in the efficiency of telecommunications infrastructure provision among OECD countries.

Paragons of virtue? Competitor entry and the strategies of incumbents in the U.S. local telecommunications industry

The Telecommunications Act of 1996 has opened hitherto closed markets to competitive local exchange carriers (CLECs). While a recent Federal Communications Commission (FCC) report on local competition documents vigorous entry during the past years, the market share of the entrants is insubstantial. We investigate whether the presence of new competitors influences the behaviour of incumbent local exchange carriers (ILECs) with respect to pricing, advertising and the extent of diversification that they engage in. This issue is explored empirically, using data for the major US local exchange carriers for the years 1994 to 1998. Our results indicate that the threat provided by market entrants has notably influenced the strategic behaviour of ILECs. The findings show that the incumbent US local operators, particularly the larger ILECs, aggressively protect their profit streams from traditional business. The evidence demonstrates that the ILECs have responded to the Telecommunications Act 1996, and to the threat of market entry it has created, through entry deterrence. This strategic behaviour has been successful in providing ILECs with protection of their monopolistic markets so far.

With a little help from my friends? Cross-subsidy and installed-base quality in the U.S. telecommunications industry

Abstract This article examines the effect of the cross-subsidization process, which is a key institutional mechanism in the telecommunications sector generally, on enhancing the quality of the installed-base of telecommunications infrastructure in the United States. Fiber optic and digital technology usage levels within local exchange carriers in the United States are used to capture installed-base quality. The results show that local exchange sector cross-subsidization has a positive effect on new technology deployed in the installed-base. Regulatory influences are also controlled for and the introduction of pure price-cap schemes is shown to positively affect new technology quality. Where price-cap schemes are introduced in conjunction with a mixed earnings sharing scheme, or where only an earnings sharing scheme is introduced, then the effect on new technology usage is much more mixed.

What Drives Internet Demand in the UK

As in many other countries, the UK is currently experiencing an explosion in demand for Internet use by both Residential and Business customers — if current trends continue it is expected that, for British Telecom (BT) at least, Internet usage will have overtaken traditional Voice Telephony as the dominant type of local call traffic by the end of 2000. This chapter presents the results of some recent studies of demand drivers in this fast growing, potentially volatile market. Key issues considered are: Sources of information on Internet demand in the UK; The drivers of demand for Internet access, and the demographic characteristics of Internet users — present and future; The factors driving customer choice of Internet Service Provider (ISP); The development of simple econometric models of the demand for Voice and Internet Local telephony, allowing comparison of Income and Price elasticities; A comparison of the different characteristics of Voice and Internet calls.

Comparative Organizational Characteristics of Indian State-Owned Enterprises

This article evaluates the organizational characteristics, defined as returns to scale and most productive scale size, for a sample of 67 Indian state-owned enterprises in comparison with 63 private and 27 foreign-owned enterprises. State-owned units suffer from decreasing returns to scale with diseconomies being associated with their large size. The average most productive scale size of the state-owned firms is considerably smaller than average actual size, establishing the need for a break-up of existing units into many smaller units so as to gain efficiencies. A policy of restructuring these organizations before privatization will enable privatization to be eventually more successful.