Search

We investigate the effects of a tick-size reduction on market quality in a multiperiod limit order book market. For illiquid stocks, reducing the tick size facilitates undercutting and discourages liquidity provision, resulting in deteriorating market quality but higher volume. For liquid stocks, reducing the tick size curtails queues, resulting in lower depth and volume but narrower spread. With a competing crossing network, a tick-size reduction results in worse market quality for all stocks due to migration of order flows. We empirically test our model predictions and find support for recent tick-size reductions in Japan and the United States. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The data files and online appendices are available at https://doi.org/10.1287/mnsc.2022.4502. [ABSTRACT FROM AUTHOR]

The models developed in this paper seek to open up the 'black-box' of learning. I suggest that we need to think of learning-by-doing as a process of knowledge creation on the shop-floor by specialized teams of engineers. Learning is to be viewed, therefore, as a conscious decision and not a mere by-product of production. The models in this paper provide the basis for understanding international and inter-firm differences in rates of learning. For example, cheaper engineering resources, longer time horizons, faster output growth rates and superior transferability of knowledge from engineers to production workers are shown to be some possible factors responsible for faster learning in Japanese firms compared to U.S. firms. [ABSTRACT FROM AUTHOR]

This paper examines the effect on product development of project scope: the extent to which a new product is based on unique parts developed in-house. Using data from a larger study of product development in the world auto industry, the paper presents evidence on the impact of scope on lead time and engineering productivity. Studies of the automotive supplier industry suggest that very different structures and relationships exist in Japan, the U.S., and Europe. Yet there has been little study of the impact of these differences on development performance. Further, little is known about the effects of different parts strategies (i.e. unique versus common or carryover parts) on development. The evidence presented here suggests that project scope differs significantly in the industry, even for comparable products. These differences in strategy, in turn, explain an important part of differences in performance. In particular, it appears that a distinctive approach to scope among Japanese firms--high levels of unique parts, intensive supplier involvement in engineering--accounts for a significant fraction of their advantage in lead time and cost. [ABSTRACT FROM AUTHOR]

Sustaining operational productivity in the completion of repetitive tasks is critical to many organizations' success. Yet research points to two different work-design-related strategies for accomplishing this goal: specialization to capture the benefits of repetition and variety (i.e., working on different tasks) to keep workers motivated and provide them opportunities to learn. In this paper, we investigate how these two strategies may bring different productivity benefits over time. For our empirical analyses, we use two and a half years of transaction data from a Japanese bank's home loan application-processing line. We find that over the course of a single day, specialization, as compared to variety, is related to improved worker productivity. However, when we examine workers' experience across a number of days, we find that variety helps improve worker productivity. Additionally, we show that part of this benefit results from workers' cumulative experience with changeovers. Our results highlight the need for organizations to transform specialization and variety into mutually reinforcing strategies rather than treating them as mutually exclusive. Overall, our paper identifies new ways to improve operational performance through the effective allocation of work. [ABSTRACT FROM AUTHOR]

In this paper, we analyze the gains from international diversification of investment portfolios from the Japanese as well as the U.S. perspectives. The major findings of this paper include: First, the 'potential' gains from international, as opposed to purely domestic, diversification are much greater for U.S. investors than for Japanese investors. For U.S. investors, the gains accrue not so much in terms of lower risk as in terms of higher return, and the opposite holds for Japanese investors. Second, using various 'ex ante' international investment strategies designed to control parameter uncertainty, U.S. investors can realize substantial gains from international diversification in out-of-sample periods. Japanese investors, however, can gain relatively little. Third, hedging exchange risk generally allows the U.S., but not Japanese, investors to benefit more from international diversification. For U.S. investors, the international bond diversification with exchange risk hedging offers a superior risk-return trade-off than the international stock diversification, with or without hedging. [ABSTRACT FROM AUTHOR]

This paper offers the first large sample empirical study of the factors which influence the choice of Japanese firms between full or partial ownership of their U.S. manufacturing subsidiaries. It studies for the first time the ownership policies of investors of a single home country in a single host country, thus keeping variations within home and host countries constant. One methodological improvement over previous studies is the use as independent variables of the relevant characteristics of the investing firms. These had been proxied in previous studies by data on U.S. industries entered. The results suggest that the degree of ownership taken by Japanese manufacturing investors in their American subsidiaries is driven by the same general transaction costs variables that determine the choices made by their U.S. counterparts: Japanese parents joint venture when they need to combine with other firms intermediate inputs which are subject to high market transaction costs. An intriguing result, however, is the lack of significance of two variables which, in the U.S. case, strongly push towards full control of foreign subsidiaries. In this study neither the Japanese parent's R&D nor its advertising intensities had any significant impact on their ownership policies. [ABSTRACT FROM AUTHOR]

The literature on JIT production suggests a causal link between work-in-process inventory and manufacturing productivity. Such a connection has been described in numerous case studies but never tested statistically. This paper uses historical data for 52 Japanese automotive companies to evaluate the inventory-productivity relationship. We find that firms increased their productivity rank during periods of substantial inventory reduction. More detailed tests suggest that inventory reductions stimulated gains in productivity: On average, each 10% reduction in inventory led to about a 1% gain in labor productivity, with a lag of about one year. Such effects were more immediate for Toyota affiliates, but undetectable for close suppliers of Nissan. These findings imply that inventory reduction served as an important driver of process improvement for many Japanese automotive companies, although some firms emphasized other methods. [ABSTRACT FROM AUTHOR]

Multinational firms can enter a foreign market by taking over existing local firms (acquisitions) or by setting up new ventures (greenfield investments). Surprisingly, there has been limited empirical work on this topic. This paper examines the determinants of this choice by looking at Japanese entries into the United States. By focusing on firms of one country entering a single market, we are able to separate the impact of a firm's strategy from that of the characteristics of the target industry or country. This paper tests simultaneously a number of competing hypotheses. The results suggest that acquisitions are used by Japanese investors with weak competitive advantages, while investors with strong advantages find that greenfield investments are a more efficient way to transfer these advantages to the U.S. Acquisitions are also chosen to enter industries with either very high or very low growth rates, when entry is at a scale that is large relative to the parent, and when entry is into a different industry. The Japanese investor's previous experience of the U.S. market, its financial situation, and its status as a follower in an oligopolistic industry have no statistically significant impact on the entry mode. Neither do U.S. stock market conditions. [ABSTRACT FROM AUTHOR]

The paper presents an analysis of invention performance, as measured by patenting activities, of six countries (France, Italy, Japan, United Kingdom, USSR, West Germany) relative to the United States for 41 SIC industries over the past 20 years. It turns out that non-U.S. countries as a group have increased their (relative) invention performance in all fields of technology, including high technology fields. In a second step hypotheses which can be supposed to explain the relative decline of the United States' patenting activities are discussed and tested. There is strong evidence that catching up processes contributed most to the relative decrease of the United States; there is only little evidence that government interventions regarding research and development activities have had counterproductive effects on invention performance. [ABSTRACT FROM AUTHOR]

This paper analyzes Japanese manufacturing firms' export behavior and their performance. In a slow growth era, leading firms' and minor firms' export ratio tended to be less than that of follower (medium market share) firms in the same industry; there appears to be an inverted-U shape between export ratio and relative size of firms. An affiliation with a large industrial group has no positive relationship with export ratio, while other firm-specific factors do not show consistent relationships with it in the years 1971 to 1985. Exports and firm performance do not have a positive relationship. Competitive environment in the domestic market is related to the export strategy of Japanese firms. [ABSTRACT FROM AUTHOR]

There has been considerable emphasis on the strategic importance of process and product innovation in the management literature. What actually constitutes process and product innovation, however, is a confused issue in the current literature. Are product and process innovations separate, or are they on a continuum? The importance of addressing this issue is that research over the past few decades has attributed Japan's increasing competitiveness to its propensity to process innovate. This paper uses a consumer-based approach to distinguish between process and product innovation using a model based on choice theory. An empirical illustration of the model is also presented. The model is then used to emphasize the need to pursue an integrated strategy of process and product innovation in response to consumer wants. The model also helps managers decide on the appropriate mix of process innovation relative to product innovation for R&D resource allocation purposes. [ABSTRACT FROM AUTHOR]

This paper is concerned with the rate of diffusion of flexible manufacturing systems, one of the most important industrial applications of information technology. Using data from about 175 firms, I analyze diffusion rates in Japan, Western Europe and the United States, a major purpose being to determine whether, as is often claimed, U.S. firms have been relatively slow to introduce this innovation, and if so, why. [ABSTRACT FROM AUTHOR]

This paper examines the implications of market structure on investment in flexible manufacturing systems (FMS). We analyze a two-stage game, in which firms choose between a flexible and a less flexible technology in the first stage, then choose production quantities in the second stage. In equilibrium, a large proportion of FMS firms is associated with more concentrated markets. Our model predicts that a larger market and/or a more differentiated product results in a higher proportion of FMS firms being sustained. These predictions are empirically supported using cross-section industry level data from both the US and Japan. [ABSTRACT FROM AUTHOR]

Since the early 1980s, there has been a mounting debate in industry literature and in U.S. government-sponsored reports over the relative performance of software developers in Japan versus those in the United States. This literature is somewhat divided between assertions of Japanese or U.S. superiority in this technology, although many observers in the popular business press continue to insist that the U.S. maintains an overwhelming lead in this technology. However, both sides of the debate have offered evidence that, to date, has been primarily qualitative or based on one or two cases. This paper contributes to the debate in two ways. First, it offers a comprehensive literature review that analyzes existing comparisons of Japanese and U.S. practice in software development and summarizes the major proposed differences in performance. Second, it presents the first set of quantitative data collected from a statistically comparable sample of 24 U.S. and 16 Japanese software-development projects, and uses these data to test propositions from the literature. The analyses indicate that Japanese software projects perform at least as well as their U.S. counterparts in basic measures of productivity, quality (defects), and reuse of software code. The data also make it possible to offer models that explain some of the differences in productivity and quality among projects in both countries. [ABSTRACT FROM AUTHOR]

This study investigates the day of the week effect in the Japanese stock returns. Low Tuesday and high Wednesday returns are observed. Most of the positive returns arise during the nontrading period. The Monday effect is also observed in the week whose previous week is closed by Friday trading. Low Tuesday returns appear to be related to low Monday returns in the U.S. The weekly pattern is more pronounced for the returns of smaller firms. A reverse size effect is observed during the trading period. [ABSTRACT FROM AUTHOR]

The international transmission of intraday price volatility among the United States, United Kingdom, and Japanese stock index futures markets in the period 1988-1994 is investigated in this paper The empirical results based on extreme-value estimators and vector autoregression indicate the rapid transmission of information between markets. The volatilities of the U.S. and U.K. futures markets appear to follow a meteor shower rather than a heat wave type of process. This means that these volatilities react to shocks from other markets, i.e., they cannot be described only by their past values. However, the heat wave hypothesis is not rejected for the Japanese market, meaning that the shocks to Japanese volatility are mostly country-specific. A multivariate GARCH model supports the U K. and Japanese but not the U.S. results. [ABSTRACT FROM AUTHOR]

We investigate whether cultural differences between professional decision makers affect financial contracts in a large data set of international syndicated bank loans. We find that more culturally distant lead banks offer borrowers smaller loans at a higher interest rate and are more likely to require third-party guarantees.These effects do not disappear following repeated interaction between borrower and lender and are economically sizable: A one-standard-deviation increase in cultural distance, approximately the distance between Canada and the United States or between Japan and South Korea, is associated with a 6.5 basis point higher loan spread; the loan spread increases by about 23 basis points if the bank-firm match involves culturally more distant parties,for example, from Japan and the United States. We also find that cultural differences not only affect the relation between borrower and lender, but also hamper risk sharing between participant banks and culturally distant lead banks. [ABSTRACT FROM AUTHOR]

Prior research suggests that equity joint ventures (JVs) are particularly effective vehicles for accessing complex technology. Different schools of thought have emphasized different reasons why joint ventures might support greater knowledge transfer than "bare" license agreements: incentive alignment, organizational embeddedness, and enhanced administrative controls. We probe and refine these theoretical perspectives, drawing out implications of the different theories for the extent and speed of alliance-related knowledge transfer, as well as for knowledge "leakage" in areas not directly related to alliance activities. Using a proprietary data set derived from regulatory filings with the Japanese government we test these implications in our empirical analysis of U.S.-Japan agreements. The picture that emerges from the analysis is one of particularly intense but contained knowledge transfer in equity joint ventures, relative to bare license agreements: knowledge transfers directly related to the alliance activity are enhanced in the JV, and the speed of integration into the Japanese firm's subsequent innovations also increases. In marked contrast, leakage of unrelated technology is significantly reduced. These findings suggest that administrative structures that reduce technology leakage are a key feature of the equity joint venture, a result that is inconsistent with a "pure" knowledge-based perspective on alliances. [ABSTRACT FROM AUTHOR]

The "resource-based view of the firm" has become an important conceptual framework in strategic management but has been widely criticized for lack of an empirical base. To address this deficit, we utilize a new method for identifying inter firm differences in efficiency within the context of stochastic frontier production functions. Using data on Japanese and U.S. automobile manufacturers, we develop measures of resources and capabilities and test for linkages with firm performance. The results show the influence of manufacturing proficiency and scale economies at the firm and plant level. We apply the parameter estimates to account for Toyota's superior efficiency relative to other producers. [ABSTRACT FROM AUTHOR]

Although economic activity between the U.S. and Japan has skyrocketed in the last decade, there are few large sample, cross-industry studies analyzing multiple forms of investment by the Japanese in the U.S. This study analyzes the key characteristics of each stage of industry evolution and the costs and benefits of each form of resource investment to predict the patterns of technological linkages, joint ventures, and direct investment of Japanese companies in the U.S. The results find support for a model predicting a predominance of technological linkages in emerging industries, joint ventures in growing industries, and direct investment in maturing industries. Technological linkages are most attractive in emerging industries as firms struggle to acquire technology, information and expertise and share cost and risk, yet retain flexibility. Joint ventures proliferate in growing industries because they offer a means of acquiring and expanding customer bases, yet reducing vulnerability. In maturing industries, where firms' key competencies are more developed, direct investment allows the company to generate demand in new markets without the disadvantage of joint governance. [ABSTRACT FROM AUTHOR]

This study, based on detailed data obtained from carefully selected samples of about 200 Japanese and American firms, seems to be the first comprehensive empirical investigation of the differences between Japan and the United States in innovation cost and time. Whereas the Japanese have substantial advantages in this regard in some industries (notably machinery), they do not seem to have any substantial advantage in others (notably chemicals). Whereas they have great advantages in carrying out innovations based on external technology, they do not seem to have any in carrying out innovations based on internal technology. Japanese firms allocate their resources quite differently than do American firms, a larger percentage of total innovation cost being devoted to tooling and manufacturing equipment and facilities, a smaller percentage being devoted to marketing startup. A large part of America's problem in this regard seems to be due to its apparent inability to match Japan as a quick and effective user of external technology. [ABSTRACT FROM AUTHOR]

There has been a great deal of interest recently in the Japanese approach to manufacturing, growing out of a concern for finding ways to reduce inventories and increase productivity. At this project's inception, its objective was to assess whether the kanban system could perform well in the manufacturing environments found in this country. Based on observations from managers visiting Japan, the project was enlarged to also assess which factors in a production environment have the biggest impact on performance—regardless of the system in use. Guided by a panel of production and inventory managers from diverse plant environments, a comprehensive list of factors thought most important to manufacturing effectiveness was constructed. The panel established low and high values for each one. These settings were considered representative of the range experienced in U.S. plant environments. The factor settings allowed a variety of representative plants to be tested with a large scale simulator. Results show that kanban, when implemented in certain environmental settings, does indeed perform exceptionally well. However, so do the more traditional systems used in the United States. Conversely, there are other plant environments in which all systems perform much worse. This suggests that the factors themselves are the keys to major improvement. Simultaneously reducing setup times and lot sizes is found to be the single most effective way to cut inventory levels and improve customer service. Shop factors of particular importance are yield rates and worker flexibility. Degree of product standardization and the product structure are also high impact factors. Less crucial than earlier believed, at least over the factor settings simulated, are inventory record inaccuracy, equipment failures, and vendor reliability. Such results suggest that the selection of a production/inventory system can be of less importance than the improvement of the manufacturing environment itself. [ABSTRACT FROM AUTHOR]