1
How national origin and innovation affect risk-taking
Msc in International financial management
Master Thesis
Name: Alessandro Sacco Supervisor: Dr. W. (Wim) Westerman Student number:S3703371
E-mail:a.sacco@student.rug.nl
Abstract
The endeavour of this research paper is to figure out if country characteristics have been influential for the risk-taking strategies of the Asian and European sampled firms between 1997-2016. The second effort of this thesis is to verify if Asian firms faced higher or less risk-taking compared to European firms if we also consider innovation as moderator. This paper uses capital expenditures to
total assets (CAPEX) to calculate the risk-taking, and the example is based on 6878 observations. The expectations are that Asian firms are more likely to take less risk than European firms and this also happens when innovation is implemented as moderator. Furthermore, the massive presence of Japanese firms within the Asian sample leads to an isolated analysis of the Japanese firms compared
to all the other realities. Without surprise, results confirm the expectations and show that Asian firms are more likely to take less risk than European firms and the Japanese industry follows in the
footsteps of the other Asian countries. The innovation used as moderator does not change the final outcome and it seems to be an irrelevant factor for a risk-taking approach.
Keywords: Risk-taking, innovation, Energy, manufacturing and transportation
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INTRODUCTION
The goal of this paper is to deeply analyse the risk-taking attitudes in two different continents, in addition to the effect that innovation has on a company’s risk-taking behaviour. In the past, the main investigations were more related to risky activities under a financial perspective, and less under a national perspective. As a consequence, the aim of this empirical analysis is to expand the topic on different aspects. Examples are historical backgrounds, cultural values or innovation, with a special care and attention to the specific firms within this sample: their operational activities and characteristics show a certain coherence with the results of this thesis. According to Wiklund et al. (2003), risk‐taking refers to a company's tendency for high‐risk projects with chances of high returns or high losses. Also, it implies a willingness to face potential unknown consequences. Based on different periods and various economic reasons, every country decides to take higher or lower risk and in the Asian continent several events have affected the local economy.
It is well known that the Chinese economy is taking a more prominent role in the international business arena. Furthermore, it is also well-known that Mr. Trump has, at least partially, founded his election campaign on this topic while running for the US presidency. Additionally, according to the 2017 list of Asian countries by GDP per capita from The World Factbook and International
Monetary Fund (2017), countries such as Japan, Taiwan, South Korea, Singapore, Malaysia, and
Hong Kong occupy high positions in international rankings. An investigation of these developed Asian industrial districts’ arises from the interest to discover the potential of the national energy, transportation, communications and manufacturing firms. This investigation covers different industries which share mutual factors and goals, such as CO2 reduction, energy effort and product
3 manufacturing multinationals such as Siemens. Specifically, their goal is to be completely carbon neutral by 2030. Furthermore, it is well known that the manufacturing industry becomes more and more orientated towards reducing emissions in Europe, as well as in Asia. With respect to this papers’ key factors, Farooq et al. (2009) explain how in the manufacturing industry the calculation of risk-taking for new manufacturing technologies is crucial. Furthermore, this sector should take into consideration supply chain opportunities and threats. The risk is also related to the energy industry. In fact, Pereira et al. (2000) explain that in the electric power business, transmission, generation, distribution, and system protection engineers have created advanced software specifically for reducing risk. Finally, according to Altavilla et al. (2002) in the transportation industry, and more specifically in the aerospace transportation industry, risk-taking activities need to be deeply analysed.
It is paramount to take into consideration that the countries of this thesis’ sample have different backgrounds. For instance, China underwent a substantial process of internationalization. This process started back in 1979 when the government ushered in reforms to invite foreigners to invest in the country. In contrast, in 1990, Japan faced large capital losses among banks. Consequently, this obligated firms to raise capital abroad. On a different trend, countries such as South Korea and Hong Kong followed a European approach with respect to their economic policies over the last years. With respect to the European approach, Hewson et al. (1975) mentions the following: the inflationary pressure, the reduction of domestic monetary independence and the speculative capital flows caused an increase of some form of control in Europe in the past so that risk-taking could have been affected by these factors.
4 national economic growth”. Many researchers study the innovation topic on a global scale. However, this thesis contributes to a strand of literature which has not yet been investigated very intensively: the risk strategy of corporations in some specific industries. Xue et al. (2018) is one of the few authors who investigate the link between risk-taking and innovation. They show that, in Japan, there is a positive relationship between risk-taking and innovation. Nevertheless, these discussions still cause different questions to arise. How is risk-taking related to a country’s characteristics? How do Asian firms deal with the relationship between innovation and the impact that it has on a company’s risk-taking choices, compared to European firms? This paper answers these main questions.
This thesis identifies the most developed countries in Europe and Asia based on a minimum GDP nominal cut-off point, which is derived from the International Monetary Fund (2017). The investigation is developed on various industries, specifically: transportation, communication, energy and manufacturing. CAPEX is used as a proxy variable to identify risk-taking, while R&D intensity is used as proxy for the innovation moderator variable. Furthermore, GDP growth is used as a country level variable, in addition to other independent variables, which are described in section 2.2. DataStream is used as the main source for the variables. Linear regressions are employed in order to answer this thesis’ questions. Finally, this results in a sample of 6878 observations over a span of twenty years, specifically, from 1997 to 2016.
5 This leads to the conclusion that Japanese firms tend to take less risk than European firms. Additionally, in this case, more profitable firms tend to take less risk and this is mostly explained due to the cultural attitudes of the Japanese society and through the operational results of specific industries, such as Mitsubishi Electric Corporation or Alsp Electric Co. Specifically, they engaged in less risky activities over the last years in order to follow a cost-leadership strategy. Finally, in all the linear regression models, it seems that innovation is not related to the risk-taking choice. Specifically, in the interaction model in Table 7, the not significant coefficient of 0.063 proves that this variable does not have a relation with risk-taking. According to this thesis, this seems more related to financial and managerial aspects, such as profitability or leverage, while European countries continue to take more risk than Asian countries. Innovation could be more aligned to other industries where the modernization and development of a product has a substantial impact on the risk-taking choices of a corporation. This thesis contributes to the current literature by providing several noticeable insights with respect to risk-taking choices on an international context. Consequently, this provides a point of view which is less related to the financial aspects. Instead, it focuses more on the country level. Furthermore, so far, the literature has only provided limited or partial explanations with respect to the impact that innovation has on risk-taking. However, this thesis provides the result that there is no relation between risk-taking and innovation.
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1. LITERATURE
1.1 Asian and European energy, manufacturing, communication and transportation firms
Asian energy producers are significantly correlated to their countries’ economic growth and noticeable energy consumption. Zhang et al. (2016) highlights how a new era of industrialization and urbanization is well explained by an increasing of energy demand. Furthermore, Xu et al. (2017) argued that “China became the world's largest energy consumer and CO2 emitter in 2009 and
2011, respectively”. Guo et al. (2018) also note that in 2014 China became the largest oil importer in the world. Chinese energy market competition has significantly increased over the last years. According to Li et al. (2016), “by the end of 2015, the total value of China’s listed energy companies accounted for roughly 10% of the value of China’s A-share market”. Furthermore, the fluctuations of these stocks would affect the national economy. The topic of Asian energy firms has been largely investigated under different perspectives. Authors like Kudo (2008) focused on how the industry in Japan tried to increase energy efficiency after the “Oil shock” in 1975. The European environment is already compromised. Indeed, according to Zafirakis et al. (2015) CO2 emissions
7 Regarding the manufacturing industry, Jiang et al. (1993) described how this industry developed in China in four different types of periods. After 1977, following China’s opening to other countries, they realized that it had evident flaws in the design and production of its manufacturing industry. As a consequence, China started to import newer high-level technologies in the field of manufacturing. Fischer (2016) explains how the Malaysian manufacturing industry has been expanding its
competitiveness due to the important roles played by certifications, standards and techno-science. However, it seems that the literature does not provide specific indications about the Asian MTCE (Manufacturing, Transportation, Communication and Energy) firms’ risk strategy and its
development over the last years.
Chikàn et al. (1995) predicts how the shortage of material and labour in central Europe created a bottleneck for quality innovation in the manufacturing industry. With respect to the European energy industry, Noreng (2008) predicted that the oil market is not perfectly competitive and that the Euro has taken the brunt of Dollar depreciation. Consequently, this lead to the fact that Europe suffered the greatest loss in price competitiveness. However, there are highly productive regions that benefit from a certain energy abundance, such as Norway. Thus, this increases the whole European hydropower and electricity market, according to Gerlagh and Mathys (2015). On the hand, Eastern-European countries have always been struggling with an inefficient and obsolete energy industry. Dienes (1976) highlighted that the scarcity of energy and the consequent high prices will be a serious problem for the growth rates of Eastern-Europe. An internal system of gas and electricity market has been developed in Europe in 2007 in order to create a stable European electricity transmission network (Zafirakis et al. 2015).
8 according to HSBC’s Supercollider report, CAPEX represents the main driver of lower prices in telecoms.
1.2Risk-taking and innovation
Risk-taking and innovation strategies are two important decisions in terms of operational and managerial choices, since they both can affect the reputation of a firm and its ability to generate profit. Indeed, on one hand, Xiaodong et al. (2014) states that there is a positive relation between risk and returns, because a higher risk is accompanied by a higher return. However, it is generally easy to find high risk-low profits companies and low risk-high profits companies in reality (Fiegenbaum et al. 1988). On the other hand, the ability to modernize and innovate its own products leads to a better brand reputation. Specifically, according to Chun (2006), a company that manages to link innovation to social responsibility is prosperous and has successful results. Nonetheless, many scholars found not significant or partial results regarding a potential relation between taking and innovation. According to Xue et al. (2018) there is a positive relation between risk-taking and product innovation in Japan. However, Ernst (2002) stated that it is wrong to think that new products do not lead to a noticeable risk increase. This idea is corroborated by Atuahene‐Gima
et al. (2001), who explain that the creation of new resources is more likely to lead to risk than a
perpetual production of current products. Among the main theories with respect to the risk strategies, the internalization of a portfolio is not the only driver of a successful strategy. A solid capital structure is also one of the reasons why a corporation chooses to take more or less risk. The
Modigliani and Miller capital-structure model was probably the seminal trailblazer in this field
9 concrete investigation about the risk-taking strategy for Asian MTCE firms. More generally, there is a lack of investigations concerning industry characteristics. Allayannis et al. (2003) analysed the behaviour of Eastern-Asian non-financial firms and conclude that foreign cash flows and cash reserves attenuate the use of foreign currency debt, which could have an impact on risk-taking. In developed countries, which have a higher level of investor protection, there is also more corporate risk-taking (John et al. 2008). Furthermore, if this condition also holds for Asian nations such as China, Taiwan and Malaysia, one could expect that these countries are likely to take less risk compared to European firms. Faccio et al. (2011) study the behaviour of European firms and draw a significant conclusion: when diversified shareholders control a firm, management operations are more oriented towards riskier investments. They also recognize that taking risk is an ambitious step for long-term economic growth. Finally, Boubakri et al. (2013) analysed a large sample of countries (including several European countries and China) and conclude that in places where political institutions are more strict - with a better supervision on internal activities - firms are more likely to take risk. However, in countries such as China or Tunisia, an unstable political situation, combined with less sound institutions, inhibit firms from facing risk. However, in the context of this paper, where nationality and cultural behaviours can play a dominant role, it is of the utmost importance to mention Gray’s and Hofstede’s (two important psychologists who studied national cultures along different dimensions) models. According to the former one, every society has different attitudes towards several aspects such as risk-taking, disclosure of information or accounting practices. In fact, as paragraph 3.2 describes, some countries, such as Japan, are characterized by some cultural values oriented towards uncertainty avoidance.
10 for workers. Heeg (2017) stated that Asian regions are producing the most coveted gadgets (consoles, lightweight devices, etc.) due to their higher research and development expenses. Also, he refers to successful Japanese robots. However, this fast Japanese development is not similar to what occurred in the Chinese transportation industry. Huang et al. (2018) stated that since 1994, the country’s VAT system has led to a double taxation which affected firms’ incentives to upgrade their techniques. Furthermore, Wu (2018) predicts that Chinese energy firms are financially constrained with respect to investments in R&D, which holds especially for private firms and mature corporations. Second, the concept of knowledge-intensive ventures (El-Awad et al. 2017) plays a crucial role. According to the authors, these collaborations contribute to the creation of innovations and new jobs. Furthermore, these ventures have also a positive effect under an entrepreneurial aspect since they can create opportunities to expand products and aim to meet future (potential) customers. The chance to improve the effectiveness of financial openness leads to a new process of integrations and technological exchange between Asian and European firms. According to Bointner
et al. (2016) EU member states spent 124 billion EUR in R&D between 1974 and 2012.
11 energy efficiency are also aligned with the choice of this thesis to discuss industries which share mutual factors, such as energy effort and products’ innovation. Duin et al. (2010) highlight the European paradox of having good research activities in the field of manufacturing, but with an irrelevant impact in terms of innovation and global competitiveness. Companies should produce more sustainable products each year, which would consequently imply important increases in innovation funding. The irrelevance of innovation also takes place in the transportation industry in Germany. According to Wagner (2011), even if innovation is important in terms of competitiveness of services providers, innovation activities in this industry are lower compared to other industries. Zhou et al. (2002) referred to computer-integrated manufacturing (CIM) as an innovative software and refers to this process as the help for manufacturing industries in the Asian market. Finally, Yuan et al. (2015) state that in the Asian manufacturing industry (with a thorough focus on the wind turbine manufacturing), overcapacity, quality issues and a certain lack of independent innovation present a problem. Nevertheless, despite the thorough discussions of previous papers in this section, there still appears to be a gap in the literature. Specifically, the literature review shows that a specific relation between innovation and risk-taking strategies in the MCTE industries is not discussed. The following section attempts to fill this gap.
1.3 Hypothesis development and expectations
This paper deals with two main questions:
How do country characteristics affect the risk-taking of MTCE firms?
How do innovations affect the relationship between risk-taking and country characteristics?
12 risk. Indeed, according to the International Monetary Fund (2017), when measuring wealth by GDP per capita, one can notice that it is mostly concentrated in the East Asia; specifically, in Japan, Hong Kong, Taiwan, South Korea and Singapore. Furthermore, according to Mendoza et al. (2009), a country such as China is reducing its net holding of risky assets in order to focus on riskless assets. Park et al. (2011) identified the Asian zone as generally segmented, being neither locally nor globally integrated, so that more financial integration could induce more risk-taking. According to Das (2013), Asian firms have been growing steadily and the Foreign Direct Investments (FDI) have represented a vital element of China’s reform. The author states that for much of the 1990s, Malaysia, Singapore and Thailand, received more FDI than larger regional economies like Japan, Korea and Taiwan. However, this situation changed after the Asian crisis. According to its neighbours, China was responsible for a huge loss of their FDI. This loss could boost the idea that one of the biggest countries in Asia did not take much risk for a long period. Finally, a country’s background could corroborate the idea of less risk-taking by Asian firms due to the fact that the Shanghai Stock Market was re-established only in 1990. Furthermore, since the thorny access to the financial market in countries such as South Korea or Taiwan cannot be compared to the European one, this study expects that:
H1: Asian companies tend to take less risk than European companies.
13 concept of national origin and it is important to take into account the paramount role played by cultural values. According to Hofstede, Japan has a high conservative culture and, differently from European countries, there is not a tendency towards positivism about future possibilities, so that stability and pessimism are preferred. Consequently, this paper expects that:
H2: Japanese firms tend to take less risk than other European and Asian firms.
The expectation for the third hypothesis follows the footsteps and economic reasons of the previous arguments. Even though it is obvious that there is still an evident gap between the two continents, the Asian region is improving its ability to emulate the European countries in terms of innovation and R&D expenditures strategies. Thus it is slowly becoming the main competitor of the US industry. However, as already discussed in chapter 1.3, there is confusion around the importance of innovation on risk-taking but, according to Bromiley et al. (2016), it is possible that R&D might reduce firm risk. Within this sample, the bulk of the companies are active in the energy or manufacturing industries, where risk-taking can have a stronger relation with financial choices and innovation and modernization choices. While also analysing research and development intensity, this expectation should not depart too much from the previous thoughts. Consequently, this paper expects that innovation (as moderator) in Asia decreases the risk levels of the national firms compared to European firms:
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2. DATA AND METHODOLOGY
2.1 Data and Sample
In this paper, the definitions of MTCE firms are based on the Standard industry classification code (SIC) which is a US established system that defines an industry based on a four-digit code. In this empirical analysis, the ranges investigated are between 2000-3999 and 4000-4999. These categories collect firms active in the division of manufacturing, transportation, communications, electric, gas and oil, and sanitary service. The term “MTCE” will be used in this investigation in order to identify these specific industries. Furthermore, this thesis gives a specific connotation to Asian countries. It refers to the seven more developed countries: China, South Korea, Taiwan, Hong Kong, Japan, Malaysia and Singapore, so that less developed and underdeveloped countries such as Philippines, Vietnam or Indonesia are not investigated. The concept of “most developed countries” is based on the minimum GDP nominal (in millions of USD) of 300,000, according to the
International Monetary Fund, 2017. The analysed period is over a span of 20 years: 1997-2016.
Datastream is used as the main data source for the collection of all variables in this study. The whole sample counted roughly 7940 data at the beginning, considering that 397 MTCE firms were approximately considered per year; roughly 239 firms were “Asian” and 158 firms were “European” so that it was obviously a little bias. After a second analysis, with a deep concern about outliers and with the exclusion of the year 1996 due to the evident unbalanced amount of the data, this thesis counts 6,878 observations; specifically, 4057 are Asians and 2821 are Europeans.
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Table 1: Asian and European countries
Asian countries European countries China, Japan, Taywan, South
Korea, Hong Kong, Singapore, Malaysia
Austria, Belgium, Germany, Denmark, Spain, Finland, France, United Kingdom, Greece, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Sweden
An ordinary least-squares (OLS) regression model is used in order to draw significant conclusions and to give a statistical perspective.
2.2 Variables description and equations
This paper computes risk-taking according to the study and considerations developed by Bruno and Shin (2014). The degree of risk-taking (dependent variable) is the CAPEX (capital expenditures to Total Assets). Following the model from Bruno and Shin (2014), other related firm control variables are integrated: size (calculated as logarithm of total assets); book debt ratio (leverage) calculated as debt in current liabilities + long-term debt/Total Assets (TA); profitability calculated as EBITDA/TA; market to book ratio (to control potential firm-level growth opportunities). Furthermore, a country level variable is considered: the GDP growth (from the IMF WEO Database). This is crucial in order to capture a country’s growth and to give a better perspective; since a lower country-level growth is related to higher volatility of earnings (Bruno and Shin, 2014), it is interesting to figure out if the tremendous GDP growth that the Asian zone is experiencing has something in common with the national firms’ investment behaviour. Finally, this paper adds Research and development intensity (R&D intensity) as a moderator variable (R&D expenses/TA) following the paper by Kubick et al. (2016). For both hypotheses a dummy is created; it takes the value of “1” if it refers to Asian MTCE firms and “0” to European MTCE firms.
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Table 2- Variables description
Variables Calculation of variables
CAPEX Capital expenditures/Total sales
Size Log. Of Total assets
Leverage Debt in current liabilities+long-term debt/TA
Profitability EBITDA/TA
R&D intensity R&D expenses/TA
This paper aims to investigate the behaviour of non-financial institutions so that financial institutions are not considered in the analysis. Furthermore, this thesis treats different currencies in the same zone (i.e. UK pound or Danish Krone) as if these were Euro currency, following the same exchange rate. The underlying idea is that it is expected that EU countries’ economies are strongly correlated with each other, and the continental economy significantly depends on these countries. With respect to the first hypothesis, the following equation has been developed:
Capex(t,i)= α0 + β1 Asian countries(t,i)+ β2Firm size(t,i)+β3 Book debt ratio(t,i) +β4 Profitability(t,i) +B5 GDP
growth(t,i)+ F.E. country + F.E industry+ F.E year+ ε(t,i) (1) With respect to the second hypothesis, the following equation has been developed:
Capex(t,i)= α0 + β1 Japan(t,i)+ β2Firm size(t,i)+β3 Book debt ratio(t,i) +β4 Profitability(t,i) +B5 GDP growth(t,i)+
F.E. country + F.E industry+ F.E year+ ε(t,i) (1.1)
With respect to the third hypothesis, another equation has been developed:
Capex(t,i) = α0+ β1 Asia countries(t,i) + β2 Innovation(t,i)+β3 country origin(t,i) × innovation(t,i) +β4 firm size(t,i)+
β5 profitability(t,i) +β6 book debt ratio(t,i)+B7 GDP growth(t,i)+ F.E.country+ F.E industry+ F.E year+
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2.3 Descriptive statistics
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Table 3: Descriptive statistics
Variables Obs. Mean Std. Dev. Min Max
CAPEX 6,878 0.065146 0.066556 0 1.3403 Size 6,878 18.18503 2.950357 12.11553 24.1252 Leverage 6,878 0.253041 0.154985 0 0.683077 Profitability 6,878 0.115409 0.06376 -0.0629 0.331877 R&D Intensity 6,878 0.024762 0.024702 0 0.11361 GDP 6,878 35391.8 12152.5 781.7442 103059.2 A/E 6,878 0.589852 0.491896 0 1
Source: STATA output
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2.4 Correlation analysis
The table 4 below shows the correlation of all the variables involved in the investigation of the risk-taking approach of the MTCE firms. Based on our results, we can assume that there are not issues related to a potential multicollinearity since the coefficients do not exceed a threshold of 0.7. The highest coefficient is between the dependent variable Japand and the size (around 0.6335). This overview is crucial because it explains that the independent variables within the sample are not worryingly correlated and therefore the study does not face major problems in the interpretation of the model. As we will see in the next regressions, some variables such as size have a coefficient that will positively and significantly affect the dependent variable CAPEX both in the case of Japan and in the case of the analysis regarding the innovation as moderator. Finally, this correlation shows that there is a positive correlation between the dependent variable CAPEX and the profitability, between CAPEX and the leverage and CAPEX and the size; instead, there is a negative correlation between CAPEX and the Japanese country, CAPEX and research and development intensity, and CAPEX and GDP.
Table 4: Correlation Matrix
CAPEX AE Japand profitability R&D GDP Leverage Size
CAPEX 1 AE 0.0481 1 japand -0.0883 0.7285 1 Profitability 0.0542 -0.1954 -0.196 1 R&DIntensity -0.1121 -0.001 0.1775 0.0674 1 GDP -0.2243 -0.296 0.213 -0.0033 0.1804 1 Leverage 0.189 0.017 0.0052 -0.2543 0.2333 -0.0239 1 Size 0.0299 0.8084 0.6335 -0.2362 0.0163 -0.1034 0.1306 1
The table contains correlation coefficients of all the variables used in the study: CAPEX (capital expenditures), AE (Asian countries), Japan (Japan isolated case), Profitability, R&D intensity, GDP, leverage and size
20 If we look at the case of Japan, we can see that this only has a negative correlation with profitability.
The correlation analysis shows us that there exist invest inverse relations between the main dependent variable CAPEX and one independent variable. In this case we can assume that if a company working in the oil, energy, manufacturing, transportation or communication services is less likely to bring innovation to its production, it is more orientated towards a more cautious approach that deviates from risk. Instead, in case of a successful corporation in terms of profits, big in terms of size and most importantly relies significantly on debt, we can sum up that there will be more risk. In order to give a reasonable example, we can assume that a private corporation that can have a favourable access to the government and bank system (more debt) can face higher risk. We can also expect that a multinational company (bigger size), through a diversified portfolio and potential positive net profit (profitability) can face higher risk. In order to offer a well-rounded statistical perspective, skewness and kurtosis tests for normality have been run in order to identify the location and the variability of this dataset. The bulk of the data, having a skewness of roughly 0, indicating that our sample is well symmetric. However, for the leverage variable, there is a slight kurtosis of 0.0022, which is far from the expected value of 3; we can assume that the tails of the distribution are not perfectly balanced as can be expected.
3. RESULTS AND DISCUSSION
3.1 First hypothesis test
22 consequence, portfolios could keep the investors aware of potential dangerous situations due to R&D activities. The lack of significance in this case is likely due to a non-relation between these two factors. Many authors discuss about the relation between R&D and risk and they stress the lack of significant results, or they can only explain a relation between competitor technological competition and R&D, as in Cohen and Levinthal (1989). We can assume that the CAPEX is dramatically determined by financial choices such as the leverage (due to its important significance at 1%) rather than choices related to innovations.
Table 5- first regression
1 2
Dep. Variable CAPEX CAPEX
AE -0.0145507* [0.094] -0.015246 [0.69] Size 0.0028982* [0.011] 0.004677** [0.012] Leverage 0.0165955*** [0.01] -0.00304 [0.75] Profitability -0.0233237* [0.055] -0.03508** [0.028] R&D Intensity -0.0020791 [0.969] -0.03349 [0.678] GDP -0.000000777 [0] -8.88E-07 [0] _cons 0.1827944 [0] 0.169799 [0.179] AE × c.Size1 - -0.00305 [0.179] - AE × c.Leverage1 - 0.037124*** [0.004] - AE × c.Profitability1 - 0.031765 [0.186] - AE × c.R&D1 - 0.06813 [0.53] - AE × c.GDP1 - 2.28E-07 [0.23] Observations 6878 6878 R2 0.3735 0.3924
In the table, *, **, *** refers to 10%, 5% and 1% significance levels (e.g.: *** p<0.1). P values are reported in parenthesis
24 a huge impact on the Asian economy, data coming from the first five years within this sample could be weaker than data coming from the most recent years, since the fluctuations of a massive financial instability period can have long-term effects; as a consequence, this study expects that, within the sample, the data from the year 2003 can better describe our model. A last consideration is that several Asian manufacturing firms within this sample are relatively new compared to other European corporations. Beijing Enterprises, despite its conglomerate industry and diversification, was founded only in 1997 (first year of this sample) and it represents only one of the many Asian firms which took place in the last 30 years emulating the European business. We can expect that it takes some years before dealing with a huge risk-taking.
3.2 Second hypothesis test
25 the results arising from this second hypothesis can easily corroborate the idea that Japanese firms play an important role within this dataset.
Table 6
Dep. Variable CAPEX
Japand -0.0208531*** [0.01] Size 0.0029761*** [0.004] Leverage 0.0159685** [0.014] Profitability -0.0229049* [0.059] R&D Intensity 0.0091298 [0.865] GDP -0.682 [0] _cons 0.1697989 [0] Observations 6,878 R2 0.3735
In the table, *, **, *** refers to 10%, 5% and 1% significance levels (e.g.: *** p<0.1). P values are reported in parenthesis.
27 sample, Mitsubishi Electric corporation, a well-known reality, famous all over the world for its electronic products, has been working on new ground-breaking projects that are currently ascertain significant revenue of ¥4,394.4 billion in 2017 and stability with less risky initiatives. To sum up, it seems that within this sample several Japanese firms have backgrounds and strategies that do not encourage a risk-taking strategy, and can justify our major expectations.
3.3 Third hypothesis test
28 significant results which are coherent with the previous results. In this regression, while the dependent variable continues to be negative and significant, and size, leverage and profitability continue to show similar coefficients to the previous analyses, the R&D Intensity variable is the only factor which has a not significant interaction with the country origin.
Table 7
Dep. Variable CAPEX
AE -0.01571* [0.078] R&D Intensity -0.03664 [0.643] AE#c.R&D Intensity 0.063004 [0.554] Size 0.002833** [0.013] Leverage 0.016736*** [0.01] Profitability -0.02299* [0.059] GDP -7.79E-07 [0] _cons 0.184571 [0] Observations 6,878 R2 0.3738
In the table, *, **, *** refers to 10%, 5% and 1% significance levels (e.g.: *** p<0.1). P values are reported in parenthesis.
29 which are more profitable lead to a decrease in terms of risk-taking in Asia. With respect to the debate around the innovation moderator (R&D intensity), it seems that the interaction of the independent variable with the country origin continues to be not significant even if it shows a positive coefficient. This different behaviour could indicate that with higher intensity in R&D, firms can deal with higher risk. However, also in this case, the non-significant value of R&D intensity is an evident signal that this factor is not related with our main dependent variable CAPEX and it does not change the main result. The innovation can affect several aspects of a company in the Asian region but it is highly possible that it doesn’t affect the risk-taking at all. If we extend the topic over other countries within our sample, we can refer to Tsai et al. (2004) and their investigation on the manufacturing industry of Taiwan. They explained how the R&D investments can have a massive impact on the firm productivity growth; however, they do not explain any managerial decisions such as the risk-taking. With respect to another well-developed country such as South Korea,
Pudelko and Büechl (2012) explain thoroughly that in being a high power distance country, Korea -
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4. CONCLUSION AND FURTHER RESEARCH
4.1 Summary and conclusions
32 thesis follows the tracks of previous papers according to which there is not a well-defined relation between innovation and risk-taking.
33 foreign investors to add and expand a business within China or Taiwan; this process would lead to a better confidence with the risk. It is evident that a bigger firm can give more importance to a risk-taking strategy and the launch of multinational companies would be a good start. According to the
United Nations, World Investment Report 2009, the world’s Top 10 non-financial companies in
terms of multinationality are among UK, Germany, Netherlands and Luxembourg and no Asian countries appear in the first positions. As a consequence, trying to have a more international perspective would be a positive achievement for a risk-taking strategy.
4.2 Further research
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