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the importance of achieving this common theoretical framework, a notable
1) main
a) the contradictions
2) technological
b) nature
3) intangible
c) rationality
4) simplistic
d) resources
lack of studies in this direction is observed, especially of those devoted to
analysing the application of approaches from business economics and management to the study of innovation. All of this reveals the interest of this paper.
Following the Oslo Manual (OECD, 1997), technological innovation is
defined as the generation of new products and processes or of significant
technological improvements in current products and processes. Besides R&D,
it differentiates six types of innovating activities: acquisition of disembodied
technology and know-how, acquisition of embodied technology, tooling up
and industrial engineering, industrial design, production start-up and
marketing for new or improved products (OECD, 1997, pp. 59–60).
The paper is structured as follows. First, the contributions of industrial
organization to the study are reviewed, as a key approach in order to
understand the effect of external factors. In 3 Transaction costs economy, 4
Positive agency theory, respectively, an analysis is made of transaction costs
economy (useful for explaining, through concepts such as uncertainty,
information asymmetry, specificity, opportunistic behaviour and bounded
rationality, how to carry out the coordination of the innovative activity), and
of positive agency theory (as a framework for analysing the effects on
innovation of the divergence of interests among the economic agents of the
firm). Section 5 contains a review of the resource-based view, which reveals
the great importance of the firm's internal resources, especially those of an
intangible nature, such as innovative activities. Section 6 is devoted to the
evolutionary theory, which provides key concepts for analysis of the
innovation process, such as diversity, dynamism, path dependence,
accumulative nature, tacit, complex and systemic components of knowledge
and patterns of innovation. After the approaches have been reviewed, in
Section 7 a theoretical framework for analysis of innovation is proposed. It
seeks to integrate the different perspectives, although the evolutionary theory
is the fundamental basis. Finally, the main conclusions derived from the
analysis are given in Section 8.
From: Galende J. Analysis of Technological Innovation from Business
Economics and Management (2006). University of Illinois at Urbana-Champaign's
Academy for Entrepreneurial Leadership Historical Research Reference in
Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1502037
1. Match these words as they occur together in the text.
81
5) comprehensive
e) activities
6) market
f) view
7) resource-based
g) paradigms
8) eliminate
h) approaches
9) innovating
i) concentration
10) bounded
j) knowledge
1) resource
2) innovation
3) intangible
4) paradigm
5) progress
6) organization
7) economics
8) transaction
a) a typical example or pattern of something; a model
b) an organized body of people with a particular purpose,
especially a business, society, association, etc.
c) a stock or supply of money, materials, staff, and other
assets that can be drawn on by a person or
organization to function effectively
d) practical implementation of ideas that result in the
improvement or introduction of new goods and
services
e) forward or onward movement toward a destination
f) the branch of knowledge concerned with the
production, consumption, and transfer of wealth
g) an instance of buying or selling something; a business
deal
h) unable to be touched or grasped; not having physical
presence
2. Match the words and their definitions.
3. Choose the correct preposition.
a) However, analysis of/for innovation is complex, since technological
knowledge has special characteristics that differentiate it considerably from
other resources, given its intangible nature.
b) This author proposes two factors, the size of the firm and market
concentration, as direct determinants of technological progress, factors that
subsequently would be taken up with/by industrial organization.
c) This study seeks to carry out an in-depth and at/in the same time
synthetic review of the main approaches used by business economics and
management to deal with the analysis of the phenomenon of technological
innovation.
d) Despite the importance of/for achieving this common theoretical
framework, a notable lack of studies in this direction is observed.
e) Technological innovation is defined as the generation of new products
and processes or of significant technological improvements of/in current
products and processes.
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4. Complete the summary of the text. Fill in each gap with one word
analyses, approaches, among, activity, comprehensive, view
from the box.
This paper identifies and ______the main contributions to the analysis of
firms' innovative activities of five _______related to business economics and
management: industrial organization, transaction costs economy, positive
agency theory, resource-based view and evolutionary theory.
Complementarities can be noted ______these approaches. They can all be
applied for analysing a specific aspect of innovative______. The author
concludes that the contributions of evolutionary theory seem to comprise the
most ______ approach for studying the firm's innovative process from an
internal point of ______and dealing with its complex characteristics.
5. Translate the excerpt into Russian.
Managerial Risk Incentives and Investment
Related Agency Costs
This study provides evidence that well structured compensation based
incentives significantly reduce investment related agency costs. The potential
conflict of interest between shareholders and professional managers in large
publicly traded corporations is a major issue in the study of corporate
governance. Rooted in the separation of power between the shareholders that
own the firm and the managers that control the firm's assets, this well known
agency conflict arises from fundamental differences in the positions of
shareholders and managers. Whereas shareholders are in a position to readily
diversify their wealth, managers typically have most of their human capital
tied up in the firm and often hold a large proportion of their financial wealth
within the firm as well (Fama, 1980, Stulz and Smith, 1985).
This principal-agent conflict gives rise to agency costs that lead to the
sub-optimal use of a firm's resources. Under-diversified, risk-averse
managers have an incentive to reduce their personal exposure by undertaking
investments that reduce firm risk or by foregoing risky positive net present
value projects at the expense of shareholders in the form of reduced wealth
creation. As Jensen (1986) has noted, this problem is likely to be acute in
firms with low growth opportunities and high free cash flow.
The conventional remedy for this conflict is to align managerial interests
with those of shareholders by tying the manager's compensation to firm
value or firm performance (e.g. Jensen&Meckling, 1976). Option based
compensation is well suited to this end because the convex payout profile of
stock options can offset the concavity in the manager's utility function. In
83
practice, the use of option based compensation has been increasingly
employed since the latter part of the twentieth century (Brockman et al.,
2010, Murphy, 1999). For example, Murphy (1999) observes that stock
options have become the largest single component of compensation over the
last fifteen years and Hall and Murphy (2002) note that stock options
constitute the single largest part of the compensation packages of US CEOs.
Similarly, Conyon, Core, and Guay (2011) find that during the period 1997–
2003 the importance of salaries in total compensation has declined for UK
CEOs, while bonuses and equity related pay, such as options have become
more important.
As discussed in the following section, there is a long and growing
literature examining the determinants and incentive effects of managerial
compensation on agency costs. Surprisingly, despite this and the growing
use of stock and stock option compensation, there has been no attempt in the
literature to measure investment related agency costs directly and test if and
how they are impacted by option based compensation incentives.
This paper addresses this gap by first explicitly measuring the investment
related agency costs on a broad sample of UK firms, and then assessing if
and how managerial compensation based incentives affect them. A UK
sample is of particular interest because prior UK studies have documented
that internal corporate governance monitoring mechanisms, such as board
structure, are not effective in reducing agency costs (e.g.
Goergen&Renneboog, 2001). In the absence of effective internal monitoring
mechanisms, compensation based incentives offer themselves as a credible
alternative. They have the potential to mitigate suboptimal managerial
behaviour and, hence, to reduce agency costs.
To test this argument, we employ two analytical parameters of option-
based compensation risk-taking incentives, namely delta and vega. Delta
measures the sensitivity of the manager's firm based wealth to the firm's
stock price while vega captures the manager's firm based wealth sensitivity
to the firm's stock return volatility. Another important feature of this paper is
that it recognizes that firm size can affect the effectiveness of compensation
incentives on managerial behaviour. It is generally held that due to greater
complexity and difficulty in monitoring, managerial actions are less
observable in large firms. Where managerial actions are less observable,
managers could utilize this cover to pursue conservative corporate policies at
the expense of shareholders. In this kind of environment compensation based
incentives could be very effective in mitigating the agency conflict.
Managers in small firms do not have this cover, but the agency conflict is
exacerbated by the financial vulnerability of small firms due to their limited
access to human and financial resources (e.g. Titman & Wessels, 1988).
84
Thus, if larger firms are conducive to covering managerial actions and
effects, remedy, issue, compensation, costs, managers, vulnerability,
mechanisms, the investment, governance
corporate – ___________
major – ___________
conventional – ___________
option based – ___________
incentive – ___________
agency – ___________
measuring – ___________
monitoring – ___________
financial – ___________
risk-averse – ___________
smaller firms are more financially fragile, the effect of compensation
incentives may vary across the large-small environment.
In the main contribution of this paper the results show that managerial
compensation incentives do have a significant effect on investment related
agency costs, and that the effects do vary with respect to firm size.
Managerial wealth delta is significantly, negatively related to agency costs
for both large and small firms. This suggests that managerial compensation
packages with high sensitivity to the firm stock price reduce agency costs.
The results also show that cash compensation is significantly, negatively
related to agency costs for large firms but not small ones. This is consistent
with Guay's (1999) argument that higher cash compensation reduces agency
costs by affording risk-averse managers in large firms the opportunity to
diversify outside the firm. Finally, managerial wealth vega significantly
reduces agency costs in small firms but not in large ones, suggesting that
vega exposure is more effective where risk is higher.
From: Belghitar Y., Eph C. (2014). Managerial risk incentives and investment
related agency costs. International Review of Financial Analysis. 38.
10.1016/j.irfa.2014.11.012.
1. Write the word from the table to complete the phrases (e.g.
mechanisms – monitoring mechanisms).
2. Choose the correct preposition.
a) The principal-agent conflict gives rise to agency costs that lead for/to
the sub-optimal use of a firm's resources.
b) The conventional remedy to/for this conflict is to align managerial
interests with those of shareholders by tying the manager's compensation to
firm value or firm performance.
c) In/on practice, the use of option based compensation has been
increasingly employed since the latter part of the twentieth century
d) In the absence of/for effective internal monitoring mechanisms,
compensation based incentives offer themselves as a credible alternative.
85
e) It is generally held that due to greater complexity and difficulty on/ in
monitoring, managerial actions are less observable in large firms.
f) Where managerial actions are less observable, managers could utilize
this cover to pursue conservative corporate policies in/at the expense of
shareholders.
3. Complete the summary of the text. Fill in each gap with one word
from the box.
The article assesses the impact of _______ based incentives together
with monitoring mechanisms on investment related agency costs. The results
indicate that well structured compensation based incentives significantly
reduce agency ______. It is stressed that managerial firm based wealth delta
has a significant, negative effect on agency costs for firms in all ______
categories. The significance of managerial firm based wealth vega in
reducing agency costs is concentrated in small firms, suggesting that vega
exposure is more effective where risk is ______. The significance of ______
compensation in reducing agency costs is concentrated in the large firms.
This result _______ that higher cash compensation reduces agency costs by
allowing risk-averse managers the opportunity to diversify outside the firm.
4. Do the following statements agree with the information in the text?
a) There is no potential conflict of interest between shareholders and
professional managers in large publicly traded corporations.
b) An agency conflict arises from fundamental differences in the
positions of shareholders and managers.
c) The conventional remedy for this conflict is to align managerial
interests with those of shareholders by tying the manager's compensation to
firm value or firm performance
d) Compensation based incentives have no potential to mitigate
suboptimal managerial behaviour and, hence, to reduce agency costs.
e) The results show that cash compensation is significantly, negatively
related to agency costs for large firms but not small ones.
5. Translate the excerpt into Russian.
Corporate Tax Competition: a Meta-Analysis
Corporate tax competition: theory and empirical approaches
Tax competition between jurisdictions at the same level – called
horizontal tax competition – can be broadly defined as “any form of
noncooperative tax setting by independent governments.” (Wilson and
Wildasin 2004, p. 1066) The basic causal mechanism of tax competition is
86
typically understood as follows: tax bases are mobile across borders, so that
governments have an incentive to strategically attract taxpayers from other
jurisdictions. As individual governments impose competitive tax cuts, they
trigger a ‘race to the bottom’ in corporate tax levels. In equilibrium,
corporate tax rates are significantly lower than they would be without
competitive pressures (e.g. Zodrow and Mieszkowski 1986).
Theoretical models that capture this basic causal mechanism have been
extended in two particularly important ways. First, it has been shown that
country size matters: competing jurisdictions of equal size have similar
incentives to reduce corporate taxes. With differing country sizes, however,
incentives for competitive tax cuts are stronger in smaller countries (e.g.
Bucovetsky 1991; Wilson 1999). Second, researchers have extended the
basic theoretical model by incorporating the role of domestic constraints.
Political factors and institutional restrictions may serve to delay or even
prevent tax policy adjustment to pressures from international tax competition
– for example in the case of national veto players that are ideologically
opposed to reducing corporate taxation (…).
It should be noted, however, that the theoretical literature also opens up
the possibility of a negative response of home tax policy to foreign tax
choices, which would mean that the competitive response by governments is
in the other direction than expected under the hypothesis of tax competition
(…).
Moving from the theoretical to the empirical literature, we need to
distinguish indirect tax competition from direct tax competition. Studies in
indirect tax competition do not explicitly analyse whether there is tax
competition, but instead explore a precondition, such as the tax sensitivity of
various types of capital, as investigated in a broad literature on the
sensitivity of FDI to changes in tax policy (e.g. Feld and Heckemeyer 2011).
In contrast, the concept of direct corporate tax competition requires that
researchers model the most important determinants of corporate tax rates.
There are two types of direct corporate tax competition studies: first
generation studies explain the development in corporate tax rates by
explanatory variables that capture a country’s degree of economic openness;
here, an increase in economic openness (which could, for example, be
measured as FDI or trade openness) associated with lower corporate tax
rates would be interpreted as an indicator for indirect tax competition (…).
The major drawback of these first-generation studies is that they do not
model strategic interactions by governments in tax policy, although such
strategic interactions are arguably at the core of the concept of tax competition
(Leibrecht and Hochgatter 2012, p. 620). This drawback, however, has been
tackled by the so-called second-generation direct tax competition studies: they
87
model uncooperative strategic government interactions in corporate tax policy
taxpayers, choices, approaches, restrictions, competition, interactions,
variables, incentives, model
empirical – ___________
tax – ___________
attract – ___________
similar – ___________
institutional – ___________
researchers – ___________
explanatory – ___________
strategic – ___________
taxation – ___________
by specifying and estimating tax reaction functions.
This means that a given jurisdiction’s corporate tax rate is modelled as a
function of the (weighted average) tax rate of neighbouring competitor
jurisdictions. In game theoretical terms, the strategic interactions presented as
a tax reaction function are understood as either “Nash games” or “Stackelberg
games” (e.g. Keen and Konrad 2013). Models of the “Nash” type follow the
general idea that independent governments use (uncooperative) strategies of
simultaneous tax setting (e.g. Devereux et al., 2008).
In the “Stackelberg” type, however, a major government dominates
strategic tax setting, and other governments react to its dominant corporate
taxation choices (e.g. Altshuler and Goodspeed 2015). In all secondgeneration direct tax competition studies – no matter whether the
government interactions are modelled as a “Nash game” or as a “Stackelberg
game” – a (significant) positive association between a given jurisdiction’s
corporate tax rate and the relevant competitors’ tax choices serves as an
indicator for tax competition (…).
From: Heimberger P. (2021). Corporate tax competition: A meta-analysis.
European Journal of Political Economy. 69. 10.1016/j.ejpoleco.2021.102002.
1. Write the word from the table to complete the phrases (e.g.
mechanisms – monitoring mechanisms).
2. Choose the correct preposition.
a) Tax competition between jurisdictions on/at the same level can be
broadly defined as “any form of noncooperative tax setting by independent
governments.”
b) Governments have an incentive to strategically attract taxpayers
from/of other jurisdictions.
c) The researchers have extended the basic theoretical model by/from
incorporating the role of domestic constraints.
88
d) The concept of/on direct corporate tax competition requires that
1) tax
2) competition
3) impose
4) jurisdiction
5) strategy
6) direct tax
a) force (something unwelcome or unfamiliar) to be
accepted or put in place
b) a tax, such as income tax, which is levied on income or
profit of the person who pays it, rather than on goods or
services
c) a compulsory contribution to state revenue, levied by
the government on workers’ income or business profits,
or added to the cost of some goods, services, and
transactions
d) the activity or condition of competing
e) the official power to make legal decisions and
judgments
f) a plan of action or policy designed to achieve a major
or overall aim
researchers model the most important determinants of corporate tax rates.
e) The major drawback of these first-generation studies is that they do
not model strategic interactions by governments in/on tax policy, although
such strategic interactions are arguably at the core of the concept of tax
competition.
3. Match the words and their definitions.
4. Do the following statements agree with the information in the text?
a) Tax competition between jurisdictions at the same level – called
horizontal tax competition.
b) Governments have no interest to attract taxpayers from other
jurisdictions.
c) As individual governments impose competitive tax cuts, they trigger a
‘race to the bottom’ in corporate tax levels.
d) Political factors and institutional restrictions may serve to delay or
even prevent tax policy adjustment to pressures from international tax
competition.
e) There are three types of direct corporate tax competition studies.
5. Translate the excerpt into Russian.
Technology and Tax Systems
Technological innovations that reduce transportation and communication
costs arguably intensify fiscal competition among governments and
constrain their ability to enforce taxes. Internet commerce has dramatically
expanded the geographical scope of fiscal competition as consumers and
89
businesses can interact “virtually” on a global scale. At the same time, it
poses new challenges for tax administration; indeed, at the dawn of the
internet era, e-commerce appears to have facilitated tax avoidance
(Goolsbee, 2000, Einav et al., 2014). Thus, much discussion has focused on
the idea that technological innovation in general, and e-commerce in
particular, may limit the taxing powers of governments, putting downward
pressure on tax rates and revenues. Less appreciated is the possibility that
technological change, together with suitable policy and institutional
adjustments, may open up opportunities for governments to administer and
enforce taxes in new ways, perhaps offsetting or even reversing downward
pressure on tax rates and revenues arising from increased mobility.
More specifically, technological improvements affect fiscal policy in
multiple ways. First, they reduce transaction costs that increase mobility of the
base (globalization, transportation networks). Second, they may shift some of
the tax base to more easily monitored transactions (computer auditing,
electronic reporting). A priori, there is no reason to expect that these changes
should affect all jurisdictions in the same way, especially in the presence of
asymmetries in jurisdictional size, resource endowments, and agglomeration
effects. We explore these two mechanisms within the context of a model of
consumption tax competition that explicitly takes into account the implications
of e-commerce. In this model, technological shocks resulting from declining
costs of internet commerce allow consumers – who previously could only buy
goods from nearby jurisdictions – to buy goods from vendors “worldwide”.
However, given recent institutional reforms, governments – who previously
could only tax sales within their boundaries – can now monitor and tax
purchases made by their residents from remote vendors. In the presence of
initially asymmetrically located shopping or trade opportunities, these effects
operate differently on different jurisdictions. The first of these mechanisms
limits the revenue raising capacity of jurisdictions where consumption
purchases are initially concentrated, while the second mechanism expands the
taxing capacity of others.
Our model starts from the special case captured in classic studies such as
Kanbur and Keen, 1993, Nielsen, 2001 in which tax competition arises
because households can engage in cross-border shopping and in which a
single homogeneous commodity is taxed on an origin basis (i.e., taxes are
levied where vendors are located). In this class of models, all jurisdictions –
both large and small – lower their tax rates as the cost of cross-border
shopping falls. We extend this framework by developing a more general
model of cross-border commerce that reflects interjuris dictional trade
arising from local or regional specializations in the availability of
heterogeneous commodities. Cross-border shopping remains taxed on an
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