(PDF) The Importance of Trust in Informal Institutional Development Process (Case of Georgia)

International Conference Management, Accounting,

Banking, Economics and Business Research

(ICMABEBR-19)

Buenos Aires, Argentina

08th-09th September, 2019

International Institute of Education, Research and

Development

www.iierd.org

Publisher: IIERD Explore

No part of this book can be reproduced in any form or by any means without prior written

Permission of the publisher.

IIERD International Conference 1 Buenos Aires,Argentina

This edition can be exported from India only by publisher

IIERD-Explore

Editorial:

We cordially invite you to attend the International Conference Management, Accounting, Banking,

Economics and Business Research (ICMABEBR-19), which will be held in Buenos Aires, Argentina on

September 08th-09th, 2019. The main objective of ICMABEBR-19 is to provide a platform for

researchers, engineers, academicians as well as industrial professionals from all over the world to

present their research results and development activities in Management, Accounting, Banking,

Economics and Business Research. This conference provides opportunities for the delegates to

exchange new ideas and experience face to face, to establish business or research relations and to find

global partners for future collaboration.

These proceedings collect the up-to-date, comprehensive and worldwide state-of-art knowledge on

Management, Accounting, Banking, Economics and Business Research. All accepted papers were

subjected to strict peer-reviewing by 2-4 expert referees. The papers have been selected for these

proceedings because of their quality and the relevance to the conference. We hope these proceedings

will not only provide the readers a broad overview of the latest research results on Management,

Accounting, Banking, Economics and Business Research but also provide the readers a valuable

summary and reference in these fields.

The conference is supported by many universities and research institutes. Many professors played an

important role in the successful holding of the conference, so we would like to take this opportunity to

express our sincere gratitude and highest respects to them. They have worked very hard in reviewing

papers and making valuable suggestions for the authors to improve their work. We also would like to

express our gratitude to the external reviewers, for providing extra help in the review process, and to

the authors for contributing their research result to the conference.

Since June 2019, the Organizing Committees have received more than 30 manuscript papers, and the

papers cover all the aspects in Management, Accounting, Banking, Economics and Business Research.

Finally after review about 11 papers were included to the proceedings of ICMABEBR-19.

We would like to extend our appreciation to all participants in the conference for their great

contribution to the success of International Conference 2019. We would like to thank the keynote and

individual speakers and all participating authors for their hard work and time. We also sincerely

appreciate the work by the technical program committee and all reviewers, whose contributions make

this conference possible. We would like to extend our thanks to all the referees for their constructive

comments on all papers; especially, we would like to thank to organizing committee for their hard

work.

Acknowledgement

IIERD is hosting the International Conference Management, Accounting, Banking, Economics and Business

Research this year in month of September. International Conference Management, Accounting, Banking,

Economics and Business Research will provide a forum for students, professional engineers, academician, and

scientist engaged in research and development to convene and present their latest scholarly work and application

in the industry. The primary goal of the conference is to promote research and developmental activities in

Management, Accounting, Banking, Economics and Business Research and to promote scientific information

interchange between researchers, developers, engineers, students, and practitioners working in and around the

world. The aim of the Conference is to provide a platform to the researchers and practitioners from both academia

as well as industry to meet the share cutting-edge development in the field.

IIERD International Conference 1 Buenos Aires,Argentina

I express my hearty gratitude to all my Colleagues, Staffs, Professors, Reviewers and Members of organizing

committee for their hearty and dedicated support to make this conference successful. I am also thankful to all

our delegates for their pain staking effort to travel such a long distance to attain this conference.

Dr. Simpson Rodricks

President

International Institute of Education, Research and Development (IIERD)

CONTENTS

S.NO TITLES AND AUTHORS PAGE NO

1. Anti-monopoly Policy and New System of Large Corporate Groups in Germany

After World War II

➢ Toshio Yamazaki

1-13

2. The Impacts of Broadband on Economic Growth in People‟s Republic of China:

Empirical Analysis from Panel Data ➢ Siyue Yang

➢ Prapatchon Jariyapan

➢ Jianxu Liu

14-19

3. Financial Performance of Initial Public Offerings: Companies listed on Dar es Salaam

Stock Exchange

➢ Gibson Hosea Munisi

20-26

4. Efficiency in the Economics of Management and Ways to Improve it

➢ Sailau Baizakov

27-31

5. Forecasting Performance of GARCH Family Models in the Indian Commodity

➢ Veena Dixit

➢ Jain Mathew

32-40

6. Potential of Soya Beans Seasoning With Garlic and Ginger for Sustainable Health

➢ Aishatu Ibrahim

➢ Eldah Ephraim Buba

41-47

7. Comparative study of relationship between income inequality and economic growth in

China with India

➢ Liu Li

➢ Charuk Singhapreecha

➢ Jirakom Sirisrisakulchai

48-52

8. To Study the Impact of Mediating Role of the Learning Strategies between the

53-57

Knowledge Characteristics of a Job and Employee Innovation Process

➢ Umar Farooq

➢ Syed Anwer Hasnain

➢ Irfan Ali

➢ Sami Ullah

9. The Role of Fiscal Decentralization in the Process of Creating Strong Municipality,

58-62

Georgia (Case of Samegrelo and Upper Svaneti region)

➢ Erekle Zarandia

10. The Importance of Trust in Informal Institutional Development Process 63-66

(Case of Georgia)

➢ Tsotne Zhghenti

11. Challenges of economic freedom and the role of government efficiency 67

(Case of Georgia)

➢ Vakhtang Chkareuli

IIERD International Conference 1 Buenos Aires,Argentina

Anti-monopoly Policy and New System of Large

Corporate Groups in Germany after World War II

Toshio Yamazaki

Ritsumeikan University, Japan

Abstract:-- This paper discusses competition policy, in particular anti-monopoly policy and the development of a new system of

industrial concentration in Germany after World War II. When examining industrial concentration in Germany, the cooperative

mechanisms for corporations are the most characteristic manifestation of corporate group systems. Large corporate group systems

evolved during the dissolution and reconcentration of monopolies after the war. Anti-monopoly policy influenced new developments

in the system of large corporate groups. Therefore, this paper discusses anti-monopoly policy and the restructuring of a system for

large corporate groups. It first examines influence of the US occupation policy on monopolies in relation to monopoly deconcentration

policy and anti-monopoly policy in Germany. Next it analyzes anti-monopoly policy reform. Furthermore, it considers the

restructuring of corporate group systems in relation to the dissolution of monopolies under the occupation policy and their

reconcentration in the latter half of the 1950s. Drawing on this discussion, how large business operations were restructured through

reconcentration or concentration, and how, as a result, divisions of labor in business domains developed in response to oligopolistic

competition will be clarified.

Index Terms— Anti-monopoly policy; Deconcentration of Monopolies; Industrial concentration; Inter-firm relationship; Large

corporate groups; Reconcentration of Monopolies; Restrictive Trade Practices Act

RESEARCH PROBLEMS

Germany developed its enterprises, industries, and

economy by establishing its own systems of industrial

concentration while deploying and adapting technology and

management methods from the USA after World War .

Industrial concentration exhibited new postwar

developments. German characteristics of industrial

concentration, which were based on prewar industry–bank

relationships, included new developments in the industrial

system that coordinated interests and shared information

between industry and banks and between corporations.

Monopolies that had been dissolved by the postwar

occupation policy reconcentrated. In addition, the system of

large corporate groups began to re-emerge and reconcentrate,

and with it came new developments in the system of large

corporate groups. The system played a crucial role in the

formation of the German capitalism‘s accumulation

structure, the cornerstone of industrial concentration. The

postwar era necessitated the restructuring of the system of

large corporate groups that emphasized the benefits of

division of labor based on specialization in response to

oligopolistic competition. This phenomenon represented the

transformation of the prewar system of industrial

concentration that controlled markets on the basis of massive

trust and wide-ranged cartels, which encompassed the entire

industrial sector in the 1920s. The US occupation policy and

anti-monopoly policy influenced the restructuring of

corporate group systems after the war.

From the perspective of market control, this new system,

based on industry–bank relationships and large corporate

groups, was an important element supporting the

development of postwar productive forces and accumulation

structures. Industrial concentration developed as an

important process in the progress of German corporations

while exhibiting new characteristics of cooperation in

German capitalism. By understanding the changes in

industrial concentration from the perspective of

accumulation structures, this paper will show the significance

of the postwar system of large corporate groups and the

cooperative nature of German capitalism (For "Cooperative

managerial capitalism" in Germany, see [1]). Therefore, in

this paper, the characteristics and significance of the new

industrial concentration system in postwar Germany will be

analyzed in relation to the US occupation policy and

competition policy, in particular anti-monopoly policy of

Germany‘s federal government.

Many studies approach this theme from the perspective of

economic and business histories, and economic system (See

books and articles cited in this paper). However, these studies

do not always identify functional aspects of new system of

large corporate groups. This paper attempts to explain

significance and limitations of postwar antimonopoly policy

and how large business operations were restructured through

reconcentration or concentration, and how, as a result,

divisions of labor in business domains

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 2 Buenos Aires,Argentina

developed in response to oligopolistic competition.

First, Section 2 considers influence of the US occupation

policy on monopolies. Next, Section 3 examines the

deployment of anti-monopoly policies in Germany. In

Section 4, reconcentration of monopolies and new

developments in the system of large corporate groups are

discussed. Furthermore, concluding remarks of this paper are

presented in Section 5.

INFLUENCE OF THE US OCCUPATION POLICY

ON MONOPOLIES

Section 2 first examines influence of the US occupation

policy on monopolies. It considers monopoly DE

concentration policy and influence of the US occupation

policy on anti-monopoly policy in Germany. For corporate

group systems, the postwar occupation policy dissolved the

concentration of monopolies and catalyzed new

developments in large corporate groups through the

reorganization of business structures that were adaptive to

oligopolistic competition; it was not simply a return of the

prewar structure. Influence of the US Deconcentration Policy

on Monopolies Expansion of monopoly deconcentration

policy First, examining monopoly deconcentration policy, it

is important to note the US belief that excessive German

economic and political power should be curtailed through

monopoly dissolution and decartelization [2, S.156]. The

basic policy was to turn Germany into an oligopolistic market

founded on the principle of competition, very similar to that

in US [3, S.280; 4, p.167].

Separating the coal industry from the iron and steel industries

through dissolution deeply impacted these groups [5, p.95,

p.110]. In heavy industries, the eight large corporate groups

were eventually divided into 23 steel companies. Vereinigte

Stahlwerke AG‘s steel division was split into 13 separate

companies, which further spilt three into the coal sector, one

in processing, and one in trading [6, S.237; 7, S.55]. Krupp

had its main plant, the FriedrichAlfred-Hütte iron works,

demerge and dissolve into a separate company, Hüttenwerk

Rheinhausen AG, and

Essener Kruppzechen also split [8, S.24].

Previously, Krupp had been able to globally produce superior

products in both quality and price through its effective

cooperation and complementary functioning with materials

industries and processing plants. However, its ties with these

production stages were terminated and the company changed

completely [9, S.49; 10, S.28, S.30]. This type of dissolution

also occurred at Mannesmann,

Hoesch, and Gutehoffnung, among other corporations [11,

S.24-25; 12, S.23, 13, S. 23-24; 14, S.24; 15, S.21]. However,

West Germany strongly opposed the complete separation of

the coal industry from the iron and steel industries, which was

envisioned by the occupation forces, and the parallel

management of both iron and steel and coal companies was

approved with an upper limit of 75% of coke consumption

[16, p.141].

The chemical firm IG Farben was also dissolved, resulting in

a restructured oligopoly of three main companies: BASF,

Bayer, and Hoechst [17, 18]. Major changes in capital

relationships also occurred. The banking industry was split

into 30 small-scale regional banks, with specific bank

operations limited to a specific state regions [19, S. 102104;

4; 20, S.227-228]. However, the universal banking system

was not reformed through these dissolutions and

restructuring, a very important factor in the new development

of the industrial system based on industry– bank

relationships.

SIGNIFICANCE OF MONOPOLY DISSOLUTION

AND RESTRUCTURING

The dissolution of large corporations was a huge setback

to the corporations; nevertheless, it was also an opportunity

for monopolistic corporations to undergo a rationalized

process of restructuring. For example, in the case of

Vereinigte Stahlwerke, dissolution provided an opportunity

to restructure as a large company with a scope appropriate for

management, with a functional monopoly or oligopolistic

system. In addition, IG Farben was able to liquidate an

immovable, excessive group to create a functional, large

corporate group with a more rational structure that responded

to postwar technological reforms while allowing them to

pioneer new areas and expand their base [16, pp.145-147].

The US proposal for organizational restructuring of the coal

and iron and steel industries, which accompanied the

dissolution of monopolies, attempted to rationalize these

industries, thus reducing costs and improving efficiency

while increasing production [5, p.90, p. 95, pp.108-109; 4,

p.166] . US postwar reforms primarily focused on market

restructuring by terminating monopolies and cartels and the

achievement of economies of scale [21, p.361].

For example, in the iron and steel industry, a great deal of

production capacity was allocated to other steel production

units through the dissolution of monopolies. Thus,

components of the industry‘s rolling mill capacity spread

throughout the entire industry rather than within a single

corporation. This type of production capacity allocation

created conditions for oligopolistic competition, and not only

raised the cost of diversification but also generated possible

incentives for corporate growth through an increase in the

scale of corporate rolling mills [21, p.364]. The prewar

structure of domestic markets was replaced by an

oligopolistic structure through a policy of deconcentration,

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 3 Buenos Aires,Argentina

and the previously existing monopolies and specialization

were replaced by mass production [21, pp.352-353, p. 368].

Such industrial restructuring created a foundation for the

expansion of corporate activities suitable for oligopolistic

competition, which differed from the assumptions of the

prewar German iron and steel industry structure, industrial

organization, and market structure.

IG Farben‘s dissolution in the chemical industry revived

inter-firm relationships in same form taken before the

company was created.

However, the restructuring actually created the industry‘s

three giants in response to the move from coal to petroleum

chemistry, wherein a unique, multifaceted industrial complex

was created to produce synthetic rubber, synthetic resins,

synthetic fibers, and other petroleum-based products. This

change was not merely a return to prewar conditions, but a

rational restructuring that established a more competitive

inter-corporate structure [22, p.378]. The following two

achievements resulted from the dissolutions: (1) the chemical

market was restructured along competitive lines. (2) The new

and sufficiently large-scale units were established to act as an

engine useful for the rebuilding and growth of Western

Europe and to survive in the multi- lateral liberal capitalistic

world trade system dominated by the US [5, p.95].

The restructuring of corporate organizations to their prewar

form was not the primary objective; rather, it was to create

resilient trust structures [23, pp.147-148]. Significantly,

dissolution and restructuring created stronger control in the

heavy equipment manufacturing industries. Krupp,

Gutehoffnung, Klöckner, and others demonstrated and laid

the foundation for the rapid development of the heavy

machinery sector [24, p.65].

INFLUENCE OF THE US OCCUPATION POLICY

ON ANTI-MONOPOLY POLICY

Next, influence of the US occupation policy on

antimonopoly policy in Germany is considered. The US

occupation policy included the physical rebuilding of German

industries as well as the shift to a German capitalist structure,

whose obvious manifestation had been in the Third Reich [3,

S.326]. Eradicating the cartel-like nature of economic

concentration, characterizing prewar German capitalism, was

a method for achieving this objective [25, p.84]. In Europe,

cartels were an important practice of corporate cooperation

[26, p.67]; thus, England and France did not oppose them as

long as they produced and distributed goods [26, p.56; p.212].

The US, on the other hand, considered the elimination of

practices that restricted competition by cartels and trusts in

OEEC member nations [27, pp.17-18].

Thus, the US industrial policy that occupied Germany at

the time emphasized the removal of the strong cartel tradition

from the German business world, and the movement toward

an oligopolistic market based on the principles of

competition, such as that in the US [3, S. 280]. Structural

reforms to rebuild the German economy and industries were

designed by the US and focused on the creation of production

units and corporate scale, such as those in the US, and

regulation of economic activities that suppressed competition

through anti-trust laws [4, p.111].

Occupation authorities, particularly those in the US,

questioned the benefits of a forced economic reform. A

project to transfer US anti-trust laws and traditions to West

Germany was designed such that it could be taken over by

West German‘s at a point in time [4, pp. 167-168], and

economic and industrial structural reforms initiated by US

occupation authorities were achieved in the context of West

Germany [4, p.104, pp.109-110, p.162]. However, they were

not transferred by force, rather the spontaneous imitations of

West Germany by a group under the leadership of L. Erhard,

Minister of Economic Affairs with guidance and education

from the US, were effective the economic and industrial

system, wherein mass production and mass consumption

were linked to competition, and worked toward a set of

objectives that closely conformed to US projects [4, p. 111].

Based on this point, the US direction and compulsion of an

Anti-Monopoly Act in Japan significantly differed from those

in Germany.

DEPLOYMENT OF ANTI-MONOPOLY POLICIES IN

GERMANY BASIC CHARACTERISTICS OF

ANTIMONOPOLY POLICY

Section 3 will examine the various characteristics of

postwar anti-monopoly policy. The Restrictive Trade

Practices Act was finally passed in 1957 as an antimonopoly

regulatory law. Although this law was influenced by the US,

it was formulated to replace the Allies‘ anti-trust law

[National Archives, RG59, 862A.054, Summary of

German Press Coverage of Passage of Cartel Law

(6.8.1957), p.1].

The Restrictive Trade Practices Act aimed to destroy

cartels originally recognized under the Cartel Ordinance of

1923, based not on the principles of ―abuse regulations,‖ but

rather on those of ―prohibition‖ [National Archives, RG59,

862A.054, Developments concerning the German Cartel Law

(3.7.1956), pp1-2]. However, the Restrictive Trade Practices

Act was an extraordinarily loosely conceived bill, leaving

several loopholes for reviving cartels [National Archives,

RG59, 862A.331, Correspondence to R. H. Harlan from

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 4 Buenos Aires,Argentina

Society for the Prevention of the World War , Inc (22.5.1958),

p.3]. For example, many economic sectors, such as

agriculture, banking and insurance, and shipping, were

excluded from adaptation. In addition, in case restrictions on

competition or other ordinances were believed to be in the

best interests of the state, a clause in the law allowed the

Ministry of Economic Affairs to recognize cartels on the basis

of these individual cases [National Archives, RG59,

862A.054, Summary of German Press Coverage of Passage

of Cartel Law (6.8.1957), p.1]. These loopholes were

particular to rationalization cartels and export cartels [28].

There were several limitations from the beginning, such as

the lack of planning for regulations on mergers [3, S.280], and

until a evision in 1973, the Federal Cartel Office merely had

the authority to investigate mergers and not the authority to

prohibit them [National Archives, RG59, 862A.33,

Reconcentration in Iron, Steel and Coal Industries of the

Federal Republic (5.10.1959), p.5]. In addition, the

Restrictive Trade Practices Act did not recognize market-

dominating enterprises under the same criterion as cartels,

thereby making it possible to avoid cartel regulations, but

creating the risk of concentration [29, S.99, S.101].

The circumstances leading to the lack of effective

antimonopoly regulations under the Restrictive Trade

Practices Act were further influenced by the strong

opposition from industries, whose trade associations had long

opposed the anti-cartel act from being passed [National

Archives, RG59, 862A.054, Status of Decartelized and

Deconcentrated German Coal and Steel Companies

(23.6.1955), p.1; 30, pp.40-41]. Due to this opposition, the

Ministry of Economic Affairs was forced to reach a

consensus when adopting a policy of limited resistance

against more radical proposals by the Allies [5, pp.172-173] .

Thus, the Germans exhibited a strong initiative with

antimonopoly regulations [30, pp.44-48], but created a

political compromise in the conflicting approach to cartels,

that is, ―prohibition‖ vs. ―abuse regulation‖ approaches [31,

p.172]. From an industrial perspective, the Restrictive Trade

Practices Act weakened the principled prohibition of cartels

to the extent that the industrial world was satisfied [32, p.250,

p. 256]. As a result, the idea behind the original bill, which

was thorough in its prohibitory provisions doing away with

monopolies as well as granting authority to the monopoly

office, had largely become a shadow of its former self by the

time it was enacted into law [20, S. 288]. The Act even

considered control through conditions wherein the formation

of large corporate units within specific economic sectors was

beneficial [33, S.109]. Evidently, Germany diverged from the

US model in anti-trust laws between the 1950s and 1960s [34,

p.24].

SIGNIFICANCE OF THE RESTRICTIVE TRADE

PRACTICES ACT

In practice, the Restrictive Trade Practices Act faced major

problems and suffered significant limitations. For instance,

courts adopted a theoretical legal approach that prohibition

regulations could only be applied when there was clear

evidence of cartel operator contracts or cartel resolutions of

trade associations. Thus, many court cases brought by the

German Federal Cartel Office against cartels were lost due to

insufficient evidence [35, p.178]. The Federal Cartel Office

also tended to prioritize court decisions over rulings by

administrative decree or make decisions with merger parties

prior to making them public [36, p.53]. Further, the

Restrictive Trade Practices Act aimed to decentralize

economic power through the prohibition of cartels, and anti-

trust laws and regulations in Germany allowed intervention

only when there was a clear abuse of power in the market

through a merger [37, p.132]. These legal deficiencies were

rooted in policies intended to strengthen the export

competitiveness of large corporations and corporate groups,

because exports were seen as the primary method for

rebuilding the West German economy [35, p.202].

Subsequently, in 1966 and 1973, the authority of the

Federal Cartel Office was expanded to include the regulation

of mergers [4, p.170]. The revision in 1973, in particular,

granted the Federal Cartel Office the authority to prohibit

mergers, leading to the establishment and strengthening of

market control. However, when merging corporations

provided evidence that their mergers facilitated competition

that sufficiently offset disadvantages through market control,

the Office had no choice but to approve the merger [38,

p.192]. The creation of the Federal Cartel Office, responsible

for the implementation of the Restrictive Trade Practices Act,

was a symbolic systematization of USstyle competition

within Germany [4, p.174]. However, this organization could

neither hasten or enforce corporate decentralization orders

nor prevent or delay corporate mergers and acquisitions [37,

p.54; 39, S.27-28, S.30].

Compare with the prewar period, these reforms did in fact

dramatically decrease the number of cartels. In 1929, the

number of cartels had risen as high as 4,000, but in 1968, only

200 cartels were recognized as legal by the Cartel Office [37,

p.54]. Despite the political intent to ensure free market

competition and free trade, the actual business environment

from 1950 to 1970 was not sufficiently based these factors

[37, p.48]. As noted by A.D. Chandler,

Jr., the characteristics of ―cooperative managerial

capitalism‖ [1] essentially remained unchanged. Many

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 5 Buenos Aires,Argentina

believe that anti-cartel liberal philosophies were far more

lenient than was generally perceived [40, p.348]. For

example, H G. Schröter argues that the complete

dissemination of US anti-cartel beliefs throughout West

Germany required more than one generation, and it was not

until the 1960s that industrialists shared these views [41,

S.151; 42, p.143, pp.152-153].

Rationalization cartels, important exceptions to anti

monopoly regulations, fulfilled critical roles in industry anti-

recession and structural policies in certain cases. In the 1960s,

state-led rationalization cartels were being developed; in

particular, the 1963 measures that were implemented in the

coal industry were a primary example [43, S.17-18]. These

rationalization cartels were also seen in the iron and steel

industry, where excess capacity was an issue at the end of the

1960s, and the formation of rationalization cartels in iron and

steel firms enabled production specialization in rolling mill

products. Thus, they were successful in avoiding destructive

competition by responding to market demands and lowering

costs with such division of labor [44].

competition policy and new methods for regulating

monopolies. If we analyze the implication of competition

policy on trade policy and the global economy, we will see

the important efforts made to form a common market through

West European integration. For West Germany, admission

into European international relationships, such as the

European Coal and Steel Community (ECSC) and the

European Economic Community (EEC), meant that they

were participating in a European system to suppress cartellike

competition-limiting activities [45, p 163, pp 167-169]. Thus,

the issues of state competition policy and antimonopoly

regulations were by character a response to the postwar

framework in the European regions.

RECONCENTRATION OF MONOPOLIES AND NEW

DEVELOPMENTS IN THE SYSTEM OF LARGE

CORPORATE GROUPS

Development of the Reconcentration of Monopolies

Background of the Reconcentration of Monopolies

Section 2 and 3 have discussed influence of the US

occupation policy on monopolies and deployment of

Antimonopoly Policies in

Germany. The latter half of the 1950s, although brought about

the reconcentration of monopolies, new developments in the

system of large corporate groups will be our next topic of

discussion. Since the end of World War II and during the

1957 and 1958 crises, Germany experienced a wave of

corporate amalgamations with large corporate group

structures, providing the foundation for mergers and

acquisitions of subsidiaries. Enterprise concentration in the

same capital groups were also central to this movement [46,

S.24] and played an important part in the reconcentration of

dissolved corporations.

Three factors influenced this reconcentration and new

concentration from the latter half of the 1950s through the end

of the decade: (1) the benefits of economies of scale, (2) the

legal benefit of scale, and (3) psychological factors. First,

these developments achieved economies of scale. Second, tax

benefits were applied to vertically integrated corporations.

Third, cartels and concentration, rather than competition,

were always the lingua franca of Europe‘s economic system

and were known to the market players [National Archives,

RG59, 862A.33 Reconcentration in Iron, Steel and Coal

Industries of the Federal Republik (5.10.1959), pp.3-4]. For

legal benefits, national growth policies played a significant

role and four laws enacted by the government dealt with this

issue. The 1956 Transformation Law and 1957 Tax Law

enabled large corporate groups to concentrate their power on

a previously unseen scale and rid themselves of small

shareholders. Revisions to corporate law allowed

corporations to enjoy tax benefits by elimination or reduction

of taxes on a portion of their profits and transforming it into

equity capital.

Further, the Restrictive Trade Practices Act publicly

acknowledged about 250 cartels in 1958 and 1959 [47, S.5].

The reconcentration of previously split or dissolved large

corporate groups continued apace in conjunction with the

European Coal and Steel Community (ECSC). Article 66 of

the ECSC Convention, May 1954, allowed concentration of

companies that did not obstruct market competition and were

granted relatively broad freedom for merging corporations

within the coal, iron and steel industries; these new rules

accelerated reconcentration [48, S.48; 49]. With

reconcentration permitted for vertically integrated

corporations affiliated with the coal and iron and steel plants,

several coal and iron and steel companies that were

previously dissolved, such as Mannesmann, Klöckner, and

Rheinstahl-Phöenix, restructured their corporations on the

basis of the prewar foundation, that is, the consolidation of

coal and steel [National Archives, RG59, 862A.054, Status of

Decartelized and Deconcentrated German Coal and Steel

Companies (23.6.1955), p.1].

Among the 34 instances of corporate concentration in West

Germany approved by the 1962 ECSC, 14 were related to the

reconcentration of corporations that were forced to dissolve

postwar [50, S.245]. This powerful concentration of

production in a relatively small number of large corporations

was a result of highly intensified competition [47, S.5], and it

increased in the latter half of the 1950s in response to the

competitive conditions in the market. For example, according

to Thyssen‘s 1957/1958 annual report, the Thyssen group of

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 6 Buenos Aires,Argentina

corporations had the following four objectives : (1)

strengthening cooperative ties that had already emerged, (2)

strengthening resistance to market changes through

horizontal integration of specialized production domains, (3)

exploring new possibilities for rationalization and lower

costs, and (4) greater competitiveness [51, S.11]. The

emerging need for stronger ties within the group as a method

to adapt to the market‘s business environment and increasing

competitiveness necessitated reconcentration. EEC member

nations were definitely not complementary partners in their

industrial production structure, but rather competitors; this

competitive environment greatly accelerated the

concentration and consolidation process [52, S.20].

For banks, the abolition and cancelation of allied nation

regulations was a great opportunity for reconcentration. With

the approval from the US in 1952, banks were zoned into

three operational districts- northern, western, and southern—

and concentrated into nine large banks through mergers.

Deutsche Bank, Dresdner Bank, and Commerz Bank, each

inherited three financial institutions [National

Archives, RG59, 862A.14, Reconcentration of German

Commercial Banks (10.1.1957), p.1; 4, p.165; 53, S.102104;

54]. The December 1956 law abolished mutual capital

participation by banks, personalties among executives from

inherited banks, and restricted issuance to only that of

registered stock [55, p.49]. The top three banks were

authorized to establish themselves, except for subsidiary

financial institutions in Berlin, and return to their respective

pre-war institutions [National Archives, RG59, 862A.14,

Reconcentration of German Commercial Banks (10.1.1957),

p.1; 53, S 105; 56, S.40-41]. The reconcentration occurred in

1957. Deutsche Bank‘s primary reasons were to improve their

international standing and the position of the new group in

their handling of large accounts, gain greater flexibility in

maintaining unified credit policies, and realize the economic

potential of its business operations [National Archives,

RG59, 862A.14, Present and Forthcoming Bank Merger in

West Germany (3.5.1957)].

In their reconcentration efforts, the top three banks strongly

lobbied the government while demonstrating their initiative

[Vgl.57, S. 526-544]. At the time, government policy offered

no opposition to mergers, and even most Social Democratic

Party (SPD) leaders agreed to return to the concentration of

banks [National Archives, RG59, 862A.14, United States

Policy regarding Reconcentration of German Banks

(15.12.1955), p.1]. With the new order in Europe during the

1950s and with efforts through new cooperation models in a

larger economic sphere, early postwar regulations on large

German banks were no longer deemed appropriate, but rather

unreasonable, an opinion that continued to gain momentum

[58, S.35]. Banks played a critical role in the concentration of

monopolies and in bringing about new developments in the

system of large corporate groups. Klöckner‘s reconcentration

exemplifies concentration through bank intermediaries, from

which they gained majority interests in coal companies that

split from larger corporate group [59, S.26; 60, S.25].

RECONCENTRATION OF MONOPOLIES AND

DEVELOPMENT OF

DIVISIONS OF LABOR IN BUSINESS DOMAINS

Based on the abovementioned developments, the next

important issue are how large businesses operations were

restructured amidst reconcentration or concentration, and

how, as a result, the system of large corporate groups was

restructured. The most striking manifestation of the

restructuring of operations in conjunction with the

reconcentration of monopolies occurred in the coal, iron and

steel industries. Thus, we will focus on these industries in the

next section.

In the iron and steel industry, the process of corporate

concentration beginning in the 1950s essentially proceeded in

two stages. The first stage was the return of a company

temporarily deconcentrated through dissolution to its

previous state; this stage ended in 1958 and 1959 as

reorganizations ended. The second stage included the close

cooperation of many large corporate groups in production and

investment [52, S.1].

As discussed, the dissolution of monopolies in the postwar

era was related to the ―integrated economy‖ that

underpinned productive forces in Germany‘s heavy industry.

Thus, the movement to reconcentrate proceeded with the aim

of expanding production units and product types and

strengthening the vertical combination of coal and iron and

steel industries [61, S.9; 62, p.53]. These goals were also

intended to integrate production capacity in the iron and steel

industry and adopt advanced technologies [21, p.381].

Examining the successor companies of Vereinigte

Stahlwerke AG, Phöenix and Rheinrohr corporations merged

due to the relationship of the former as a supplier of semi-

finished steels with the latter [National Archives, RG59,

862A.331, Merger of Rheinische Roehrenwerke AG and the

Huettenwerke Phoenix AG with Approval of High Authority

(11.2.1955); ThyssenKrupp Konzernarchiv, NST/82,

Zusatzprotokoll zur Niederschrift über die 38.

Aufsichtsratssitzung der Hütten- werke Phoenix AG am

2.07.1954 zur geplanten Fusion, S.7]. In 1959, Ilseder Hütte

decided to convert two subsidiaries into parent companies to

simplify their management structure and ease financial and

other burdens [National Archives, RG59, 862A.053,

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 7 Buenos Aires,Argentina

Reconcentration of Ilseder Huette, Pein (1.4.1959), p.1]. For

Thyssen, the initial target of reconcentration was entirely

related to the Duisburg region.

They signed an Agreement of Community of Interests in

September 1955 prior to merging capital. The next year

August Thyssen and Niederrheinische Hütte AG consolidated

their corporations by stock exchanges [ThyssenKrupp

Konzernarchiv, A/33073, Die Schrit über die Entscheidung

über die Genehmigung des Abschlusses eines Interessen-

gemeinschaftsvertrages zwischen der August Tyssen-Hütte

Aktiengesellschaft und der Niederrheinische Hütte

Aktiengesellschaft durch die Hohe Behörde (23.5.1956), S.1,

S.3; ThyssenKrupp Konzernarchiv, A/33073,

Rückgängigmachung von

Entflechtungsmaβnahmen im Bereich der August

ThyssenHütte und der Niederrehinischen Hütte (16.1.1956),

S.3; 7, S.60]. The effective complementary relationship

between these two companies disappeared as a result of the

dismantling of Thyssen‘s production equipment as part of the

occupation policy. In addition, for Niederreinische Hütte, it

became impossible to produce thick and medium plates

because of the dismantlement of the production equipment.

Thus, the reconcentration of Thyssen and Niederrheinische

Hütte, which was in response to these difficult conditions,

aimed to fill the supply gap since it could not be resolved

through a supply agreement [ThyssenKrupp Konzernarchiv,

A/30819, Abschluss eines Interessengemeinschaftsvertrages

zwischen der August Thyssen-Hütte AG. und der

Niederrheinische Hütte AG., Duisburg (15.9.1955), S. 7-9] .

The second target of Thyssen‘s reconcentration was Deutsche

Edelstahlwerke AG, with which they merged in 1957. This

was a result of August Thyssen lacking his own electric steel

production plant in Duisburg, and in that regard, the

possibility for cooperation in production technology,

especially for crude steel, was considered [ThyssenKrupp

Konzernarchiv, A/30778, Pressenotiz zur Übernahme eines

Mehrheitpakets der Deutsche Edelstahlwerke AG durch

August Thyssen-Hütte AG (20.12.1956); 7, S.60, S.330]. The

merger of Thyssen with these two companies provided the

impetus for the divisions of labor that followed. Thyssen

valued the production of flat bars, semifinished steels, and

large profile iron. In response, Niederrheinische Hütte AG

focused on rod wire and bar steel, whereas Deutsche

Edelstahlwerke AG focused on the production of high-grade

steel and other value-added steels [ThyssenKrupp

Konzernarchiv, A/30819, Abschluss eines

Interessengemeinschaftsvertrages zwischen der August

Thyssen-Hütte AG. und der Nieder-rheinische Hütte AG.,

Duisburg (15.9.1955), S.8-10; ThyssenKrupp

Konzernarchiv, A/30819, Interessengemeinschaftsvertrag

zwischender Niederrrheinische Hütte Aktiengesellschaft,

Duisburg-Hochfeld,und der August Thyssen-Hütte

Aktiengesellschaft, Duisburg-Hamborn (15.9.1955), S.1; 63,

S.219].

With the purchase of shares in Hüttenwerke Siegerland

AG and Rasselstein-Andernach‘s steel rolling company in

1957 and 1958/1961, respectively, Thyssen secured sales

channels for band iron. These purchases also achieved the

benefit of division of production labor on a product-

byproduct basis [ThyssenKrupp Konzernarchiv, A/31870,

Unser Antrag auf Genehmigung des Zusammenschlusses

unseres Unternehemens mit der Phoenix-Rheinrohr AG

(27.4.1960), S.3; ThyssenKrupp Konzernarchiv, A/31870,

Die Schrift an den Herrn Bundesklanzler von

Dr.Pferdmenges, ThyssenKrupp Konzernarchiv, A/31870,

Der Brief an Herrn Dr. Robert Pferdmenges (3.9.1960); 63,

S. 215, S.218; 64, pp.156-162]. The new Thyssen group

became the only capital group in West Germany with a steel

production plant in the postwar stage. This plant was

characterized by ultra-large scale blast furnaces, LD

converters, continuous rolling to automatic rolling mills, and

a steel production system on a large scale. The restructuring

through post-dissolution reconcentration was also significant

for such economies of scale [64, p.1, p.179].

Among the 13 successor companies resulting from the

postwar dissolution of Vereinigte Stahlwerke AG,

reconcentration in the 1950s resulted in only four surviving

companies by the early 1960s: August Thyssen,

PhöenixRheinrohr, Rhein Steel, and the Dortmund-Hörde

Hütten Union. Within most of these, corporate mergers and

expansions did not result in direct competition with the other

corporations; each company chose to expand and integrate

production capacity in separate domains, seeking profit

through division of labor. That is, most of Vereinigte

Stahlwerke AG‘s steel production capacity was once again

folded into the operations of either Thyssen or

PhöenixRheinrohr. This specialization of product supply in

the rolled-product markets for the most part did not overlap,

and they enabled a product-based division of labor between

the two companies. Specifically, Thyssen specialized in the

production of lighter plate, semi-finished and finished rolled

sheets, coils, rod wire, and specialty steel, whereas

PhöenixRheinrohr specialized in the production of steel pipe,

heavy plates, semi-finished steels, and raw iron. As a result

of the dissolution of Vereinigte Stahlwerke AG, Rheinische

Stahlwerke AG inherited Vereinigte‘s interests, except for

those from steel production. The Dormund-Hörde Hütten

Union became an important producer of crude steel; however,

unlike the other corporations, it was not broadly diversified

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 8 Buenos Aires,Argentina

into the iron and steel industry. The Union planned for

concentration in two domains, heavy plate and both bar and

structural steel by the early 1960s. Other large corporate

groups such as Hoesch, Klöckner, Mannesmann, Hüttenwerk

Oberhausen AG, and Krupp predominantly followed the

Dormund-Hörde Hütten Union‘s path of specialization. Each

attempted to organize the production of steel and rolled

products, such that companies could realize a strong position

in the limited number of markets [21, pp.381-383; 65, S.110-

115, 66, ThyssenKrupp Konzernarchiv, A/31927,

Zusammenschluβ im Sinn des Artikel 66 des

Montanunionvetrages (MUV) zwischen der

August Thyssen-Hütte AG(ATH) und der PhoenixRheinrohr

AG Vereingte Hütte- und Röhrenwerke

(Phoenix) (22.5.1962), S.1].

Next, we will examine companies other than Vereinigte

Stahlwerke AG. Within a few years after the restructuring that

occurred with dissolution, Flick, Gutehoffnung, Klöckner,

Otto Wolff, and Hoesch re-emerged as an integrated

organization that was larger in investment and production

scale than the previous Vereinigte Stahlwerke AG [67,

S.532]. At Mannesmann, the disassociation with the coal

company due to the postwar dissolution had been restored by

the mid-1950s, and the restoration of an integrated

organization proceeded [68, S.27; 69, S.27]. Thereafter, in the

fall of 1958, their six most important subsidiaries merged

with the parent company [70, S.1439]. Similarly at Hoesch,

of the three successor companies that split due to dissolution,

two were returned to the parent company. The plan called for

a vertical integration of coal and steel industries, as this was

a condition for survival among Ruhr‘s coal and steel

corporations [71, S.36-37; 72, S.1163]. Hoesch restructured

as a large corporate group comprising of four core

corporations in the late 1950s, with many subsidiaries

established thereafter [73, S.1092; 74]. Even at Krupp,

Hüttenwerk Rheinhausen AG assumed control over Bochmer

Verein, a successor to Vereinigte Stahlwerke AG, with the

primary objective of benefitting from the division of labor.

Hüttenwerk Rheinhausen AG mainly produced mass

products through Thomas steel, as opposed to Bochmer

Verein, which focused on the production of high-grade steel

using LD processes and electric furnaces. This consolidation

facilitated the expansion of production programs and division

of labor. Within materials supply in the processing sector,

Krupp formed a lucrative consolidation with its supplier,

Bochmer Verein [62, pp.98-100]. At Gutehoffnung,

dissolution measures ended vertical ties, and the

reconcentration movement affected reconsolidation of the

steel and coal sectors in 1957. The energy-related

consolidation of Hüttenwerk Oberhausen AG and Bergbau

AG Neue Hoffnung expanded through ties with Ruhrchemie

AG, in which Bergbau AG Neue Hoffnung had capital

investments [62, pp.124-125]. Reconcentration in coal and

steel industries thus generated more advantageous conditions

than those before dissolution.

The reconcentration of monopolies temporarily ceased in

the late 1950s, but with the growth of fierce competition and

pressure from the 1958 crisis, the process of accumulation

and concentration proceeded in the second stage. The new

economic advances that emerged in 1959 and 1960 were

already forgotten as the economy stagnated again in 1961. In

addition, the Thyssen group began building close cooperative

relationships with the Dortmund-Hörde and Hoesch groups at

the beginning of the 1960s in response to the powerful

expansion. Hoesch, in a collaborative effort with

Mannesmann, begun construction of a large steel pipe

factory, and the cooperation of these three groups was

partially demonstrated in joint capital procurements and in

the joint use of rolling facilities. In 1962, Thyssen,

Mannesmann, and Hoesch formed agreements regarding

cooperation in production and investment [52, S.2]. Thus, one

form of concentration resulting from increased competition at

the end of the 1950s and the beginning of the 1960s was the

various pacts between large corporate groups for joint

research and development activities and the allocation of

production equipment for joint use [47, S.5-6].

SIGNIFICANCE OF NEW DEVELOPMENTS IN

LARGE CORPORATE GROUP SYSTEMS

Based on the foregoing discussion, we will now turn our

attention to the significance of new developments in the

systems of large corporate groups that accompanied the

dissolution of monopolies and later reconcentration. During

this period, to simplify management, large companies formed

scales that were suitable for management, which were

founded through liquidation of large corporate groups; this

was observed through the process of concentration and

reconcentration of monopolies. This process created

important preconditions for thorough rationalization [75,

S.11, S.13].

This type of concentration helped create a system that

exhibited economies of scale through the benefits of

specialization and division of labor. This approach intended

to reform systems that enables large corporate groups to

develop more effective operations in response to

opportunities for technological reforms, provided by US

implementation under the transition to a system of

oligopolistic competition. In other words, this type of

development strengthened the systems of inter-firm

relationships; these relationships formed for the expansion of

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 9 Buenos Aires,Argentina

corporate activities that emphasized market segments adapted

to oligopolistic competition in the form of ―division of labor

complementary to each product.‖ For the iron and steel

industry, this approach meant leveraging ―integrated

economy‖ benefits between the coal and steel industries to

transform the system on the basis of collaborative

intercorporate relationships in pursuit of scale merit through

―division of labor with complementary products‖ between

large corporate groups.

This systemic transition aggregated production, sales, and

management as the foundation of an industrial system; in

terms of maintaining economic consistency, it strengthened

German large corporate groups [76, pp.3-4, p.8] functioning

on the lines of organic parent-subsidiary corporate groups

based on the principle of product-based division of labor. It

created better conditions for business rationalization and

facilitated the pursuit of economies of scale as well as

strengthened the foundation for cooperation-based market

control. This postwar business structure differed from

industrial concentration systems that were based on market

control with a high level of concentration through giant trusts,

which included industrial sectors seen in the prewar era,

particularly those in beginning of the 1920s; instead, it more

carefully pursued functional benefits. Relationships with such

―complementary product-based divisions of labor‖ among

corporate groups proceeded between large corporate groups

[36, pp. 3-4, p.8]. These relationships differed from the

prewar period‘s economic concentration through cartels, and

were meaningful as a systemic transformation for

monopolistic market control based on the economic benefits

of the division of labor. This was a system of large-scale

business, appropriate to large corporate groups; however,

they differed from Japan‘s industrial groups and the full-set

industrial structure found thereafter. These were reforms to

the system of large-scale business that incorporated

collaborative relationships in response to global and domestic

competition. The system helped German corporations avoid

intense price competition and was an important foundation

for the development of management methods, which adopted

a style of management that focused on competing with

quality.

CONCLUDING REMARKS

Based on the foregoing analysis, we present conclusion in

this paper. Concerning competition policy, in particular

antimonopoly policy, Germany‘s federal government

considered the social market economy in the framework of a

postwar economic order as critical for economic policy,

particularly to further expand and solidify the domestic

market economy and competition [77, S.150]. Before the war,

monopolies and cartels in the market were accepted under the

Nazi-controlled economy, with the state meddling in

economic affairs of a ―politicized economy‖; however,

postwar, the state played a more regulatory role in economic

policy. This economic policy was based on a philosophy that

emphasized market mechanisms by limiting government to

an auxiliary role and the strict separation of politics and

economy [78, pp. 196-197].

Regarding the formation of anti-monopoly policy and

Germany‘s freedom in its process, even with the US

dominating anti-monopoly policies, Germany had more

freedom than Japan throughout the process of enacting

antimonopoly regulations.

For instance, in Japan as defeated nation, anti-monopoly

policies, such as the 1947 Anti-Monopoly Act, were enacted

early on under the strong guidance and pressure from the

GHQ. Although several subsequent revisions to the law eased

restrictions, the overall framework continued to follow the

guidelines established by occupation authorities; holding

companies were outlawed as were the buying and holding of

treasury stocks [79, pp.664-665]. In contrast to Japan,

Germany‘s Restrictive Trade Practices Act passed in late

1957 permitted holding companies, which served as a means

of corporate control and inter-corporate unions. These issues

were, and have remained, fundamental to the harmonious

state of German capitalism and corporate concentration and

unions.

Regulatory mechanisms under the Restrictive Trade

Practices Act, which dealt with regulative and antimonopoly

policies, were linked to an industrial system based on inter-

firm relations. They influenced business development based

on trust, which replaced cartels, and a complementary

division of labor in the product fields within large-scale

corporate groups. The restructuring of the system of large

corporate groups emphasized the benefits of ―division of

labor‖ based on specialization in response to oligopolistic

competition. The systems of inter-firm relationships after the

war formed for the expansion of corporate activities that

emphasized market segments adapted to oligopolistic

competition in the form of ―division of labor

complementary to each product.‖ Development of divisions

of labor in business domains among the large corporate

groups as well as inside the large corporate groups built the

foundation for corporate behavior focused on quality

competition rather than price competition and became an

element of cooperative characteristic of German capitalism.

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 10 Buenos Aires,Argentina

REFERENCES

1. Chandler Jr. AD (1990) Scale and Scope: The Dynamics

of Industrial Capitalism. Harvard University Press,

Cambridge, Massachusetts.

2. Schlieper A (1986) 150 Jahre Ruhrgebiet. Ein Kapitel

deutscher Wirtschaftsge- schichte. Düsseldorf.

3. Berghahn V (1985) Unternehmer und Politik in der

Bundesrepublik. Suhrkamp. Frankfurt am Main.

4. Djelic ML (1998) Exporting the American Model. The

Postwar Transformation of European Business. Oxford

University Press, Oxford.

5. Berghahn VR (1986) The Americanization of West

German Industry 1945-1973. Berg Publishers,

Leanington.

6. Fiereder H (1989) Demontagen in Deutschland nach

1945 unter besonderer Berücksichtigung der

Montanindustrie.

Zeitschrift für Unternehmensgeschichte 34: S.209-239.

7. Uebbing H (1991) Wege und Wegmarken. 100 Jahre

Thyssen, 1891-1991. Siedler, Berlin.

8. Der Volkswirt (1954a) Kruppbetriebe im Existenzkampf.

Der Volkswirt 8: S.24-25.

9. Der Volkswirt (1954b) Fried. Krupp. Nur noch

Verarbeitungsgesellschaft ohne Kohle und Stahl. Das

veränderte Gesicht der Montan-Industrie. Zum

Eisenhüttentag: S.49.

10. Der Volkswirt (1956a) Weitere Konsolidierung bei

Krupp. Der Volkswir 10: S.28-30.

11. Der Volkswirt (1952a) Beendeter Mannesmann-Umbau.

Der Volkswirt 6: S.24-25.

12. Der Volkswirt (1953a) Mannesmann für neue Aufgaben

gerüstet. Der Volkswirt 7: S.23-25.

13. Der Volkswirt (1952b) Die Neuordning bei Hoesch. Der

Volkswirt 6: S. 23-24.

14. Der Volkswirt (1954c) Liquidation der Hoesch AG. Die

Nachfolgegesellschaften entwickeln sich günstig. Der

Volkswirt 8: S. 24-26.

15.Der Volkswirt (1953b) Gutehoffnungshütte

neu geordnet. Der Volkswirt 7: S.21-23.

16.Tohara T (1974) Nishi Doitsu ni okeru Sengo Kaikaku

(Postwar Reform in West Germany). University of Tokyo

Institute of Social Science (ed) Kaikaku S, Kankyo K

(Postwar Reform: International Environment) Tokyo

Daigaku Shuppankai, Tokyo 2: 91-151.

17. Kleinkamp HD (1977) Die Entflechtung der I.G.

Farbenindustrie A.G. und die Gründungder

Nachfolgegesellschaft. Vierteljahrhefte für Zeitgescichte

25: S.220-251.

18. Gross H (1950) Material zur Aufteilung der I.G.

Farbenindustrie Aktiengesellschaft. Institut für

Weltwirtschaft, Kiel.

19. Pohl M (1986) Entstehung und Entwicklung des

Universalbanksystems: Konzentration und Krise als

wichtige Faktoren. Fritz Knapp Verlag, Frankfurt am

Main.

20. Stolper G, Häuser K, Borchardt K (1964) Deutsche

Wirtschaft seit 1870. J. C. B Mohr, Tübingen.

21. Herrigel G (2000) American Occupation, Market Order,

and Democracy: Reconfiguring the Steel Industry in

Japan and German after the Second World War. In:

Zeitlin J, Herrigel G (eds) Americanization and Its Limits.

Reworking US Technology and Management in Post-War

Europe and Japan. Oxford University Press, Oxford Pp:

340-399.

22. Kudo A (1999) Gendai Kagaku Kigyoushi (Modern

Business History in the German Chemical Industry).

Mineruva Shobo, Kyoto.

23. Maekawa K (1970) Doitsu Dokusen Kigyo no Hatten

Katei (Development of Monopolistic Enterpreise in

Germany). Mineruva Shobo, Kyoto.

24. Sasaki K (1975) Gendai Yoroppa Shihonshugi Ron

(Contemprary European Capitalism). Yuhikaku, Tokyo.

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 11 Buenos Aires,Argentina

25. Yanagisawa O (1991) Doitsu ni okeru Sengo Kaikaku to

Shihonshugi no Tenkan(Postwar Reformand Conversion

of Capitalism in Germany). In: Tanaka T, Yanagisawa O,

Ono J et al (eds) Kindai Sekai no Henyo (Transformation

of the Modern World). Tokyo Pp: 65-87.

26. Schröter HG (2005) Americanization of the European

Economy. A Compact Survey of American Economic

Influence in Europe since the 1880s. Springer Dordrecht.

27. Takagi K (1962) Nishi Yoroppa ni okeru Seisansei Undo

(The Productivity Movement in Western Europe) .

Nihon Seisansei Honbu, Tokyo.

28. Bundestag D (1958) Bericht des Bundeskartellamtes über

seine Tätigkeit im Jahre 1958 sowie über Lage und

Entwicklung auf seinem Auf-gabengebiet Drucksache.

29. Mötteli C (1961) Licht und Schatten der sozialen

Marktwirtschaft. Leitbild und Wirklichkeit der

Bundesrepublik Deutschland. Rentsch, Zürich.

30. Kipping M (2004) ‗Importing‘ American Ideas to West

Germany. In: Kudo A, Kipping M, Schröter HG (eds)

German and Japanese Business in the Boom Years.

Transforming American Management and Technology

Models, Routledege, New York Pp: 30-53.

31. Haley JO (2001) Antitrust in Germany and Japan. The

First Fifty Years 1947-1998. University of Washington

Press, Seattle.

32. Takahashi I (1997) Doitsu Kyoso Seigen Kinshiho no

Seiritsu to Kozo (Formation and Structure of the

Restrictive Trade Practices Act in Germany). Sanseido.

33. Plettner B (1994) Abenteuer Elektrotechnik. Siemens und

die Entwicklung der Elektrotechnik seit 1945.

Pieper, München.

34. Zeitlin J (2000) Introduction: Americanization and Its

Limits: Reworking US Technology and Management in

Post-War Europe and Japan. In: Zeitlin J, Herrigel G (eds)

Americanization and Its Limits. Reworking US

Technology and Management in Post-War Europe and

Japans, Oxford University Press, Oxford Pp: 1-50.

35. Uegusa M (1975) Nishi Doitsu no Sangyo Sosiki

(Industrial Organization in West Germany). In: Eikawa H

(ed) Nishi Doitsu no Keizai to Sangyo (Economy and

Industry in West Germany). Chikura Shobo, Tokyo Pp:

165-220.

36. Smyser WR (1992) The Economy of United Germany:

Colossus at the Crossroads. Hurst & Co London.

37. Dyas GP, Thanheiser HT (1976) The Emerging European

Enterpreise. Strategy and Structure in French and German

Industry. The Macmillan Press, London.

38. Sato S, Jungfer J (1997) Kyoso Seisaku (Competition

Policy). In: Sakura Institute of Research, Ifo Institut für

Wirtschaftsforschung (eds) Nihon to Doitsu no

KeizaiSangyo Sisutemu no Hikaku Kenkyu

(Comparative Study of Economic and Industrial Systems

in Japan and Germany). Tokyo Pp: 179-197.

39. Fack FU, Hort P (1985) Soziale Marktwirtschaft. Ploetz,

Freiburg, Würzburg

40. Tolliday S (1995) Enterprise and State in the West

German Wirtschaftswunder: Volkswagen and the

Automobilindustry 1939-1962. Busuness History Review

69: 273-350.

41. Schröter HG (1997a) Zur Übertragbarkeit

sozialhistorischer Konzepte in die Wirtschaftsgeschichte.

Amerikanisierung und Sowjetisierung in deutschen

Betrieben 1945-1975. In: Jaraush K, Siegrist H (Hrsg.),

Amerikanisierng und Sowjetisierung in Deutschland

1945-1970. New York S.147-165.

42. Schröter HG (1997b) Cartelization and Decaltelization in

Europe, 1870-1945: Reiseand Decline of an Economic

Institution. The Journal of European Economic History

25: 129-153.

43. Burckhardt H (1981) 25 Jahre Kolepolitik.

NomosVerlagsgesellschaft, Baden-Baden.

44. Schmitz E (1974) Analyse der Wettbewerbseffekte der

Kontorverträge von 1967 und der Verträge zur Grundung

der vier Rationalisierungsgruppen von 1971. In: Röper B

(Hrsg) Rationalisierungseffekte der Walzstahlkontore

und der Rationalisierungsgruppen.

Berlin S.14-29.

45. Yanagisawa (2006) Shihonshugishi no Renzoku to

Danzetsu (Continuity and Discontinuity in the History of

Capitalism). Nihon Keizai Hyoronsha. Tokyo.

46. Hahn W, Tammer H (1970) Kapitalkonzentration in

Westdeutschland an der Wende zum neuen Jahrzehnt 21:

S.21-29.

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 12 Buenos Aires,Argentina

47. DWI-Berichte (1961) Der Stand der Konzentration der

Produktion von Produktionsmitteln in Westdeutschland

12: S.5-13.

48. Sieber G (1958) Die Rekonzentration der

eisenschaffenden Industrie in Westdeutschland.

WWIMitteilungen 11: S.46-55.

49. Wirtschke T (2009) Gefahr für den Wettbewerb?

DieFusionkontrolle der Europäischen Gemeinschaft für

Kohle und Stahl und die Rekonzentration der

Ruhrindustrie 1950-1963. Akademie Verlag, Berlin.

50. Abelshauser W (2004) Deutsche Wirtschaftsgeschichte

seit 1945. Beck CH, München.

51. August Thyssen Hütte AG (1958) Bericht über das

Geschäftsjahr 1957/58. August Thyssen Hütte AG,

Duisburg.

52. DWI-Berichte (1962) Die mächtigsten Konzern der EWG

und Groβbritaniens in wichtigen Zweigen der

Produktionsmittelindustrie 13: S.1-21.

53. Pohl M (1986) Entstehung und Entwicklung des

Universalbanksystems: Konzentration und Krise als

wichtige Faktoren. Fritz Knapp Verlag, Frankfurt am

Main.

54. Horstmann T (1991) Die Alliierten und die deutschen

Groβbanken. Bankenpolitik nach dem Zweiten Welkrieg

in Westdeutschland. Bouvier, Bonn.

55. Aizawa K (1994) Oshu Saikyo no Kinyu Teikoku (The

Strongest Financial Empire in Europe). Nihon Keizai

Shinbunsha, Tokyo.

56. Wandel E (1998) Banken und Versicherungen im 19 und

20. Jahrhundert R Oldenbourg, München.

57. Gall L, Feldmann GD, James H et al (1995) Die Deutsche

Bank 1870-1995. Beck CH, München.

58. Deutsche Bank AG (1970) 100 Jahre Deutsche Bank

1870-1970. Deutsche Bank AG, Frankfurt am Main.

59. Huffschmid B (1954) In Zukunft wieder KlöcknerWerke

AG. Rückkehr der Kohle zur Obergesellschaft.

Der Volkswirt 8: S.26-28.

60. Der Volkswirt (1955a) Klöckner-Neuordnung

asgeschlossen. Der Volkswirt 9: S.225-227.

61. DWI-Berichte (1955) Der westdeutsche

Steinkohlenbergbau 6: S.2-30.

62. Yajima C (1959) Ruru Kontsuerun no Hukkatsu

(Resurrection of Corporate Groups in the Ruhr District).

Keizai Dantai Rengokai, Tokyo.

63. Treue W, Uebbing H (1969) Die Feuer verlöschen nie:

August Thyssen-Hütte 1926-1966. Düsseldorf, Wien.

64. Kobayashi M (1983) Nishi Doitsu Tekkogyo (Iron and

Steel Industry in West Germany). Yuhikaku, Tokyo.

65. Huffschmid B (1965) Das Stahlzeitalter beginnt erst.

Verlag Modeme Indust-rie, München.

66. Sieber G (1958) Die Rekonzentration der

eisenschaffenden Industrie in Westdeutschland.

WWIMitteilungen 11: 46-55.

67. Petzina D (1992) Zwischen Neuordnung und Krise. In:

Dascher O, Klein-schmidt C (Hrsg) Die Eisen- und

Stahalindustrie im Dortmunder Raum. Wirtschaftliche

Entwicklung, soziale Strukturen und technologischer

Wandel im 19 und 20. Jahrhundert Gesellschaft für

Westfälische Wirt-schaftsgeschichte E.V. Dortmund

S.525-544.

68. Der Volkswirt (1955b) Rückgliederung abgeschlossen.

Die Mannesmann AG berichtet. Der Volkswirt 9: S.2628.

69. Der Volkswirt (1956b) Der neue Mannesmann-Konzern.

Der Volkswirt 10: S.27-29.

70. Der Volkswirt (1959) Mannesmann AG: Erfolgreiche

Verarbeitung. Schulden konsolidiertZum dritt Mal 10 vH

Dividende. Der Volkswirt 13: S.1439-1443.

71. Der Volkswirt (1956c) Bald 2 Mill. t Stahl bei der Hoesch

Werke AG. Der Volkswirt 10: S.36-39.

72. Der Volkswirt (1957) Hoesch Werke AG geht auf 8 vH.

Der Volkswirt 11: S.1163-1166.

73. Der Volkswirt (1960a) Hoesch AG in solidem

Fortschritt. Dividende von 8 auf 10 vH erhöht Abrunden

des Investitionsprogramm. Der Volkswirt 14:

S.10921094.

Anti-monopoly Policy and New System of Large Corporate Groups in Germany after World War II

IIERD International Conference 13 Buenos Aires,Argentina

74. Der Volkswirt (1960c) Hoesch Aktiengesellschaft. Der

Volkswirt 14: S. 1282.

75. Berichte IPW (1960) Die neue Konzentrationswelle in der

westdetchen Industrie. I.P.W.-Berichte 11: S.10-15.

76. Shimotani M (2008) Shinko Kontsuerun to Zaibatsu

(New Large Corporate Groups and Zaibatu). Nihon

Keizai Hyoronsha, Tokyo.

77. Erhard L (1954) Das Bundesministerium für Wirtschaft.

In: Das Presse-und Informationsamt der Bundesregierung

(Hrsg) Deutschland im Wiederaufbau.

Tätigkeitsbericht der Bundesregierung für das Jahr 1954.

Kommisionsverlag Pp: 147-176.

78. Noda S (1998) Doitsu Sengo Seijikeizai Chitsujo no

Keisei (Formation of Political-Economic Oder in

Germany after WW II). Yuhikaku, Tokyo.

79. Miwa R (2005) Dokusen Kinshi Ho (Monopoly

Prohibition Law). In: Sasaki T, Tsurumi S, Tominaga K

et al (eds) Sengoshi Daijiten (Encyclopedia of Postwar

Japan 1945-2004), new enlarged edition. Tokyo Pp:

664665.

The Impacts of Broadband on Economic Growth in

People‟s Republic of China: Empirical Analysis

from Panel Data

[1] Siyue Yang, [2] Prapatchon Jariyapan, [3]Jianxu Liu

[1][2][3] Faculty of Economics,Chiang Mai University, Chiang Mai, Thailand

Abstract: This research study is to analyze the impacts of broadband on economic growth in 30 regions of People’s Republic of China

during 2006 to 2015 by using panel data. Firstly, adopting Padroni method to examine whether exists the cointegration among

economic growth and broadband constructions. Regarding the empirical results, there has a long-run relationship between

broadband constructions and economic growth. Secondly, based on the empirical results from panel dynamic ordinary least square

(DOLS) and fully modified ordinary least square (FMOLS), there exists a long run elasticity equilibrium co-integration within the

variables, and the coefficients of independent variables are positive. Then selecting fixed effect models based on the results of

Hausman test and applying panel GLS to measure the impact of broadband constructions on Chinese economy. In conclusion, it can

be summarized that broadband constructions are significant aspects which positively impact on Chinese economic development.

Index Terms— broadband, economic growth, panel data, cointegration, fixed effects, DOLS, FMOLS.

I. INTRODUCTION

Since the 20th century, with the rapid development of

scientific and technological innovation, technological

progress plays an important role in economic development.

Broadband has the characteristics of breaking through the

limitation between time and space. On the one hand,

broadband use has great connection with daily life, it

brought more convenience for users. On the other hand, with

broadband infrastructure industry has been developing so

fast in recent years, broadband technology as a new factor

that promotes GDP growth cannot be ignored, not only due

to its major economic activity having large multiplier

effects, but also because improvement in broadband

constructions usually comes with extensive external social

and economic benefits.

Moreover, the Chinese economy has developed dramatically

in past decades, since 2010, Chinese total GDP value

exceeded that of Japan to become the second largest

worldwide. Nowadays, Chinese GDP had reached 1,0385.66

billion dollars in 2016. So that China‟s rapid economic

growth has attracted the global attention of many scholars

and economists.

According to global broadband research institute of United

Nations (2013), broadband penetration rate growth by 10

percent could boost GDP growth by 2.5 percent in the

People‟ Republic of China [1]. Also, Chinese internet users

have grown to 731 million users and the internet penetration

rate reached 53.2 percent in 2016, and Guangdong province

has the highest broadband subscribers in comparison to

other 29 regions. According to statistical database, GDP

value in Guangdong reached about 8 trillion Yuan in 2016,

and it is over other provinces of People‟s Republic of China

in recent 28 years, which implies the constructions of

broadband and regional economic development has a

connection. Improving the constructions of broadband is

conducive to economic growth.

Based on the above description, this paper will mainly

discuss two problems. Firstly, it will measure whether exist

long-run relationship between broadband constructions on

Chinese economy. Secondly, as the cointegrated variables

are given, then added to examine the long-run elasticity.

Thirdly, generalized least square (GLS) method was used to

estimate the cointegration regressions. In this paper, Internet

users, broadband subscribers port of Internet and investment

in computer services and software are represented the

broadband constructions respectively.The rest of the paper

is organized as follows. Section 2 provides the literature

reviews. Section 3 conducts the theoretical model, and

section 4 presents the data source and description. The

econometric methodology and empirical results are

presented in section 5. Lastly, Section 6 reported the

conclusions.

The Impacts of Broadband on Economic Growth in People‟s Republic of China: Empirical Analysis from Panel

Data

IIERD International Conference 15 Buenos Aires,Argentina

II. LITERATURE REVIEW

The dramatic broadband constructions appreciation over

recent years, with increasing issues related to internet and

economic growth, has been studied. The studies involved are

divided mainly into two groups; one to examine the main

factors that affecting broadband development, and another

to investigate the relationship between infrastructure of

broadband and economic growth. However, few studies

were conducted by using cointegration relationship between

broadband constructions and economic growth.The

literature with differing empirical evidence regarding the

relationship between broadband constructions and economic

growth, with some relevant researches finding a one-way or

two-way relationship between them. Minges [2] explored

the relationship between broadband and economic growth

with 120 developing and developed countries. The result

showed that the fixed broadband would increase GDP

growth by 1.21 percent in developed economies and 1.38

percent in developing ones during 1980 to 2006.

Moreover, Atif et al. [3] found every 10 percent increase in

the growth of broadband penetration will raise economic

growth per employee by approximately 0.035 percentage

points among OECD countries over the period of 1998 –

2010. Gilchrists [4] employed the log-linear approximation

model to indicate that the higher the broadband penetration

the greater the impact on economic growth in the eastern

Caribbean telecommunications authority (ECTEL) member

countries from 2002 to 2014. Kindbom [5] utilized a fixed

effects model and employed ordinary least square (OLS) to

find the effect of broadband on the growth of GDP is

positive and significant.

There are several Chinese research papers performed the

relation of the multi-variables with Chinese economy and

broadband infrastructure. Yong Zhang [6] studies the

contributions of internet information services on economic

growth by utilizing total factor productivity(TFP) to

construct the growth model in research, the result indicated

that the contributions of internet information services on an

average annual GDP growth rate has reached 1.54 percent.

Baoguo Han [7] discussed the impacts of broadband

network and information services on economic growth by

deriving a model of quantitative relationship between

information service and the division of labor based on Yang-

Borland‟s division of labor model, from the results found

that 10 percent increase in broadband penetration raised

annual per capita growth rate by 0.19 percentage points.

As above description, most of the analyses indicated that

broadband has significant and positive effects on economic

growth. The different results depend on different

methodologies and different endogenous variables.

III. THEORETICAL MODEL

The theoretical model of this study is based on the

Cobb-Douglas production function (1928). The traditional

production function regards the output as a function of

capital and labor, according to Cobb-Douglas, which is the

basic form as following: , (1)

where, A is technology efficient determining all factors of

production, Y is output, K is capital stock, L is labor force,

and represent the output elasticity of the capital

investment and labor investment.

Therefore, the model function forms of this study

have been derived as follows:

F ( (2)

where, is gross domestic product in province i at

time t,

is capital stock in province i at time t,

are employment persons in province i at time t,

is Internet users in province i at time t,

is broadband subscribers port of internet in province i

at time t,

Comit is investment in computer services and software in

province i at time t. is the fixed effect

is a random disturbance item.

Taking the natural logarithm into the equation (2), the

derived equation for this study as following:

(3)

where, is a constant intercept, , , , and are

constant slope coefficients of capital stock, employment

persons, internet users, broadband subscribers port of

internet, investment in computer services and software

respectively. is the fixed effect, is a random disturbance

item.

IIERD International Conference 14 Buenos Aires,Argentina

The Impacts of Broadband on Economic Growth in People‟s Republic of China: Empirical Analysis from Panel

Data

IIERD International Conference 16 Buenos Aires,Argentina

The above regression model is used in this paper that explain

the relationship between dependent variable and

independent variables.

IV. DATA SOURCE AND DESCRIPTION

This study employed panel data analysis for 30 provinces,

municipalities and autonomous regions from 2006 to 2015

in People‟s Republic of China. In addition, in view of data

availability considerations, this paper collected data that

except Hong Kong, Macao, Tibet and Taiwan regions.

All data collected from Chinese statistical yearbook in

national bureau of statistics in People‟s Republic of China,

and those data including real GDP (measured in constant

2006 Yuan), internet users (measured by 10,000 persons),

broadband subscribers port of internet (measured by 10,000

ports), capital stock (constant base on 2000 Yuan),

employed persons (measured by 10,000 persons),

investment in computer services and software (measured by

100 million Yuan). Table 1. is the data statistics description

of all variables including LnGDP, LnCOM, LnINT, LnK,

LnSUB and LnL in China from 2006 to 2015.

Table 1: Data statistic description

Obs.

Mean

Median

Maximum

Minimum

Std.Dev.

LnGDP 300

9.30836

9.437245

11.19564

6.474662

0.93389

LnCOM 300

4.189488

4.289318

6.496562

0.465117

0.960681

LnINT 300

4.566816

4.699107

6.655183

1.308333

1.004937

LnK 300

9.884396

9.987592

11.69247

7.443492

0.877852

LnSUB 300

6.187289

6.305727

8.469871

2.734368

1.125874

LnL 300

5.944797

6.034484

7.587452

3.765972

0.758345

Source: China Statistic Bureau, 2006-2015.

Table 1 shows that data statistic in Republic of China from

2006 to 2015, 300 observations of LnGDP, LnCOM,

LnINT, LnK, LnSUB and LnL in the study. The mean and

median value of LnGDP are 9.30836 and 9.437245,

respectively, and the maximum and minimum values of

LnGDP are 11.19564 and 6.474662, respectively. The

standard deviation of LnGDP is 0.93389. Moreover, the

mean and median value of LnCOM are 4.189488 and

4.289318 respectively, and the maximum and minimum

values are 6.496562 and 0.465117, respectively, the

standard deviation of LnCOM was 0.960681. Furthermore,

the mean and median value of LnINT are 4.566816 and

4.699107 respectively, and the maximum and minimum

values are 6.655183 and 0.465117, respectively, the

standard deviation of LnINT is 1.004937. The mean and

median value of LnK is 9.884396 and 9.987592,

respectively, and the maximum and minimum values of LnK

are 11.69247 and 7.443492, respectively. The standard

deviation of LnK is 0.877852. And The mean and median

value of LnSUB is 6.187289 and 6.305727, respectively,

and the maximum and minimum values of LnSUB are

8.469871 and 2.734368, respectively. The standard

deviation of LnSUB is 1.125874. Lastly, the mean and

median value of LnL is 5.944797 and 6.034484,

respectively, and the maximum and minimum values of LnL

are 7.587452 and 3.765972, respectively. The standard

deviation of LnL is 0.758345.

V. METHODOLOGY AND EMPIRICAL RESULTS

The unit root test is a common approach to analyze whether

the data is stationary or non-stationary at level I (0) or first

derivation I (1) before testing for cointegration. [8] Then,

panel estimation considers about fixed effects model and

random effects model, and Hausman test will be used in

model selection and compare the estimators of the tested

models.

a. Panel unit root test

The unit root test was conducted to avoid of spurious

regression problem. All variables need to be stationary at

any point estimated, a non-stationary time series will

become stationary after differencing several times. [9]

There are six methods for panel data unit root test, which

are: Levin-Lin-Chu (2002), Breitung (2000), Im-PesaraShin

(2003), Fisher-type test using ADF (Maddala and Wu,1999),

Fisher-type test using PP test (Choi,2004) and Hadri (2000)

to check for the presence of stationary around a deterministic

trend or mean with a shift against a unit root.[10] The

properties of panel-based unit root tests under the

assumption that the data is independent and identically

distributed (i.i.d) across individuals. Two panel unit root

tests: LLC and IPS, are preformed to check for the presence

of stationary in this study.

The results of the stationary test by adopting LLC and IPS

with the existence of intercept and trend are shown in the

table 2. The results are present level aeries and first

difference series. Both LLC and IPS teat present among

LnGDP, LnCOM, LnK are only stationary and significance

after being first difference. And for LnSUB and LnL, both

LLC test results display that stationary in level series, then

both tests result are all stationary in first difference series, as

The Impacts of Broadband on Economic Growth in People‟s Republic of China: Empirical Analysis from Panel

Data

IIERD International Conference 17 Buenos Aires,Argentina

LnINT in both tests are stationary at the 1% level. Hence,

the results strongly support the conclusion that the series are

not cointegrated at I (0), but the series are stationary at I (1),

which mean next step could exam whether exist long-run

relationship between variables by applying the

cointegration.

Table 2: Panel unit root test results

Level Series First Difference Series

Variables LLC IPS LLC

IPS

LnGDP 1.90286 5.09179 -13.9328***

-1.02594**

(0.9715) (1.0000) (0.0000)

(0.0200)

LnCOM 1.62920 3.49863 -18.0327***

-8.12284***

(0.9484) (0.9998) (0.0000)

(0.0000)

LnINT -24.8722*** -6.30322*** -21.3789***

-2.59643***

(0.0000) (0.0000)

(0.0000)

LnSUB -10.5160*** -1.06424

-27.5326***

-3.56671***

(0.0000) (0.1436)

(0.0000)

（0.0002）

LnK 2.98679 32.2084

-22.3229***

93.7770***

(0.9986) (0.9988)

(0.0000)

(0.0035)

LnL -3.65967*** 3.51519

-5.60236***

-1.99107**

(0.0001) (0.9998)

(0.0000)

(0.0232)

Note:1. The null hypothesis: series has a unit root.

2. , , and indicate rejection of the null

hypothesis at the 1%, 5%, and 10% level of statistical

significance, respectively.

3. The values in parentheses are p.value.

b. Panel cointegration test

This study will proceed to test whether broadband

constructions and economics growths are cointegrated.

Pedroni (2000, 2004) method is used to perform the

cointegration test.

In case of all variables are stationary at order I (1), so there

are probably having long-run relationship among internet

users (LnINT), broadband subscribers port of internet

(LnSUB), capital stock (LNK), employed persons (LNL),

investment in computer services and software(LnCOM) and

economic growth (LNGDP). Therefore, panel cointegration

test is used to confirm the presence of the cointegration of

the six variables.

The equation of cointegration regression models explicate

as follows:

The Pedroni‟s results are reported in

table 3, which 5 out of 7 Pedroni‟s statistics significantly

reject the null hypothesis of no cointegration. In conclusion,

Pedroni‟s results support that exists cointegration among the

six variables. In other word, there have a long-run

relationship between broadband constructions and economic

growth.

Table 3: Pedroni’s cointegration tests results

Within dimension Between dimension

Panel v-Statistic Group rho-Statistic

1.532387* (0.0627) 7.390499 (1.0000)

Panel rho-Statistic Group PP-Statistic

5.267985 (1.0000) -17.02839*** (0.0000)

Panel PP-Statistic Group A-Statistic

-13.75943*** (0.0000) -14.75899*** (0.0000)

Panel ADF-Statistic

-11.95195*** (0.0000)

Note:1. The null hypothesis: no cointegration.

2. indicate rejection of the null hypothesis at the

1% level of statistical significance, respectively.

3. The values in parentheses are p.value.

c. Panel long run elasticity test

Additionally, after cointegration test, the study about impact

of broadband constructions on economic growth would

examine the long-run elasticity. Table 4 summarized the

coefficients of LnCOM, LnINT, LnSUB, LnL and LnK by

adopting panel dynamic ordinary least square methods

(DOLS) by Kao and Chiang (1999) and fully modified

ordinary least square methods (FMOLS) by Pedroni (2000).

[11] From Table 4, it is enough to reject null hypothesis, in

another word, there have a long run equilibrium co-

integration within the variables and the coefficients of

independent variables in the long run are positively and

statistically significant at level.

In DOLS, the results imply long run elasticity of LnCOM,

LnINT, LnSUB, LnL and LnK on GDP are 0.050872,

0.052400, 0.189460, 0.227362 and 0.467116, respectively.

The Impacts of Broadband on Economic Growth in People‟s Republic of China: Empirical Analysis from Panel

Data

IIERD International Conference 18 Buenos Aires,Argentina

that one percent increases of investment in computer and

software will promote economic growth about 0.050872

percent, and one percent grows in internet users will enhance

the economic growth about 0.0524 percent. And one percent

rise with broadband subscribers‟ port of internet, which will

advance economic growth about 0.189460 percent. And one

percent increase in employment persons, it will boot

0.227362 percent in economic growth When one percent

increase in capital stock, there will grow 0.467116 percent

in economic.

Similarly, according to the FMOLS, it presents when

increasing one percent of investment in computer and

software, internet users, broadband subscribers port of

internet, capital stock, in employed persons, respectively.

That would promote economic growth with 0.049477

percent, 0.03496 percent, 0.210509 percent, 0.413855

percent and 0.266436 percent, respectively. In conclusion,

the impact on economic growth are not far different with the

FMOLS and DOLS in this study.

Table 4: Results of Panel DOLS and FMOLS

Dependent

Variable:LnGDP DOLS FMOLS

Independent Variabes Coef. Coef.

LnCOM 0.050872*** 0.049477***

LnINT 0.152400** 0.034960***

LnSUB 0.189460*** 0.210509***

LnL 0.227362*** 0.413855***

LnK 0.467116*** 0.266436***

Adjusted R-squared 0.995550 0.996001

S.E of Regression 0.062297 0.057354

Notes:

1.The null hypothesis: There is no long run equilibrium

cointegration within the variables

2. means rejection of the null hypothesis at the 5% level

of significance, respectively.

d. Panel estimation

Panel estimation classified with fixed effects and random

effects. Fixed effects method assumes that every province

specific effects are fixed over time and affect the economic

growth is correlating with the exogenous variables [12]. The

fixed effects model is used to analyze coefficients of

estimator the model of regression. The model will be taken

in the form of equation (5). Random effects method suppose

that the individual specific effect is not correlated with the

exogenous variables. The random effect model will be seen

in the form as equation (6).

(5)

(6)

Hausman (1978) test which be used in model selection and

compare the estimators of the tested models. As table 5 is

reporting that the p-value of Hausman test statistic is

significant at 1% level, which it rejects the null hypothesis,

so it defines that random effects model is more appropriate

in this study. Moreover, the panel GLS method can be used

to examine the specific relationship and impact of

independent variables on economic growth.

Table 5 summarize the results of panel GLS approach with

fixed effect model, the coefficients of all independent

variables are significant at 1% level, and the effects are

positive as well. Among the five independent variables, the

impact coefficient of internet users, broadband subscribers

port of internet and investment in computer services and

software are 0.059779, 0.177596 and

0.157036, respectively those three variables represented the

broadband constructions. And impact of employment

persons and capital stock on economic growth are been

found 0.227199 and 0.503345. Taking broadband

subscribers port of internet as an example, it represents that

one percent increase in broadband subscribers‟ port of

internet is followed by 0.157036 percent change in

economic growth.

By performing panel GLS method, also, LnGDP as

dependent variables, the following equation is written as

below:

(7)

According to empirical results, effects are positive as

expected, so not only broadband constructions but also

capital stock and labor force are crucial components of

economic growth.

The Impacts of Broadband on Economic Growth in People‟s Republic of China: Empirical Analysis from Panel

Data

IIERD International Conference 19 Buenos Aires,Argentina

Table 5: Panel Estimation with GLS method using fixed

effect model

Variables

Coefficient

Std. Error

t-Statistic

LnCOM

0.059779***

0.006963

8.585718

LnINT

0.177596***

0.010441

7.431554

LnSUB

0.157036***

0.018043

8.703439

LnL

0.227199***

0.028534

7.962498

LnK

0.503345***

0.029631

16.98703

C

1.907095***

0.207911

9.172662

Hausman test

Chi-Sq. Statistic

54.005644

p-value

0.0000

Adjusted

Rsquared

0.997631

S.E. of regression

0.061242

Notes:

1.The null hypothesis: There is no long run equilibrium

cointegration within the variables.

2. means rejection of the null hypothesis at the 1% level

of significance, respectively.

CONCLUSION

Comparing with other traditional influencing factors,

broadband is a new field in researching economic growth in

case of People‟s Republic of China. The main purpose of

this study is to explain and analyze the impact of broadband

constructions on economic growth in People‟s republic of

China. Moreover, considering another two traditional

factors of macroeconomics which related with economic

growth, capital stock and employment persons.

The empirical results show those followings concluding

remarks.

Firstly, all variable series are cointegrated at I (1), and

results of panel cointegration test showed a long-run

relationship between broadband constructions and economic

growth, capital stock and employment persons have a long-

run relationship with economic growth as well.

Secondly, this paper examined panel long run elasticity

between dependent variables and independent variables by

adopting the DOLS and FMOLS methods. The empirical

results indicated that variables have long run elasticity

equilibrium co-integration, and impact of broadband

constructions, capital stock and employment persons on

economic growth are significant and positive.

Thirdly, after comparing the fixed and random effects

model, the results show that fixed effects model is better in

this research. Furthermore, GLS examination reports a

positive relationship between broadband constructions and

economic growth. And the effects of two traditional factors,

capital stock and employment persons are positive as well.

Thus, taking advantage of these results can provide policy

suggestions for government to take broadband constructions

as a vital part in economic growth.

In conclusion. according to the empirical results stated

above mentioned, the government can consider long-run

policies to adjust the effects of broadband constructions on

economic growth, which roughly cover following two

points: (1) To enhance the broadband constructions and

Internet popularization, continually. (2) To implement and

accelerate the innovation in broadband constructions

industry. Furthermore, the technological progress, capital

stock and employment should also be considered as well,

these are vital components for economic growth in People‟s

Republic of China.

REFERENCES

[1] State of broadband report of United Nations: catalyzing

sustainable development. (2013).

[2] Michael Minges, Exploring the relationship between

broadband and economic growth by using a panel data.

Background Paper prepared for the World Development

Report 2016: Digital Dividends, January 2015.

[3] Atif et al. (2012), Broadband infrastructure and

economic growth, a panel data analysis of OECD

countries.

[4] Gilchrist, Impact of broadband on economic growth in

ECTEL member states. Estern Caribbean

Telecommunications Authority. October 31, 2015.

[5] Kindbom, Effect of broadband spread on growth in

GDP, Jonkoping University, business school, 860306-

5973.May,2012

[6] Yong Zhang (2014). The influences of internet

development on China‟s economic growth.

[7] Baoguo Han (2015). Broadband network, information

services and Chinese economic growth.

The Impacts of Broadband on Economic Growth in People‟s Republic of China: Empirical Analysis from Panel

Data

IIERD International Conference 20 Buenos Aires,Argentina

[8] Hamit-Haggar, M. (2012). “Greenhouse gas emissions,

energy consumption and economic growth: A panel

cointegration analysis from Canadian industrial sector

perspective.”

[9] Carlaw, K. I. and R. G. Lipsey (2002) „Externalities,

Technological Complementarities and Sustained

Economic Growth,‟ Research Policy, 31 (8-9),

13051315.

[10] Romer, P. M. (1990). “Endogenous technological

change.” Journal of Political Economy vol 98.71-102.

[11] P. Pedroni (2000). Fully modified OLS for

heterogeneous cointegrated panels, advances in

econometrics, 15, 93-130.

[12] Masoomeh et al. (2016), No.9807. A comparison of

panel data models in estimating technical efficiency.

Financial Performance of Initial Public Offerings: Companies listed on Dar es Salaam Stock Exchange

Financial Performance of Initial Public Offerings:

Companies listed on Dar es Salaam Stock Exchange

Gibson Hosea Munisi

Department of Business Studies, School of Earth Sciences, Real Estates, Business and Informatics, Ardhi

University, Tanzania

Abstract : The purpose of this study it to examine the difference in financial performance before and after Initial Public Offerings

(IPOs) in companies listed on Dar es Salaam Stock Exchange (DSE) in Tanzania. The company financial performance is measured

by using financial performance ratios. Hypothesis of difference between pre-IPOs and post-IPOs financial performance is tested by

using significance test on the difference between the mean score of the pre-IPOs and the mean score of the post-IPOs financial

performance. The findings indicate there is significant difference between pre-IPOs and post-IPOs financial performance.

Specifically, the findings indicate there is significant increase of post-IPOs financial performance. At least, the study indicates there

is no significant evidence that pre-IPOs performance is higher than post-IPOs performance. However, the study indicates the results

depend on measurements of performance used in the data analysis. The study is of value to various stakeholders who are interested

in the financial performance of listed companies in developing countries in Sub-Sahara Africa and Tanzania in particular. These

findings are useful to current and potential investors in stock exchanges in developing countries in general and DSE in particular.

The findings have policy implication for roles of the regulators of stock market, shareholders monitoring and governance of listed

companies, as results indicate at least performance of listed companies do not deteriorate after IPOs. This has implication for

attraction of investment from both domestic and foreign investors because indicators of better performance after IPOs increase the

confidence of investors as they become more optimistic on future financial performance of IPOs.

Keywords: Financial performance; Initial public offerings; Working capital

INTRODUCTION

Initial Public Offering (IPO) involves the issuing of the

securities to the public for the first time. It happens when

company engages in offering of shares to the public and listed

on stock exchange for the first time. IPO allows company to

raise funds from the general public for the first time. IPO is

considered as an important event for some entrepreneurs,

executives, board members and shareholders because it is an

achievement that demonstrates their success in building a

strong business and creating value for owners, employees and

customers [1]. IPO is an entrance into a new stage life as

public company that possesses not only its own unique

opportunities but also risks and challenges [1]. Some of those

opportunities are such as opening door to liquidity for

investors and general public, who can invest their money in

company by buying shares in stock exchange markets [1].

Company can use capital generated from IPO for common

company purposes, such as working capital, research and

development, retiring existing indebtedness and acquiring

other companies or businesses which in turns may have

significance implication for future performance of company.

In the other hand, there are some challenges during the

process of issuing shares such as exposing company’s

information to public and more seriously to competitors [1].

This is because an IPO company must present its prospectus,

which contains key inside information about company, to the

public as part of requirements of issuing shares to the public.

By providing this information to the public, albeit with good

intention to abide to requirements of listing, company may

expose important strategic information such as intellectual

property, compensation, financial status and projections,

material agreements and business plans. This can provide

opportunity to competitors to imitate company’s strategies

and accelerate implementation of similar strategies or

counterattack strategies in advance of listing company [1,2].

In the other words, competitors may use this information to

know about strategies of listing company and formulate or

adjust their own strategies to become more competitive at

expense of listing company [2]. Additionally, when involved

in IPO process, listing company incurs some costs such as

compliance cost and management time spent in IPO process.

Company may outsource some professionals such as lawyers

and accountants who may charge significant amount of fees.

Top management must their use valuable time to engage in

IPO process activities such as planning and meeting potential

IIERD International Conference 20 Buenos Aires,Argentina

Financial Performance of Initial Public Offerings: Companies listed on Dar es Salaam Stock Exchange

IIERD International Conference 22 Buenos Aires,Argentina

and significant investors and regulatory bodies [1]. This may

distract their attention from core mission of business; as a

result, performance of company may decline after IPO

exercise is completed.

Existence of both advantages and disadvantages of IPO

suggests that listing of company on stock market can have

positive and/or negative effects on financial performance.

The positive and negative effects may improve and weaken

after IPO performance respectively which creates uncertainty

about future performance of listing company. The uncertainty

on performance after IPO, suggests that before engaging in

IPO; management of company must critically analyze all

relevant circumstances by considering not only its own

strengths and weaknesses but also opportunities and threats

that exist in the external environment. In the other words,

management of listing company must carefully weigh both

advantages and disadvantages of public listing before

implementing final decision to initiate IPO process and

finally list shares on stock exchange.

In addition to general benefits and costs associated with

IPO, there are some other factors which can lead to change in

pre-listing performance. Previous studies have identified at

least three potential factors which can cause decline of

company financial performance [3-8]. First, companies tend

to go public at the peak of their long-run performance, which

they know cannot be sustained in the future [3]. Second, the

dilution of shares of company when company goes public is

likely to give rise to agency problem [5] which in turns, may

cause poor financial performance in the future. Third,

managers may attempt to window-dress accounting

information before listing by using earnings management

techniques [8], which may overstates pre-IPO performance

while understating post-IPO performance. This is more likely

to happen when managers can use accrual accounting to

borrow future profits [6,7]. The earnings management and

borrowing of future profit just before IPO aim to portray

artificial good performance to attract members of public to

invest in shares.

Given the existence of uncertainty in the process of IPO, it

is obvious that the process is likely to have either negative or

positive effects on company’s future financial performance.

In this respect, this study examines the change in company’s

financial performance between pre-IPO and post-IPO.

Specifically, the study examines whether pre-IPO financial

performance is significantly different from postIPO financial

performance. This study contributes to understanding of

reliability of pre-listing financial performance as indicators of

future financial performance of companies listed in Dar es

Salaam Stock Exchange. The indicators of financial

performance are one of the most important factors used by

investors to make decisions of either or not to invest in IPOs.

Since most investors are likely to be attracted by good

financial performance they are likely to make decision based

on wrong information if listing company intentionally is

deceptive in relation to its indicators of financial

performance. The findings are useful to stock market

regulators who receive and evaluate applications of

companies seeking public listing. Furthermore, the findings

are useful to accounting profession and stock market policy

makers who are concerned with financial information

presented by companies where they are going public.

Initial Public Offering and Stock Exchange Markets

The history of IPO goes back when the earliest form of

company which issued public shares during the Roman

Republic. Dutch East India Company is believed to be the

first modern company to issue public shares in the beginning

of 17th century. In developed countries many large

companies are listed in stock exchanges. The New York

Stock Exchange (NYSE) is the biggest equity market in the

world with a market capitalization of about $21 trillion in year

2015. Generally, stock exchange is one of major sources of

capital finance in the world [9].However, in most African

countries, specifically in Sub-Saharan Africa, stock

exchanges opened in the 1990s, except in the cases of Kenya

and Nigeria, where stock exchanges started in the year 1954

and the year 1960 respectively [10]. In addition, many

countries in Sub-Saharan Africa have not yet established

stock exchanges and many of those which have been

established are not very active [10].

In Tanzania, shares are listed on and traded at Dar es Salaam

Stock Exchange (DSE). The formation of the DSE followed

the enactment of the Capital Markets and Securities Act, in

the year 1994 and the establishment of the Capital Markets

and Securities Authority (CMSA) which is the agency of

Tanzania Government established to promote and regulate

securities business in the country [11]. DSE was incorporated

in the year 1996 and began trading operations in the year

1998. DSE is the only formal trading place for securities in

Tanzania. Both local and foreign investors are allowed to

participate in DSE. Foreign investors were not allowed until

recently when the Tanzania government issue the capital

markets and securities (foreign investors) regulation in the

year 2014 [12]. The participation of foreign investors is

significant achievement as it allows companies listed in the

exchange to attract capital from foreign market. According to

Financial Performance of Initial Public Offerings: Companies listed on Dar es Salaam Stock Exchange

IIERD International Conference 23 Buenos Aires,Argentina

recently market reports from DSE, foreign investors are

major buyers of shares traded at DSE as about seventy percent

of all shares purchases at DSE during the period from July

2014 to August 2015 were done by foreign investors [13].

The participation of foreign investors exposes the exchange

and listed companies to global financial market; therefore,

more analysis is likely to be done by foreign investors who

have more skills, knowledge and experience than domestic

investors in stock exchange dealings.

CMSA licenses and regulates investments intermediaries and

deals with the issuance and trade of securities, approves all

companies wishing to be listed at the DSE. According to daily

market reports issued by DSE, total market capitalization of

DSE as of 12th August 2015 was Tshs 22,601.29 billion

which is equivalent to USD 10,796.76 million [13]. Although

the DSE commenced operation about seventeen years ago the

historical records indicate that the speed of companies to list

is going at a very low pace because until August 2015 there

were only twenty one companies which were listed on DSE

[13]. Moreover, out of these listed companies, fourteen

companies were primary listed and the remaining companies

were cross listed predominantly from the Nairobi Stock

Exchange in Kenya. This low pace may be due to several

factors. Although, this is not the aim of this study, but one of

reasons may be the fact that many companies put more

weights on disadvantages rather than on advantages that are

associated with public listing; so as result, they become

reluctant to list shares on stock exchange.

Since DSE started its operations, one company, National

Investment Company Limited, was delisted because of

presentation of misleading accounting information in their

annual report. Additionally, according to DSE daily market

reports for the year 2014/2015, three companies which are

TOL Gases Ltd, Tatepa Company Ltd, and Precision Air

Services Plc, their shares had been relatively inactive in

trading for a very long period. These listings are examples of

non-performing IPOs which received public money but have

not performed as were expected by many investors who

participated in these IPOs. The factors which could contribute

to poor performance may not be very clear but one thing

which investors should be aware of is investment in IPOs is a

risk business which needs careful assessment before making

the final decision to invest [14,15]. Some IPOs may portray a

very promising future which may attract a lot of attention and

positive interest from several investors. However, these IPOs

may turn out to be just window dressing or projections based

on weak assumptions [16]. Investors can only obtain the

expected returns if IPOs can at least maintain pre-IPO

performance for a reasonable time in the future. Therefore, it

is important to study trend of IPOs performance in order to

understand whether there is a significant difference between

pre-IPO performance and post-IPO performance. Listing

before implementing final decision to initiate IPO process

and finally list shares on stock exchange.

In addition to general benefits and costs associated with

IPO, there are some other factors which can lead to change in

pre-listing performance. Previous studies have identified at

least three potential factors which can cause decline of

company financial performance [3-8]. First, companies tend

to go public at the peak of their long-run performance, which

they know cannot be sustained in the future [3]. Second, the

dilution of shares of company when company goes public is

likely to give rise to agency problem [5] which in turns, may

cause poor financial performance in the future. Third,

managers may attempt to window-dress accounting

information before listing by using earnings management

techniques [8], which may overstates pre-IPO performance

while understating post-IPO performance. This is more likely

to happen when managers can use accrual accounting to

borrow future profits [6,7]. The earnings management and

borrowing of future profit just before IPO aim to portray

artificial good performance to attract members of public to

invest in shares.

Given the existence of uncertainty in the process of IPO, it

is obvious that the process is likely to have either negative or

positive effects on company’s future financial performance.

In this respect, this study examines the change in company’s

financial performance between pre-IPO and post-IPO.

Specifically, the study examines whether pre-IPO financial

performance is significantly different from postIPO financial

performance. This study contributes to understanding of

reliability of pre-listing financial performance as indicators of

future financial performance of companies listed in Dar es

Salaam Stock Exchange. The indicators of financial

performance are one of the most important factors used by

investors to make decisions of either or not to invest in IPOs.

Since most investors are likely to be attracted by good

financial performance they are likely to make decision based

on wrong information if listing company intentionally is

deceptive in relation to its indicators of financial

performance. The findings are useful to stock market

regulators who receive and evaluate applications of

companies seeking public listing. Furthermore, the findings

are useful to accounting profession and stock market policy

makers who are concerned with financial information

presented by companies where they are going public.

Financial Performance of Initial Public Offerings: Companies listed on Dar es Salaam Stock Exchange

IIERD International Conference 24 Buenos Aires,Argentina

Initial Public Offering and Stock Exchange Markets

The history of IPO goes back when the earliest form of

company which issued public shares during the Roman

Republic. Dutch East India Company is believed to be the

first modern company to issue public shares in the beginning

of 17th century. In developed countries many large

companies are listed in stock exchanges. The New York

Stock Exchange (NYSE) is the biggest equity market in the

world with a market capitalization of about $21 trillion in year

2015. Generally, stock exchange is one of major sources of

capital finance in the world

[9]. However, in most African countries, specifically in

Sub-Saharan Africa, stock exchanges opened in the 1990s,

except in the cases of Kenya and Nigeria, where stock

exchanges started in the year 1954 and the year 1960

respectively [10]. In addition, many countries in SubSaharan

Africa have not yet established stock exchanges and many of

those which have been established are not very active [10].

In Tanzania, shares are listed on and traded at Dar es

Salaam Stock Exchange (DSE). The formation of the DSE

followed the enactment of the Capital Markets and Securities

Act, in the year 1994 and the establishment of the Capital

Markets and Securities Authority (CMSA)which is the

agency of Tanzania Government established to promote and

regulate securities business in the country [11]. DSE was

incorporated in the year 1996 and began trading operations in

the year 1998. DSE is the only formal trading place for

securities in Tanzania. Both local and foreign investors are

allowed to participate in DSE. Foreign investors were not

allowed until recently when the Tanzania government issue

the capital markets and securities (foreign investors)

regulation in the year 2014 [12]. The participation of foreign

investors is significant achievement as it allows companies

listed in the exchange to attract capital from foreign market.

According to recently market reports from DSE, foreign

investors are major buyers of shares traded at DSE as about

seventy percent of all shares purchases at DSE during the

period from July 2014 to August 2015 were done by foreign

investors [13]. The participation of foreign investors exposes

the exchange and listed companies to global financial market;

therefore, more analysis is likely to be done by foreign

investors who have more skills, knowledge and experience

than domestic investors in stock exchange dealings.

CMSA licenses and regulates investments intermediaries

and deals with the issuance and trade of securities, approves

all companies wishing to be listed at the DSE. According to

daily market reports issued by DSE, total market

capitalization of DSE as of 12th August 2015 was Tshs

22,601.29 billion which is equivalent to USD 10,796.76

million [13]. Although the DSE commenced operation about

seventeen years ago the historical records indicate that the

speed of companies to list is going at a very low pace because

until August 2015 there were only twenty one companies

which were listed on DSE [13]. Moreover, out of these listed

companies, fourteen companies were primary listed and the

remaining companies were cross listed predominantly from

the Nairobi Stock Exchange in Kenya. This low pace may be

due to several factors. Although, this is not the aim of this

study, but one of reasons may be the fact that many

companies put more weights on disadvantages rather than on

advantages that are associated with public listing; so as result,

they become reluctant to list shares on stock exchange.

Since DSE started its operations, one company, National

Investment Company Limited, was delisted because of

presentation of misleading accounting information in their

annual report. Additionally, according to DSE daily market

reports for the year 2014/2015, three companies which are

TOL Gases Ltd, Tatepa Company Ltd, and Precision Air

Services Plc, their shares had been relatively inactive in

trading for a very long period. These listings are examples of

non-performing IPOs which received public money but have

not performed as were expected by many investors who

participated in these IPOs. The factors which could contribute

to poor performance may not be very clear but one thing

which investors should be aware of is investment in IPOs is a

risk business which needs careful assessment before making

the final decision to invest [14,15]. Some IPOs may portray a

very promising future which may attract a lot of attention and

positive interest from several investors. However, these IPOs

may turn out to be just window dressing or projections based

on weak assumptions [16]. Investors can only obtain the

expected returns if IPOs can at least maintain pre-IPO

performance for a reasonable time in the future. Therefore, it

is important to study trend of IPOs performance in order to

understand whether there is a significant difference between

pre-IPO performance and post-IPO performance.

DATA AND METHODOLOGY

Data used in this study was manually collected from the

annual reports of the companies listed on DSE. A sample

includes companies which are primary listed on DSE. A list

of all listed companies was obtained from the website of DSE.

This list indicates among other things the name and the year

Financial Performance of Initial Public Offerings: Companies listed on Dar es Salaam Stock Exchange

IIERD International Conference 25 Buenos Aires,Argentina

in which company was listed on DSE. The list has twenty one

companies, out of these companies, fourteen are primary

listed and the rest are secondary listed. This study focuses

only on the primary listed companies because they are more

relevant to IPO events studies because these companies were

widely exposed to the public for the first time when engaged

in IPOs rather than secondary listed companies which have

already endured storms of post IPO events in stock exchange

where they are primary listed. The final sample includes ten

companies that were possible to collect data both before and

after IPO. Data were collected for five years before IPO and

after IPO period from annual reports which were obtained

from either respective companies’ websites or offices and

DSE’s website or office. However, a size of sub-sample of

before IPO is smaller than that of sub-sample of after IPO.

This is because of unavailability of reports for some of

previous years.

The analysis focuses on assessing whether there is significant

difference on company financial performance before and

after IPO events. Financial performance can be measured in

different ways, however, the most common measures are

accounting performance and stock market price performance.

This study uses accounting performance to measure company

performance because accounting performance is a better

measurement of performance than stock price measurement

especially in developing countries stock markets. The stock

market developing countries, like Tanzania, are characterized

by a high degree of inefficiency, high illiquidity and stock

prices which do not reflect available information [3,10,17]. In

this environment the stock market information may not

reflect a reasonable market value of the shares as it might be

the case in stock markets in developed countries. The

financial performance is measured by some accounting

performance ratios which are return on assets (ROA), return

on equity (ROE), return on capital employed (ROCE) and

sales to assets (SA).

DEFINITION AND MEASURES OF VARIABLE

Return on Assets

Return on Assets (ROA) is an indicator of profitability of

company in relation to its operating asset. It is computed by

dividing operating profit before tax by total operating assets.

ROA gives an idea as to how efficient management is at using

its assets to generate profit. It shows ability of company to

generate returns from its operating profit.

Return on Equity

Return on Equity ratio (ROE) is a profitability ratio that

measures the ability of company to generate profits from its

shareholders equity. ROE is expressed as a percentage of net

income to shareholder's Equity. Return on equity measures

ability of company to generate returns on shareholders equity.

Return on Capital Employed

Return on Capital Employed (ROCE) is the ratio of net

operating profit to capital employed. It measures the

profitability of company by expressing its operating profit as

a percentage of its capital employed.

Capital employed is the sum of stockholders' equity and long-

term finance. Alternatively, capital employed can be

calculated as the difference between total assets and current

liabilities. A higher ROCE indicates more efficient use of

capital.

Sales to Assets

Sales to Asset ratio (SA) is an efficiency ratio that measures

ability of company to generate sales from its assets by

comparing net sales with average total assets. In the other

words, this ratio shows how efficiently company can use its

assets to generate sales. This is computed by dividing net

sales by total operating assets. Table 1 provides information

on the descriptive statistics before and after IPO.

Table 1: Summary statistics of performance variable.

Table 1 indicates that ROA marginally increased from 12.2

percent before IPO to 13 percent after IPO. This suggests that

Financial Performance of Initial Public Offerings: Companies listed on Dar es Salaam Stock Exchange

IIERD International Conference 26 Buenos Aires,Argentina

the performance of companies as measured by return on

assets improved marginally by 0.8 percent. This indicates that

after IPO the rate of utilization of assets to generate operating

profit increase by 0.8 percent. In the other hand, there is high

decrease of ROE as it is only 12.2 percent after IPO compared

to 24 percent before IPO. This change is a decrease of about

one hundred percent. This may be explained by change in size

of equity values of some companies after issue of shares.

Issue of new shares may increase both a number of shares and

amount of equity while the operating profit may remain

almost at the same level as it was before an IPO’s event.

From Table 1, the ROCE ratio was 16.1 percent before IPO

but it decreased to 15.5 percent after IPO. This is decline of

0.6 percent which implies that companies did not employ

their capital effectively and is not generating good value to

shareholders after the IPO. Moreover, SA ratio indicates that

the ability of companies to generate revenue out of total assets

increased from 0.989 times before IPO’s event to 1.53 times

after IPO’s event.

Two Sample means difference between Pre-IPO and

PostIPO Financial Performance

This study examines whether the mean difference between

pre-IPO and post-IPO financial performance is significant by

carry out two-sample t-test with the null hypothesis that the

mean difference between pre-IPO and post-IPO financial

performance is zero. Table 2 presents the results of two

samples means differences.

Table 2: Result of test of two sample mean differences.

The results show that when measure of performance is

ROA, post-IPO performance is higher than pre-IPO

performance; however, the difference is not significant. As

for ROE and ROCE measurements, the results indicate that

financial performance increased after IPO, but the difference

is not significant. Therefore, based on these results, there is

no a sufficient evidence to reject the null hypothesis when

financial performance is measured by ROA, ROE or ROCE.

In the other hand, the results indicate when financial

performance is measured by Sales to Assets ratio, the post-

IPO performance is higher than pre-IPO performance and the

difference is statistically significant (p>0.01). In this case

there is a sufficient evidence to reject the null hypothesis.

CONCLUSIONS AND IMPLICATIONS

Stock exchange markets play major role in mobilization of

capital finance from general members of public who when

considered individually may have a very little amount of

capital but which may be significant when aggregated in one

basket [9]. Due to possibility of existence of significant

amount investment capital from general public the stock

exchanges is one of good sources where companies which are

looking for capital can issue financial instruments such as

shares and bonds to general public to raise more capital funds.

Investors can use stock exchange to buy shares and become

shareholders of listed companies with expectation of

obtaining benefit from these investments through future

dividends and capital gains by increase in value of shares.

However, investors can only obtain these benefits if the listed

company performs better after IPO.

Listed company might fail to perform if management

either fails to make appropriate analysis of internal and

external environment or make wrong conclusion about future

performance of company. Furthermore, some companies may

deliberately mislead investors by window dressing or

dishonestly utilize the existence asymmetric information to

exploit investors [7]. This may lead to poor company

performance in the future because good performance reported

before IPO will not be sustainable since it was based on false

assumption. This problem can affect many investors in

underdeveloped stock exchanges like DSE where many

investors do not have sufficient skills, knowledge and

experience about stock market and dealing with securities. In

the other hand, listed company can make appropriate analysis

and arrive at correct and positive conclusion about future

Financial Performance of Initial Public Offerings: Companies listed on Dar es Salaam Stock Exchange

IIERD International Conference 27 Buenos Aires,Argentina

company performance. Also, management may present a true

and fair view about company performance which may

indicate actual good performance. If information presented

before IPO indicates company performance is good based on

true and fair view, there is a high probability that company

may continue to perform either at same level or even better

given that other factors remain constant. However, because of

existence of uncertainty about the accuracy of information

presented by company, there is no clear indication of

direction in which company performance may take after

listing. Principally, there are three possible changes on future

performance of company after IPO. The performance after

IPO may increase, remain constant or decline relative to

performance before IPO. Therefore, this study examines the

difference in accounting performance before and after IPOs.

In general the findings indicate there is difference between

pre-IPO and post-IPO accounting performance. However, the

significance of the difference depends on measurement of

performance used in the analysis.

Specifically, the findings indicate post-IPO is high than

preIPO when performance is measured by Sales to Assets

ratio. The findings of this study contradict the findings of

other studies such as Kim et al. [5], Wang [4] and Wong [18]

which indicated the performance declines after IPO. This is

implies there is no consistency in findings in IPO’s events

studies. This makes difficult for researchers and practitioners

to reach a general conclusion on whether companies perform

better after IPO or otherwise. The lack of conclusive results

may be due to a number of factors such as selection of

variables and their measurements, timing of data collection

and contexts of studies. For example, this study uses three

different measures of financial performance and only one

measure indicates there is significant difference between

post-IPO and pre-IPO performance. This implies that

measurement of financial performance can influence the final

results in these types of studies.

Results of this study have implication for policy makers,

investors and future research. The findings have policy

implication for roles of regulators of stock market,

shareholders monitoring and governance of listed companies.

This is because the results indicate at least the performance

of listed companies does not deteriorate after IPOs. The

findings of this study have implication for investors in IPOs,

particularly in DSE where both local and foreign investors

participate in trading shares. Specifically, the results indicate

that it is important to make analysis of performance of listing

company both before and after investment decision. Also, it

is equally important to be aware not every measurement of

performance may provide appropriate information about

company performance. The study also has important

implication for the future research on IPO performance.

Specifically, the results indicate that conclusion drawn on

performance of IPO should be interpreted cautiously because

the result may be affected by measurement of company

performance. Moreover, the context of study may affect the

findings as it may explain to a certain extent the current

situation of lack of consensus in IPOs performance research.

ACKNOWLEDGMENT

The acknowledgement goes to a group of students of

Bachelor of Accounting and Finance at Ardhi University in

the year 2015 who participated in the preliminary stages of

this study.

REFERENCES

1. Allison S, Hall C, Mcshea D, Vanye K (2008) The Initial

Public Offering Handbook: A Guide for Entrepreneurs,

Executives, Directors and Private Investors. Minnesota,

USA.

2. Singh I, Mitchell Van Der Zahn JLW (2008)

Determinants of Intellectual Capital Disclosure in

Prospectuses of Initial Public Offerings. Accounting and

Business Research 38: 409-431.

3. Jain BA, Kini O (1994) The Post-Issue Operating

Performance of IPO Firms. Journal of Finance 49:

16991726.

4. Wang C (2005) Ownership and Operating Performance of

Chinese IPOs. Journal of Banking & Finance 29:

18351856.

5. Kim KA, Kitsabunnarat P, Nofsinger JR (2004)

Ownership and Operating Performance in An Emerging

Market: Evidence from Thai IPO Firms. Journal of

Corporate Finance 10: 355-381.

Efficiency in the Economics of Management and

Ways to improve it

Sailau Baizakov

Doctor of Economy, Scientific Supervisor, Economic Research Institute, Kazakhstan

Abstract : The paper presented the analyses of one of the enigmas as set forth by the managerial economics. In analysing it, the paper

formulated ways of resolving the enigma. The paper developed the theorem, which uncovered the essence of the twodimensional

measuring the indicators of the balanced economic growth in a developing economy. The outcomes of the analyses, carried out by

the study, are expected to put a halt to the ineffective and inefficient use of natural material, capital and labour resources in any

given developing economy. To that end, the results of the analyses will help open up the path leading to the effective green economy

and will help maximize on the cost saving in the use of natural resources. The findings of the analyses will contribute to the

development of the managerial economics and will be essential assets in measuring the balanced economic growth in developing

countries. The novice of the paper is that the solution to the problem set as explained in this paper has ever been uncovered before.

Keywords: Two-dimensional measurement; Balanced growth; Resources; Cost efficiency

INTRODUCTION

Solving of the Baye enigma

In his book titled Managerial Economics and Business

Strategy, Michael R. Baye configured the subject matter of

his research in the light of the following developments: in the

late 20th century, a member of government of Japan

characterized American workers as „lazy and unproductive‟

[1]. Such outright description of the then American workers

productivity entailed from the timing spent by a Japanese

Honda company worker in manufacturing a Civic model car,

which equalled to 10.9 hours while at the same time an

American worker of Ford company spent 16 hours to produce

an Escort model car. Such obvious disproportion raised

serious concerns amongst stakeholders of the giant car

manufacturing corporations, including General Motors, Ford,

and Chrysler. Furthermore, the situation was aggravated with

the fact that in the early 90s the big three suffered from

dramatic losses. To that end, shareholders figured that the

low worker productivity was the main cause of companies‟

losses.

Methodological principles suggested by American

corporations as applied to the solution of the Baye problem

set

The managers of the American corporations eventually made

stakeholder concerns on the inefficiency of the American

automobile industry sooth down, − noted M. R.

Baye in his article published in the Automotive News

Journal. The article quoted an hourly pay to an American

worker, which was 2 dollars less compared to the 18 dollars

per hour payment received by a Japanese worker. Thus, the

American hold on the above-quoted payments differences

threw the light on the essence of labour productivity that

stemmed from the compensation of the labour spent for

manufacturing a unit of production, not the labour costs.

Methodological principles as applied to the solution of the

Baye problem set on the suggestion of Japan (according to

M. Baye)

Let us re-iterate to the issue of just a positioning of the

productivity of the American and Japanese workers, − wrote

M. R. Baye. Thus, the Japanese Honda company spent 10.9

hours to manufacture a car while the American Ford

company 16. Those figures were obtained by dividing the

total amount of workers time spent by the company‟s

workers (labour units) by the total amount of cars

manufactured (volume of production). From today‟s

perspectives, it is obvious that the resulting figures are, in

fact, the reverse values of the average productivity of the

American and Japanese workers in the automobile industry.

To be more specific, those relate to the average productivity

of the two car manufacturing corporations. If we recalculate

these figures in the reverse order, we will obtain the average

productivity of a Japanese worker to be: 1/10.9=0.09 while

that of his American counterpart will equal to: 1/16=0.06. In

my opinion, Michael R. Baye unveiled the inner essence of

the methodological principles that had been applied by Japan.

It was done by means of the assessment of the labour

productivity through the direct labour intensity of production.

IIERD International Conference 27 Buenos Aires,Argentina

Efficiency in the Economics of Management and Ways to Improve it

IIERD International Conference 29 Buenos Aires,Argentina

The theorem formulated by N. A. Nazarbayev relating to

the Fifth Path of the development of a national economy.

Application of the Fifth Path Model in constructing a

generic market equilibrium model

Theorem: For the reason that the causes of any of global

crises and the act of defining ways of exiting it are hidden in

the knot of non-resolvable contradictions that arise between

the rates and the levels of the technological, monetary-

andfinancial, and socio-political development in each of

world countries, a clear definition of the three „layers‟ of the

innovation acquires an increasing importance in discovering

the very self of the innovation [2].

The aim of constructing the Fifth Path-derived generic

market equilibrium, based on the definition of true costs of

goods and services

The aim of developing a generic market equilibrium model

is to ensure unity of the key indices of economic growth in

the system of national accounts in such a manner that they be

adequate to the stage of the development of innovations in

the technical-and-technological, fiscal-andmonetary and

socio-political set-ups of the national economy of every

country of the world, as a whole, in line with the Nazarbayev

Fifth Path Theorem.

From the methodological perspective, this model includes

the real GDP index, which is centred on the technological

„layer‟, from out of the three „layers‟ defined in the theorem.

The GDP growth index by final consumption is also

incorporated in the methodology. It reflects the sociopolitical

„layer‟ of the development of innovations. It also

incorporates the nominal GDP growth index, which reflects

the rate of changes in the fiscal-and-monetary „layer‟ of the

development of innovations in any given world country.

Their unity of those three „layers‟ is currently being

ensured by employing and further developing various

analyses models under the Keynesian economic policy and

the Friedman monetary policy. The first of those models has

been geared to equalize one pair of the rates of growth,

namely, technical-and-technological and socio-political

development in any given economy.

The second model is to balance the rates of growth of the

other pair, namely, the fiscal-and-monetary and

technicaland-technological development in any given

country.

In fact, the first model does not take into account the fiscal-

and-monetary „layer‟ of the innovations. The second model

does not account for the technical-and-technological „layer‟

of the innovations. Besides, one of them derives from the

methodological principles of the short-term development of

commodity markets, while the other – on financial markets.

Removal of the above-noted deficiencies of existing models

of market equilibrium requires resolving the following tasks.

The first task relates to the necessity of assessing the input

made by the scientific and technological potential in the

sustainable development of an economy Resolving the first

task by definition of true costs of goods and services ensures

market equilibrium between the indicators at the

macroeconomic level and those at the microeconomic level:

The product of the direct labour intensity of produce (t) in

man- hours of worker time spent for materializing the

aggregate expenditures of production of goods and services,

in their money form (Х=C+V+M) equals to the product of

full labour costs (T) in man-hours of worker time and the

annual income, in their money form (Y=V+M):

t*X=T*Y (А)

The main outcome obtained from applying formula (А) is

in defining the function of the scientific and technological

potential (STP) in its dependence from the efficiency in the

use of material, labour, capital and natural resources с=µ/

(1+µ).

In the first instance, the function of the STP is с = μ /(μ+1)

that in the course of growth of production of intermediate

products μ (Figure

1. line a) acquires the value within the range of 0.08 to 9.0

along the ascending line, which at point μ= 2.0 acquires value

about 0.7 and, at point μ equals to μ= 8.0– 0.89.

In the second instance, which is ideal for us, where the

function of the STP с = μ/(μ+1) that in the course of

production the intermediate product μ (Figure 1. line b)

acquires values from 0 to 9.0. We assume that it will move

along the descending line, which at point μ= 0 acquires value

0.89 and at point μ= 9.0 – 0.7.

Efficiency in the Economics of Management and Ways to Improve it

IIERD International Conference 30 Buenos Aires,Argentina

The other two potentially viable instances have been

marked in Figure 1 by the lines that go parallel to the axis,

which indicates the productivity of the product of

intermediate consumption μ. The first of those two lines

characterize the real time situation in developing markets

given that the STP coefficient remains stable. Thus, the

instance where с=0.6 for any μ has been reflected in Figure

1, line k. The second line, which is parallel to the axis of the

productivity of the product of intermediate consumption,

transcends the crossing points of both of the curves. Above

that line, the parameters of the balanced growth of advanced

markets are reflected as line d.

The second task is linked to the necessity of defining the

function of true costs of goods and services

The second task of defining the function of true costs of

goods and services (рс), as the reverse value of the

purchasing power of national currency units

(рр):рс=F(рр)=pb/c. It is based on the two dimensional

measurement of capital, in its money form, and capital, in its

commodity form.

Owing to the two-dimensional measurement of the

indicators of

economic development, there emerges an opportunity to effectively

manage limited resources in any given individual country. It can be

realized by using not only the Leontief model, which was expressed

in the monetary form, but also, the new law that helps to balance

supply and demand at the macroeconomic level [3]:

FUGP=pp*NGDP=c*RGDP (В)

where FUGP, NGDP and RGDP are the actual consumed final

product, the nominal GDP and the real GDP, and c= pb/рс is the

rate of growth of the scientific and technological potential while

1/с=T/t denotes the level of clustering of the goods and services

markets, рс=1/pp=pb/с- the rate of growth of true costs of goods

and services is defined in its direct correlation to the GDP deflator.

It is reversely correlated to the rate of growth of the scientific and

technological potential of any given individual country.Assessment

of the American and Japanese methodological principles using the

methods of the precise definition of the three „layer‟ innovation:

for simple instances, the test calculations may be carried out on the

basis of the input data pertaining to the Baye problem set. In this,

one can find immediate answers to all quests posted by this

research. This can be done by using the Nazarbayev theorem of the

three layered innovation.

Thus, since the product releases in the US and Japan were

measured by the use of labour productivity, we may take them as the

ones that are equal to one another:

Х(А)=Х(J)=1(С)

Let the direct labour intensity of manufacturing of one car in the

US be t(A)=16 and in Japan t(J)=10.9 man-hours. The size of the

hourly worker pay is $16 in the US and $18 in Japan. Here, we may

derive the compensation of the 16 hour labour of 1 worker in US to

be equal to t*1=16*16=$256. The same indicator for Japan

will equal to t*1=10.9*18=$196.2.

The annual income for the period 1995-1997, which corresponds

to the time series as mentioned in the Baye-quoted example, stood at

the annual average of 36%. Accordingly, given the income of

Y=0.36X, full expenditures in the US equalled to

T=256/0.36=$711.1 at the $16 hourly rate. Accordingly, in Japan,

the same indicator equalled to T=196.2/0.38=$516.3.

Correlations, deriving from formula (А)

The Importance of Trust in Informal Institutional Development Process (Case of Georgia)

Figures