Intra-firm pay dispersion and firm performance: incentive for current or sorting of prospective workers

The ongoing debate relating to the impact of managerial ownership on performance of firms has centred on whether managerial ownership has an incentive or entrenchment effect on performance of firms. In addition, the debate has also been extended to whether a nonlinear estimation method is appropriate for modelling the relationship rather than the linear specification adopted by earlier scholars. This study examined these issues in the context of a developing country using generalised method of moment (GMM) estimation on 63 non-financial firms quoted on the Nigerian Stock Exchange between 1998 and 2010. Our study found that managerial ownership did not have any significant impact on the performance of firms in both the linear and nonlinear specifications. Factors impacting on firm performance include the first lag of performance which is return on assets (ROAs) and index of monopoly power. These two factors had a positive and significant impact on ROA and therefore we conclude that managerial ownership may be a weak mechanism for mitigating agency problems among firms listed on the Nigerian Stock Exchange.

K rivogorsky and Burton (2012) examine the association between dominant shareholders and firm performance for 1,533 firms from seven Continental European countries using ownership data from 2005 to 2007. The primary analysis in the paper tests the effects of four separate types of dominant owners (institutions, blockholders, banks, and individuals and families) on two measures of accounting performance (return on assets and return on shareholder funds) and a measure of firm value (market-to-book ratio). Supplemental tests examine cross-sectional differences in the effects of each type of dominant owner across individual countries. The main results indicate that banks and individual and family owners have a positive effect on firm performance, while institutions and blockholders have a negative effect on firm performance. The evidence from the within-country tests shows that the relation between particular shareholder types and firm performance varies across different jurisdictions, with dominant owners generally having a positive effect. Dominant shareholders have incentives and the ability to influence the firms in which they own a controlling interest. Dominant owners are motivated to utilize their control to monitor managerial actions because of their claims to the residual profits of the firm (Shleifer and Vishny 1997). Dominant shareholders also have the ability to monitor managerial actions because of their access to inside information and their ability to control internal forces designed to curb managerial actions that are not consistent with maximization of firm value. Thus, monitoring by dominant owners can serve to address the classic agency conflicts between shareholders and investors (Jensen and Meckling 1976), thereby having a positive effect on firm value. In an international context, however, country-level institutions, laws, and other regulatory features can interfere with dominant shareholders’ typical incentives and ability to monitor managerial behavior. Depending on a country’s institutional environment, dominant shareholders could be motivated by a different set of factors, perhaps leading them to take advantage of their ownership status to extract personal benefits from the firm. This type of situation would result in a negative relation between dominant ownership and firm value. Given the potential for either

This study investigated the effects of exchange rate volatility on firm performance in Nigeria, by examining cross sectional data for the most active 20 companies listed on the Nigerian Stock Exchange. The study developed three dynamic panel models that account for heterogeneities among the companies and it extended recent research by allowing international investors and corporations to base their investment decisions on the exchange rate volatilities between the Nigerian Naira and their home country currencies. The method used in the study is the dynamic panel data approach applying the Arrelano-Bond dynamic panel-data and Arellano-Bover generalized method of moments (GMM) estimators. The variables used in the study to proxy firm performance are the rate of return on assets (RRA), asset turnover ratio (ATR), and portfolio activity & resilience (PAR) variable. While RRA variable is obtained by simply dividing the firm's profits by the total assets of the business, ATR variable and the PAR variables are obtained by dividing the firm's sales revenue by the assets employed in the business and by dividing the percentage change in sales by the percentage change in gross domestic product GDP. The exchange rate volatility variable is simply obtained by taking the square of the mean adjusted relative change in the official exchange rate. The result of the paned data estimate shows that there is no significant difference between the Arrelano-Bond dynamic panel approach and Arellano-Bover generalized method of moments (GMM) estimators. The result of the three estimates revealed that exchange rate volatility has significant negative impacts on the rate of return on assets, asset turn ratio and the portfolio activity & resilience, thus, establishing that there exist a significant negative impact of exchange rate volatility on firm performance in Nigeria between 2004 and 2013. Overall, the study suggests that the higher the exchange rate volatility in an economy the less efficient will firms operating in the economy and by implication the lower will be firms' operating performance.

A GMM approach for estimation of volatility and regression models when daily prices are subject to price limits

Purpose The purpose of this study is to provide new empirical evidence on the impact of a variety of financial market forces on the ex post real cost of funds to corporations, namely, the ex post real interest rate yield on AAA-rated long-term corporate bonds in the USA. The study is couched within an open-economy loanable funds model, and it adopts annual data for the period 1973-2013, so that the results are current while being applicable only for the post-Bretton Woods era. The auto-regressive two-stage least squares (2SLS) and generalized method of moments (GMM) estimations reveal that the ex post real interest rate yield on AAA-rated long-term corporate bonds in the USA was an increasing function of the ex post real interest rate yields on six-month Treasury bills, seven-year Treasury notes, high-grade municipal bonds and the Moody’s BAA-rated corporate bonds, while being a decreasing function of the monetary base as a per cent of gross domestic product (GDP) and net financial capital inflows as a per cent of GDP. Finally, additional estimates reveal that the higher the budget deficit as a per cent of GDP, the higher the ex post real interest rate on AAA-rated long-term corporate bonds. Design/methodology/approach After developing an initial open-economy loanable funds model, the empirical dimension of the study involves auto-regressive, two-stage least squares and GMM estimates. The model is then expanded to include the federal budget deficit, and new AR/2SLS and GMM estimates are provided. Findings The AR/2SLS and GMM (generalized method of moments) estimations reveal that the ex post real interest rate yield on AAA-rated long-term corporate bonds in the USA was an increasing function of the ex post real interest rate yields on six-month Treasury bills, seven-year Treasury notes, high-grade municipal bonds and the Moody’s BAA-rated corporate bonds, while being a decreasing function of the monetary base as a per cent of GDP and net financial capital inflows as a per cent of GDP. Finally, additional estimates reveal that the higher the budget deficit as a per cent of GDP, the higher the ex post real interest rate on AAA-rated long -term corporate bonds. Originality/value The author is unaware of a study that adopts this particular set of real interest rates along with net capital inflows and the monetary base as a per cent of GDP and net capital inflows. Also, the data run through 2013. There have been only studies of deficits and real interest rates in the past few years.

The huge disparity in the pay given to higher level executives in Indian companies has stirred a nation-wide debate regarding the viability of the pay-performance concept. On the other hand, the top-notch businesses claim to be good social performers by adhering to the rules, regulations and norms prevailing in the country concerning the welfare of the community encompassing it; broadly referred to as Environmental, Social and Governance (ESG) companies. The purpose of this paper is to examine and determine the link between firm performance (taken as independent variable) and compensation pay (considered as dependent variable) of such large as well as socially responsible companies. For sample of the firms, data has been collected from NSE Nifty 100 ESG Index and data for all other measures has been extracted from CMIE Prowess database. Panel regression results indicate that Return on Equity (ROE) has a significant negative impact while stock return of investors do have a significant positive impact on the compensation pay. In order to overcome the persistent underlying endogeneity issue, One-step System Generalised methods of moments (GMM) estimator has been employed. The overall findings indicate that accounting measure of firm performance exerts a significant impact on the compensation paid to the executives in ESG firms of India. Keywords: Pay-performance concept; socially responsible companies; executive compensation; firm financial performance; India

Few estimation methods were discussed to handle the missing data problem in the panel data models. However, in the panel vector autoregressive (PVAR) model, there is no estimator to handle this problem. The traditional treatment in the case of incomplete data is to use the generalized method of moment (GMM) estimation based on only available data without imputation of the missing data. Therefore, this paper introduces a new GMM estimation for the PVAR model in case of incomplete data based on the mean imputation. Moreover, we make a Monte Carlo simulation study to study the efficiency of the proposed estimator. We compare between two GMM estimators based on the mean squared error (MSE) and relative bias (RB) criteria. The first is the GMM estimation based on the list-wise (LW) and the second is the GMM estimation using the mean imputation (MI) at multi-missing levels. The results showed that the MI estimator provides more efficiency than the LW estimator.

We propose a generalized method of moments (GMM) estimator with optimal instruments for a probit model that includes a continuous endogenous regressor. This GMM estimator incorporates the probit error and the heteroscedasticity of the error term in the first-stage equation in order to construct the optimal instruments. The estimator estimates the structural equation and the first-stage equation jointly and, based on this joint moment condition, is efficient within the class of GMM estimators. To estimate the heteroscedasticity of the error term of the first-stage equation, we use the k-nearest neighbour (k-nn) non-parametric estimation procedure. Our Monte Carlo simulation shows that in the presence of heteroscedasticity and endogeneity, our GMM estimator outperforms the two-stage conditional maximum likelihood estimator. Our results suggest that in the presence of heteroscedasticity in the first-stage equation, the proposed GMM estimator with optimal instruments is a useful option for researchers.

More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation

This study integrates research from strategy, economics, and applied psychology to examine how organizations may leverage their human resources to enhance firm performance and competitive advantage. Staffing and training are key human resource management practices used to achieve firm performance through acquiring and developing human capital resources. However, little research has examined whether and why staffing and training influence firm-level financial performance (profit) growth under different environmental (economic) conditions. Using 359 firms with over 12 years of longitudinal firm-level profit data, we suggest that selective staffing and internal training directly and interactively influence firm profit growth through their effects on firm labor productivity, implying that staffing and training contribute to the generation of slack resources that help buffer and then recover from the effects of the Great Recession. Further, internal training that creates specific human capital resources is more beneficial for prerecession profitability, but staffing is more beneficial for postrecession recovery, apparently because staffing creates generic human capital resources that enable firm flexibility and adaptation. Thus, the theory and findings presented in this article have implications for the way staffing and training may be used strategically to weather economic uncertainty (recession effects). They also have important practical implications by demonstrating that firms that more effectively staff and train will outperform competitors throughout all pre- and postrecessionary periods, even after controlling for prior profitability.

This study aims to investigate the effects of FDI spillover on labor productivity of the firms in the five priority manufacturing sector industries in Indonesia, namely food and beverages, textiles, wearing apparel and footwear, chemicals and pharmaceuticals, electronics, and automotive and transport equipment industries. Using unbalanced firm-level data from 2000 to 2015, we find positive spillover effects in the horizontal linkages, which measure the presence of foreign firms on the labor productivity of local firms in the same industry. However, the effects of FDI on the labor productivity of domestic in backward linkages shows negative results, which means foreign buyers fail to give benefits to domestic suppliers. Moreover, the relationship between foreign suppliers and domestic buyers in the forward linkages also show negative spillover effects. These findings are also in line when the analyses are disaggregated into each industry, except for the electronics industry. Based on the different results of the three linkages of spillover effects, our findings suggest that the FDI spillover has not provided comprehensive benefits for local firms.

Purpose: This study aims to examine the differential impact of two channels of international technology transfer, namely foreign direct investment (FDI) and exports on the labor productivity of firms in Vietnam with varying levels of capital-intensity and labor-intensity. This study aims to provide empirical evidence for policies that enhance Vietnamese firms' labor productivity. Design/Methodology/Approach: This study uses panel data and employs a fixed effects model (FEM) and a random effects model (REM) to examine the impact of FDI and the exports on labor productivity of both large firms, small and medium-sized enterprises (SMEs) using firm-level data from Vietnam in 2015 and 2016. Findings: This study finds evidence that FDI has a positive impact on firm-level labor productivity while exports do not significantly affect labor productivity for labor-intensive industries (represented by the garment industry). Conversely, for capital intensive industries and firms operating in these industries (represented by the metal casting industry), FDI appears ineffective in improving labor productivity. Still, exports are an important factor influencing labor productivity for these firms. Conclusion: Firms operating in industries with different labor and capital intensity require different strategies to enhance labor productivity. Appropriate policies need to be implemented to achieve the desired outcomes depending on the characteristics of each firm. Research Limitations and Implications: This study only focuses on studying the relationship between FDI, exports and labor productivity with different capital levels and labor-intensity not mentioning the business field of the enterprise. Practical Implications: The new findings of the study make a great contribution to promulgating policies to attract FDI, promote exports and increase labor productivity at enterprises in Vietnam. Contribution to the Literature: The relationship between FDI, exports and labor productivity with different levels of capital and labor-intensity according to different business fields of the enterprise was examined.

Board independence and firm performance in China

Purpose The study’s main purpose is to investigate the impacts of human capital efficiency (HCE) on the firm performance of non-certified and quality-certified firms from the European Foundation for Quality Management (EFQM) Excellence Model. The study also examines the relationship between firm performance and quality-certificates from the European Foundation. Design/methodology/approach By using a sample of 282 non-certified and 22 quality-certified firms from 2017 to 2021, the current study employed a two-step system generalized method of moments (GMM) estimation to analyse the empirical data. The dummy variable is used to examine the relationship between quality-certificates and firm performance. The dummy interaction term is employed to quantify the impacts of HCE on the firm’s performance for quality-certified firms. Findings The results revealed that quality-certificates and firm performance have a positive relationship. Quality-certified firms perform better and earn more profits than non-certified firms. HCE has a positive impact on firm performance for both types of firms. Moreover, the quality-certified firms utilize HCE in an efficient way to earn more profits compared to the non-certified firms. Originality This is the first study to use a comprehensive analysis to emphasize the HCE for non-certified and quality-certified firms separately. The effects of quality-certificates on firm performance in the context of HCE are also being highlighted for the first time in this research. Practical implications The current study’s findings are fruitful for academics, managers, researchers, policymakers, and other firm management. The findings will encourage the management of the firms to implement the total quality management (TQM) approach within their firms.

PurposeThe objective of this research is to examine empirically the effects of digital maturity (DM) on the firm's financial performance as measured by return on assets (ROA), return on equity (ROE) and Tobin's Q.Design/methodology/approachThe authors use a panel data sample of 92 observations collected from 23 listed firms on Sweden's stock exchange over four years, 2015–2018. The authors hand collect DM from the digital leader's reports and collect financial data from DataStream. Using both static and dynamic panel (generalized method of moments (GMM) estimation) regression models to perform endogeneity problem, the authors explore the impact of the DM index on ROA, ROE and Q of Tobin.FindingsThe results show that DM has a negative effect on ROA and ROE but a positive effect on Q of Tobin. This negative relationship can be explained, by the fact that information technology (IT) investment and the DM could take years to be materialized and to be captured by performance indicators. Company investment in IT will increase and basically the ROA will be negatively affected because the higher value of IT assets is not amortized. Nevertheless, in the long term, company can maximize its performance. The positive effect on Q of Tobin captures the long-run effect of digital transformation.Research limitations/implicationsThis research can be helpful for firms in their process of digital transformation to succeed with the change, create value and to understand the challenges they have to face. In the short term, firms undertaking digital transformation will face some financial difficulties which affect negatively their ROA and ROE, but in the long term they can maximize their performance (captured by Tobin’s Q) and improve their market value.Originality/valueIn previous research, the impact of digital transformation on performance has been measured in terms of revenue growth, profit margins and in terms of earnings before interest and taxes (EBIT). Even if the authors have sufficient evidence of the positive effect of digital transformation on organizational performance, there is no support of the positive effect on financial performance. So, the authors try to fill this gap. This research has also the merit of examining this relationship empirically through a dynamic panel data estimation two-step system GMM, while the majority of previous studies are qualitative in nature based on interviews and questionnaires or simple correlations.