Average Firm Performance Research Articles

Gender, Credit, and Firm Outcomes

Small and micro enterprises are usually majority owned by entrepreneurs. Using a unique sample of loan applications from such firms, we study the role of owners’ gender in the credit decision of banks and the post-credit decision firm outcomes. We find that, ceteris paribus, female entrepreneurs are more prudent loan applicants, with both the probabilities to apply for credit and of firm default after the loan origination being smaller. However, the relatively more aggressive behavior of male applicants pays off in terms of higher average firm performance after the loan origination.

Gender, Credit, and Firm Outcomes

AbstractSmall and micro-enterprises are usually majority-owned by entrepreneurs. Using a unique sample of loan applications from such firms, we study the role of owners’ gender in bank credit decisions and post-credit-decision firm outcomes. We find that, ceteris paribus, female entrepreneurs are more prudent loan applicants than are males because they are less likely to apply for credit or to default after loan origination. The relatively more aggressive behavior of male applicants pays off, however, in terms of higher average firm performance after loan origination.

Republic of Korea

Non-Financial Corporate Sector. Non-financial corporate leverage as share of GDP in Korea remains higher than peer countries but has remained stable since 2013 at around 100 percent of GDP. The stock of non-corporate debt has become slightly more resilient due to the deleveraging of non-conglomerate affiliated firms. Average firm performance has remained resilient for conglomerate-affiliated corporates but weakened for all other firms. As a result, despite the low interest rate environment, around one-quarter of total corporate debt (around 28 percent of GDP) is registered ‘at-risk’. Banks balance sheets are at risk as over half of non-financial corporate debt-at-risk resides with SMEs; Stress tests show that (i) Korean firms which are more indebted, less profitable, smaller and have lower turnover are more likely to experience difficulties servicing their debt; (ii) corporate balance sheets are vulnerable to a sudden hike in interest rates, which combined with a profit shock, could double the amount of debt-at-risk held by non-SME firms and; (iii) exchange rate shocks appear manageable given low FX debt and natural FX hedges. Under a downside macro-financial stress test scenario, non-SME credit losses would total a touch over 2 percent of GDP. Bank stress tests suggest that the maximum cumulative bank losses from distressed SME loans in a stress scenario would total around 2 percent of GDP. Together, these losses would be broadly manageable for the financial system to absorb.

High leverage and variance of SMEs performance

Purpose The purpose of this paper is to examine the relationship between leverage and firm performance using small business data from France by estimating the effects of leverage on both average firm performance and the variance of firm performance. Design/methodology/approach Focusing on French small- and medium-sized enterprises (SMEs), which tend to be dependent on bank loans, the authors examine the relationship between leverage and firm performance. This study was based on a unique panel data set of more than 2,157 manufacturing SMEs covering the years 2007-2015. The authors estimate the effects of leverage on both average firm performance and the variance of firm performance. Findings Focusing on the average effects of leverage, the authors find that highly leveraged firms suffer from poor performance. In addition, the variance in firm performance is higher if firms are highly leveraged. Results also underline that leveraged firms are better performers when they have sufficient collateral assets. Research limitations/implications The study, however, has also some limitations. The first one is that the findings were obtained for only one industry sector, so attempts should be made to study the issue, as it applies to other sectors as well. Second is the context where the study was conducted. This study has been conducted based on data gathered from SMEs in France within a specific socioeconomic context (2007-2008 global financial crisis), which may also limit the generalizability of the results for different contexts with different socioeconomic situations. It would also be useful, to have a better explanation for the performance of SMEs, to add to the model more financial variables or other types of variables such as those related to managerial skills or to the macro-economic environment. Finally, further research could examine the joint impact of both leverage and ownership structure on firm’s performance as a large number of French firms are family firms. The limitations of this study, however, can in fact be an opportunity for future researchers to conduct studies addressing those limitations. Practical implications This research has some implications for small business lending. SME owners and managers may, on the one hand, be encouraged by the fact that collateral assets can reduce agency costs, thereby positively affecting firm performance. On the other hand, high leverage can facilitate firm growth if firms have collateral assets. This implies that policymakers interested in stimulating SMEs should develop more suitable collaterals for high-risk SMEs with low asset tangibility. Social implications The results also have implications for financial institutions. To prevent unexpected and extensive bankruptcies, banks might classify firms with negative cash flows as borrower in danger of bankruptcy. However, the results show that highly leveraged firms with good investment opportunities and high collateral assets reduce the probability of bankruptcy. This implies that banks need to evaluate the credit risk of very highly leveraged small businesses more carefully. Originality/value It should be noted that the case of France remains marginal in terms of the conducted studies.

CEO board membership: implications for firm value

PurposeThis paper aims to examine the relation between CEO board membership and firm performance.Design/methodology/approachThis paper investigates the relationship between firm performance and CEO board membership, applying two-stage least squares, propensity score matching and correcting for self-selection bias across a unique sample of publicly listed New Zealand firms that demonstrate a definitive variation in CEO board membership.FindingsThis study finds that CEO board membership has a positive impact on firm performance, and these benefits are greater for more complex firms.Research limitations/implicationsFirms with CEOs independent of the board are associated with lower firm performance. The results are consistent with CEO board members providing an important information transfer mechanism to the board, resulting in an increase in average firm performance. This benefit is greater for larger firms with more business segments.Originality/valueThe paper tests for the impact of CEO board membership using a data set that demonstrates a definitive variation in CEO board membership.

Variance of Firm Performance and Leverage of Small Businesses

We investigate the relationship between leverage and firm performance using small business data from Japan by estimating the effects of leverage on both average firm performance and the variance of firm performance. We find that leverage has a negative effect on average firm performance and a positive effect on the variance of firm performance. This suggests that the problem of moral hazard is severe for highly leveraged firms. However, when highly leveraged firms have sufficient collateral assets, the effects of leverage are positive for average performance, but negative for the variance of performance. This implies that when small firms have sufficient collateral assets, highly leveraged businesses are better performers.

Ambidextrous Firms: Managing Individual and Organizational Identities in the Quest for Performance

Ambidexterity research has repeatedly asserted that firms simultaneously engaging in both exploitation and exploration achieve above average firm performance. Yet, empirical findings remain puzzling and no consistent positive performance implication has been corroborated. While the majority of analysis on firm performance has been conducted on the firm level, we claim that a possible explanation for these mixed findings resides in the fact that the individual and firm level has yet to be considered though a multi-level model. Researchers have repeatedly emphasized the importance of the individual as the executor of exploitation and exploration and the need to reflect the escalation of conduct from the micro to the macro level. Based on identity theory, we develop a model that depicts how individual and organizational features interact and impact the performance effects of ambidexterity. Identity theory suggests that individuals hold a portfolio of role identities - frameworks that direct individuals’ behavior within an organizational setting. An individual’s preference to blur or separate role domains, through role segmentation or integration, affects an individual’s ability to move between multiple, possibly conflicting demands such as exploitation and exploration. Organizational identity, on the other hand, affirms that organizations similarly bear multiple identities, which are either holographically (equally) or ideographically (departmentally) reflected throughout the organization. In matching individual inclinations for role management and organizational identity structures, we claim that contextual or structural ambidexterity is not freely applicable to any type of organizations, inferring inconsistent performance effects.

Foreign Direct Investment, Competitive Pressure and Spillovers. An Empirical Analysis on Spanish Firm Level Data

A short review of the theoretical and empirical evidence indicates that foreign direct investment (FDI) has the potential to increase the intensity of competition as well as to act as a channel for technology transfers. One would expect, all else equal, an increase in average firm performance following a wave of FDI, as multinational corporations (MNCs) enjoy higher levels of efficiency and have the potential to generate positive spillovers. At the same time, the entry of foreign firms has also been associated with an increase in competitive pressure on the domestic market. Using a large firm level dataset covering all sectors of Spanish manufacturing during the period 1983-96, we disentangle these three effects by estimating a dyna mic model of firm level performance, which we proxy by profitability. We find that FDI has a positive long-run effect on the profitability of tar get firms, but this is limited to firms belonging to R&D intensive sectors. In addition, the results indicate that foreign presence dampens margins. However, this effect appears to be more than compensated by positive spillovers in the case of knowledge intensive industries.

La dispersion salariale stimule-t-elle la performance d'une firme ?

Workers are used to compare their wages with those of their co-workers. As a result, it is argued that the dispersion of wages within a firm has a significant impact on the individual workers’ productivity and thus on the average firm performance. However, there is no consensus about the sign and shape of the relationship between wage dispersion and firm performance. On the one hand, the “tournament” models (e.g., Lazear and Rosen, 1981) stress the positive influence of wage inequality within a firm on the workers’ effort. These models suggest the implementation of a differentiated prize structure and to award the largest prize to the most productive worker. On the other hand, other theories argue for some degree of wage compression within a firm by emphasising the importance of fairness and cooperation among the workforce (e.g., Akerlof and Yellen, 1990 ; Levine, 1991). The aim of this paper is to provide a critical summary of the literature regarding the interaction between intra-firm wage dispersion and firm performance. Particular attention is devoted to the empirical results that have been obtained for the Belgian economy.

Making Tough Choices: A Decision Support Tool Helps Managers Develop Malaysia's Furniture Industry

The article reports on a study relating to a decision support tool designed to aid managers in Malaysia's furniture industry. The decision tool program set goals for annual allocation including meeting the overall furniture demand, achieving a desired level of average quality for all furniture produced, and achieving a desired level of average firm performance. The tool was also utilized to investigate the possible impact of different allocation strategies. The study indicates that the tool helped program managers in Malaysia by shedding light on previous allocation decisions by clarifying the specific rules that managers used.

The implications for competitiveness of environmental regulations for peripheral regions in the E.U.

The impact of environmental regulations on the competitiveness of industry is examined with particular focus on the performance of firms in poorer E.U. regions. Previous research on the environmental policy/industrial competitiveness relationship is reviewed. A matched plant methodology is used to investigate the cost of compliance/competitiveness relationship in the dairy and meat processing industries between (the two parts of) Ireland, Italy and Germany. It is hypothesised that high productivity firms and countries can more readily adapt to regulation and absorb compliance costs. Research findings indicate that above average firm performance can be achieved with above average compliance costs. For the majority of firms sampled, environmental regulation is not reported either a major source of competitive advantage or disadvantage. Notwithstanding the lack of any tradeoff found between environmental regulation and competitiveness, it is argued that a firm's environmental performance will become a key determinant of its economic performance.