Certain Types Of Firms Research Articles

The informational role of macroeconomic exposure in corporate investment efficiency

PurposeThis study explores whether exposure to macroeconomic information provides bellwether firms with information advantages at the macroeconomic level and facilitates managers to utilize such informational advantage for investment decision-making. The author tests whether firms' macroeconomic exposure is associated with sensitivity of their segment-level investments to growth opportunities and how internal and external frictions affect this association cross-sectionally.Design/methodology/approachThis study follows prior research to identify high-macroinformation firms and measures the level of macroexposure based on how closely the firms' underlying business varies with macroeconomic conditions. The main specification is a segment-level regression of investment on growth opportunities and an interaction between growth opportunities and the level of macroeconomic exposure.FindingsThe results indicate a significantly positive association between firms' macroeconomic exposure and sensitivity of segment-level investments to growth opportunities, suggesting that bellwether firms can leverage their greater exposure to macroeconomic and external information to improve the quality of their investment decisions. Further evidence shows that this positive association is decreasing in firms' corporate diversification level and is also decreasing in their foreign operation level, implying that internal and external frictions could limit the information benefits ultimately gained by firms from their macroeconomic exposure.Originality/valueAccounting researchers have recently documented evidence that bellwether firms' management earnings forecasts convey timely information about macroeconomic states, suggesting that managers of certain types of firms are likely to have private macroeconomic information. The main research question in this paper is motivated by incorporating insights derived from recent accounting research findings to shed further light on the impact of firms' macroexposure on their investment decision process.

Independent and Investment-Bank Analysts' Target Prices

ABSTRACTWe provide new evidence on individual analysts' differential abilities to forecast firm value. We find that independent analysts' target prices perform well in predicting future price relative to investment-bank analysts. Our evidence suggests that, 12 months after issuance, independent analysts' target prices are more likely to be met than those issued by investment-bank analysts and are more accurate than the target prices of affiliated investment-bank analysts, controlling for analyst characteristics. However, we find that the association between realized returns and the returns predicted by target prices does not differ for independent versus investment-bank analysts. Our evidence contrasts with prior literature which generally concludes that independent analysts' research is of lower quality. Yet, the market appears to react relatively less strongly to independent analysts' target price revisions. Our findings suggest that investors and researchers can benefit from understanding the properties of independent analysts' target prices, particularly for certain types of firms.JEL Classifications: G3; G17; M4; M41.

The Impact of Regulations on Small Firm Characteristics

Regulations are shown to have a significant impact on entrepreneurial activity, especially on startups by smaller firms. Higher compliance costs are shown to deter small firms entering a new industry. In this study, using state-level regulation data in the U.S., we examine whether different types of regulations (including “health and safety regulations”, “employment regulations”, “tax code”, “licensing regulations”, “environmental regulations”, and “zoning regulations”) in each state deter smaller firms to do business in that state. We also examine whether each type of regulation deters firms to do business in certain industries or to operate in more or fewer states. Besides size, operational area, and industry, we also examine whether each type of regulation deters younger firms to do business in each state. Our results show that “health and safety regulations”, “employment regulations”, “tax code”, “licensing regulations”, and “environmental regulations” in a state affect firm size and industry, but do not affect operational area and firm age. In the states with high scores in these areas, there are fewer single-employee firms but more 2-20 employee firms when compared to the other states. Also, in the states with a high score in “environmental regulations”, we find fewer firms with 51 to 100 employees when compared to the other states. On the other hand, “zoning regulations” affect firm age and industry, but not operational area and firm size. In the states with high scores in “zoning regulations”, we find fewer firms that are established less than a year ago. Finally, in the states with high scores in regulations, generally, we find that more firms are in the “Business” industry and fewer firms are in the “Writing” industry. Overall, we show how each type of regulation deter certain types of firms operating in each state. This is important because if a state wants to attract certain types of firms (i.e., younger, or older firms, larger or smaller firms, or firms in certain industries), the officials in that state need to improve the corresponding regulations first.

Analysts versus time-series forecasts of quarterly earnings: A maintained hypothesis revisited

We re-examine the maintained hypothesis of analysts' quarterly earnings per share (EPS) superiority versus ARIMA time-series forecasts. While our empirical results are consistent with overall analysts' dominance, they suggest a more contextual interpretation of this important relationship. Specifically, we find that for a relatively large number of cases (approximately 40%) ARIMA time-series forecasts of quarterly EPS are equal to or more accurate than consensus analysts' forecasts. Moreover, the percentage of time-series superiority increases: (1) for longer forecast horizons, (2) as firm size decreases, and (3) for high-technology firms. Due to the data demands that ARIMA forecasting requires we also examine using a seasonal random walk (SRW) model that requires only one year of data to create quarterly forecasts. Although the ARIMA time-series model results in a significant reduction in sample size it dominates the SRW model. Our findings support the analyst dominance over time series models but suggest that ARIMA time-series models may provide useful input to researchers seeking quarterly EPS expectation models for certain types of firms.

Analysts versus Time-Series Forecasts of Quarterly Earnings: A Maintained Hypothesis Revisited

We re-examine the maintained hypothesis of analysts’ quarterly earnings per share (EPS) dominance vis-a-vis ARIMA time-series forecasts. While our empirical results are consistent with overall analysts’ dominance, they suggest a much more contextual interpretation of this important relationship. Specifically, we find that for a relatively large number of cases (approximately 40%) ARIMA time-series forecasts of quarterly EPS are equal to or more accurate than consensus analysts’ forecasts, a finding that appears to be economically significant. Moreover, the percentage of time-series superiority increases: (1) across our holdout period (2000-2010), (2) for longer forecast horizons, (3) for small firms, (4) for high-technology firms, and (5) in those instances in which the forecasted quarterly EPS number is negative. At a minimum, our findings suggest a recharacterization of prior generalizations of overall analysts’ dominance while providing useful input to researchers seeking quarterly EPS expectation models for certain types of firms.

The Global Crisis And Crime: A Look Into Manufacturing Firms

In this study, we examine how the 2007-2009 Global Crisis affected manufacturing firms’ security spending and losses due to property crime (i.e. theft, robbery, vandalism, and arson) in Eastern Europe and Central Asia. Although we are currently experiencing a new global crisis due to the coronavirus, we cannot examine this current period yet since the current crisis is still ongoing. This article pulls together different literatures on the aftermath of the 2007-2009 Global Crisis in middle income economies, the influence of crisis on global supply chains, and the connections between unemployment and crime, to provide an empirical investigation of the trends in security spending within manufacturing firms across time. We find that fewer firms paid for security after the crisis has passed. On the other hand, the firms that spent money on security after the crisis ended actually spent a larger proportion of their sales on security. Our results indicate that, after the crisis, although fewer firms experienced losses due to crime, certain types of firms changed their spending on security. More of the smallest and largest firms, fewer of the firms with no female owner and fewer of the firms with a male top manager spent money on security after the crisis. Also, the firms with one or more female owner or a male top manager spent more money on security after the crisis. Overall, we find that there is a “gender effect” on security spending. Male and female owners’ spending patterns are different. Also, male and female top managers’ spending patterns are different. Also, our results show that manufacturing firms viewed crime as a much lower obstacle in the business environment after the financial crisis, and most firm-types reported lower losses due to crime after the financial crisis had passed. We are hoping that these findings will guide manufacturing firms with respect to their operational spending. Although an economic crisis may cause crime rates to go up initially, over time, this trend reverses. Therefore, firms may want to recognize this cycle in responding to the next crisis. Keywords: crime, manufacturing, Global Crisis, financial crisis.

Common Analysts and Corporate Mergers and Acquisitions：Evidence from A Quasi-natural Experiment

This paper investigates whether the quality of mergers and acquisitions（M&A）is higher when acquiring firms and target firms share the same external analysts. Our intuition is that the acquisition process often involves considerable uncertainty, including information asymmetry between bidders and targets regarding their operations, financial health, corporate culture, risks and prospects as well as uncertainty related to post-acquisition operational synergies. This uncertainty would negatively impact M&A performance by reducing managers’ ability to identify the most profitable investment projects, and make an evaluation objectively. We argue that when an acquirer and a target share common analysts, these analysts can help to reduce uncertainty along several dimensions. On the one hand, analysts can communicate with managers of target firms to obtain some private information through conformance call, site visit and investor meeting. At the same time, analysts can also acquire some information related to industry prospects and macro-economic environment using their relations with peer firms, other research departments and government institutions. Combining with the extra information, managers of bidders can screen the profitable investment target and make an appropriate evaluation for the target, which necessitates to make a high quality M&A investment. On the other hand, comparing to other investors in the capital market, analysts have the advantage in interpreting target firms’ complex information about accounting accruals and research development. Moreover, with the help of analysts, managers can have an insight into accounting policy, accounting choice and corporate strategy plan of the target. In this sense, information interpretation advantages of analysts would reduce the information asymmetry between bidders and targets as well as uncertainty about resources synergies after the acquisition. Above-mentioned reasoning suggests that common analysts can improve M&A performance. However, a study examining whether common analysts are beneficial to M&A performance is subject to the endogeneity problem. For example, certain types of firms may purposely seek out analysts of target firms because these firms need the knowledge and evaluation that analysts accumulate from targets（the self-selection” problem）. In order to address the endogeneity problem, we exploit a natural experiment in which brokers’ going public results in an external shock to common analysts. Following Bertrand and Mullainathan（2003）, we employ a difference-in-differences approach to estimate the effect on M&A performance. The results show that there is a positive effect of common analysts on M&A performance, and the effect is much stronger for firms not sharing common directors and common auditors, for firms with fewer similarities to targets, and for firms without M&A experiences before. We also find the higher M&A performance can be attributed to investment project profitability rather than lower premium. The conclusions of this paper provide the enlightenment to understand the effect of information intermediaries on corporate financial policies in general, and M&A quality in particular. First, confronting with serious information asymmetry and uncertainty, managers can communicate with common analysts to obtain some information in M&A activities. Due to the information advantage in obtaining private information and interpreting public information, common analysts contribute to shaping high-quality M&A decisions and improving M&A performance. Second, regulators in the financial market can further improve the disclosure quality of corporate information, which can reduce the information processing cost for analysts, facilitate the information to transfer from targets to acquiring firms, and eventually improve the efficiency of resource allocation.

Does corporate retrenchment gain value? A study from Malaysia

This paper aims to investigate the performance of retrenchment strategy by gauging the ownership structure and identity for a sample of 596 Malaysian listed firms over 2008-2013. The results show positive relationship between the excess values of retrenchment cost. Further, the findings show that there is a negatively significant relationship between ownership structures and excess value, where foreign and government underperformed in imposing retrenchment strategy. However, our research further indicates that ownership concentration does not play a significant role on the association between excess value and retrenchment cost. This portrays the effectiveness of retrenchment strategy in value creation, and the role of corporate governance in that relationship. Secondly, it provides valuable insight to regulators and policymakers by demonstrating that retrenchment strategy might have a beneficial to create value. In summary, this research implies that retrenchment strategy might bring value to certain types of firms and certain levels of ownership.

Changes in information environment and merger announcements

Purpose The purpose of this paper is to examine the impact of regulatory changes by the US Securities and Exchange Commission in 2000 on private information leakage prior to merger announcements. Design/methodology/approach Using a sample of 5,045 merger announcements between 1990 and 2008, the authors examine differences in information leakage between the pre- and post-regulation period merger announcements for acquirers using regression analysis. Findings The results suggest that regulatory changes have been effective in preventing private information leakage in merger announcements for large- and medium-sized firms, for high-tech firms, and for stock deals. The authors find that abnormal trading volume due to differences in information quality is reduced post-regulation for stock deals, high-tech firms, large- and medium-sized bidders, indicating less leakage of information after the new regulations. The authors find higher announcement returns post-regulation for the entire sample and for all subsamples except stock deals, small firms, and public targets. Higher announcement returns indicate that merger announcements are a greater surprise to the market due to a reduction in leaked private information after the regulatory changes. Practical implications The results have implications on future rule changes, on refinements of insider trading rules, regulation fair disclosure, and regulation M-A. The authors leave for future research why certain types of firms or deals are not impacted by regulatory changes. Originality/value Examine the effect of changes in information environment on merger announcements for acquirers because the impact likely has greater significance on acquirers than that on targets. Past studies have examined only targets.

The (In)Effectiveness of Cross-Functional Innovation Teams: The Moderating Role of Organizational Context

Cross-functional teams are often seen as key for innovation projects. At the same time, functional diversity also introduces conflict, which may hinder a team's optimal performance. Most of the existing literature focuses on resolving and preventing these conflicts; however, conflict alone fails to explain why the contribution of these teams to performance is found to be absent in certain types of firms. This paper investigates the moderating role of organizational context on the relationship between cross-functional teams and performance. A multilevel sample of 142 projects in 95 firms is used to demonstrate that cross-functionality contributes to the performance of innovation projects in more functionally organized firms, with a separate innovation unit, and above-average levels of organizational connectedness. Other types of organizations may want to reconsider the use of cross-functional teams for their innovation projects.

Relational venture capital financing of serial founders

Abstract I study how often and why a serial founder receives financing for his new company from a venture capital (VC) firm that also invested in his previous company. One in 10 VC investments leads to a repeated relationship and one in three serial founders enters into a repeated relationship with any previous VC firm. A repeated relationship is more likely when the relational VC firm has acquired more private information about the founder, but less likely if the founder’s new venture has a bad fit with the VC firm’s geographic or industry focus. My findings add to the literature on relational financing by showing that the preservation of information is an important motivation for relational financing when screening and monitoring costs are high. Yet, repeated relationships are discontinued because investors also respond to information problems by specializing in certain types of firms. Finally, I find evidence of non-relational investments being passed onto trusted VC syndication partners.

Getting the Incentives Right: Backfilling and Biases in Executive Compensation Data

We document the presence of systematic backfilling in the ExecuComp compensation database stemming from its addition of firms and executives. While backfilling is advantageous because it provides greater data coverage and scope for detailed analyses of compensation issues, it can also lead to over-sampling of certain types of firms and managers, generating a data-conditioning bias. We identify which observations were backfilled and find that backfilled observations differ along important dimensions, ranging from firm performance to the level and structure of manager compensation. We highlight several relations in which controlling for backfilling significantly impacts inferences and we offer researchers methods to identify backfilled observations.

The effect of multiple directorships on a board of directors' corporate governance effectiveness

Prior research has documented conflicting evidence on whether having corporate directors sitting on multiple boards is harmful or beneficial to a firm. According to the Busyness Hypothesis, sitting on multiple boards is detrimental due to the distractions and time constraints that result for the directors. Alternatively, the Experience Hypothesis suggests that directors gain valuable experience in varied industries and/or regulatory environments by serving on multiple boards, which results in increased governance effectiveness. We extend prior research by proposing that both a busyness effect and an experience effect may be present and act simultaneously, but that one of the effects will dominate for certain types of firms. We hypothesise that the busyness effect will prevail in smaller firms, while the experience effect will be dominant for larger firms. Using the number of reported material internal control weaknesses as a proxy for governance effectiveness, we provide empirical support for these hypothesised relationships.

Movements, Markets and Fields: The Effects of Anti-Sweatshop Campaigns on U.S. Firms, 1993-2000

How do social movements influence corporations? Recent work suggests that movements can inflict material damage on their targets and shape categories of evaluation in organizational fields. Extending these ideas, we examine the effects of anti-sweatshop campaigns on sales, stock performance, reputation and specialized ratings of U.S. firms, using fixed-effects regression models and event study methods. The analysis demonstrates that social movements can in some circumstances shape both the markets and fields that firms inhabit. Specifically, anti-sweatshop campaigns (1. had negative effects on sales (though only among certain types of firms), (2. influenced stock prices, and (3. shaped specialized ratings of corporate responsibility. They also diminished previously positive corporate reputations (to a modest degree) but did not radically alter reputational hierarchies in the business community.

Politics and the Regulation of Business

Why may government regulation be a useful complement to business self-regulation in the financial services industry, while largely unneeded or even detrimental for e-commerce? We develop a game-theoretic model wherein a government establishes a mandate for product quality without possessing effective enforcement abilities, and a firm chooses whether to ignore, comply with, or exceed the government quality standard. After bringing a product to market, the firm faces the possibility of political or interest group reactions, such as being the focus of a lawsuit or activist campaign. Equilibrium results show how the threat of lawsuits or interest group activism can complement governmental regulations to discipline the choices of businesses. The model establishes conditions under which certain types of firms in certain environments react favorably or unfavorably to government regulations.

Sample Selection Problems in Event Studies: Evidence from Loan Announcement Research

While event studies are among the most widely used tools in empirical finance, the nature of the technique allows researchers to make inferences about hypotheses only when managers or others have generated public announcements. Researchers implicitly assume that a sample of announcements will prove representative of the relevant population, but we question this assumption for two reasons. First, announcements could be disproportionately focused on certain types of firms, creating a sample selection problem. Second, the standard process of “cleaning” announcements to remove the prospect of “contaminating” events could compound the problem. We examine these prospects by focusing on loan announcement studies. These event studies reveal that borrowers announcing loan agreements receive positive abnormal returns, leading to the conclusion that bank loans are “special” relative to other types of finance. But we find that a large majority of bank loans go unannounced, and for those that are announced, certain types of firms are more likely to appear in samples. Using data from a published paper, we conclude that if all loans were to be announced, the average abnormal return would likely be insignificant. We also find that weeding out observations with contaminating news during the event window inadvertently introduces sample selection issues by disproportionately discarding loan announcements about widely followed, large firms. Our findings question the broad conclusion that private and public debt differs in significant ways and have implications for inferences drawn from any event study.

Comparative Institutional Advantage and the Appropriate Development Model for Sub-Saharan Africa

The theory of comparative institutional advantage posits that certain types of firms locate production facilities in a particular location and avoid other locations due to unique institutional advantages and disadvantages. In sub-Saharan Africa, neoliberal policies, weak and corrupt states, and Transnational Corporations have created a particularly destructive variant of capitalism. African capitalism generates little in the way of economic growth, rewards mainly the TNC and the African elites, and undermines Africa’s economic future via activities that are utterly extractive in nature. African capitalism is facilitated directly by the WTO, the structural adjustment policies of the IMF and the World Bank, and the institutional structures of African economies. After outlining the problems with African capitalism as currently structured, the paper goes on to suggest an alternative to this model involving experimental, embedded, grass roots development efforts that build on domestic cultural institutions that would generate significantly more positive outcomes for the people of sub-Saharan Africa. By abandoning neoliberal policies, it might be possible to create a better economic model that would build on community-centered institutional strengths to benefit a greater proportion of the population.

Training approaches in manufacturing SMEs

PurposeThis study aims to investigate the influence of a range of contingent factors that moderate the approaches to training in manufacturing SMEs.Design/methodology/approachThe study is based on a regression analysis of data from a survey of 198 manufacturing SMEs.FindingsThe findings suggest that there will be times when formal training is appropriate for SMEs. Dependent on size, product, market and organizational structures, formal training will be both required and/or encouraged by SME management. The challenge will be to understand specific organizational conditions, and to target the right type of intervention at a particular small firm based on its specific characteristics and needs. This will require a deeper understanding of the context and issues facing a specific firm.Practical implicationsBecause of the diversity of small firms' structures, product and market conditions and leadership and management approaches, generic support policies are unlikely to be effective. Research, management and policy instruments of training support will need to interact with, and be responsive to, the subtle distinctions of context that will moderate what is more appropriate, and more likely to be welcomed, in the small business sector. There does appear to be a demand for formal training in certain types of firms, but other learning initiatives will have to be supported where formal training is not appropriate or not welcome.Originality/valueThe empirical analysis and the tentative conceptual framework make an important contribution towards a demand‐led policy framework in the area of development and training support for SMEs.

Did New Regulations Target the Relevant Corporate Governance Attributes?

Recent corporate scandals have led to new governance rules that include the Sarbanes-Oxley legislation (SOX) and additional regulations by stock exchanges. This study examines the changes in corporate governance practices during 2001-2005, which covers the period before and after the new regulations. We analyze a comprehensive set of 64 governance attributes for more than 5,200 firms. Our findings indicate that corporate governance practices beyond those mandated by new regulations changed substantially over this period. We find statistically significant differences in governance across firm size and industries. After controlling for size and industry we find a positive and significant relation between governance and firm value. We find that new regulations are associated with higher firm value in firms that adopted the regulations prior to them being mandated. The results are statistically and economically significant. In this sense our findings suggest that the new regulations did target relevant governance attributes. However, the analysis also indicates that the markets were already rewarding firms that had better governance. Therefore, it is not clear that mandatory rules for all firms were required. Clearly the costs of imposing new regulations on certain types of firms, for example, small firms, were potentially too costly. In the post-regulatory period, as expected, the relationship between the regulatory governance attributes and firm value does not exist. We find that the positive relationship between governance attributes not mandated by regulations and firm value continues even in the post-regulatory period.

Perception and management of legal issues in China by US firms

A survey of senior managers of American-owned firms in China about their experience with China’s legal system and with intellectual property rights violations indicates that none of them found the system efficient and few found it fair. Chinese business ethical standards were perceived to be lower than in the US. Certain types of firms and business strategies were more prone to product piracy and patent violations. A variety of methods were used to address them. Foreign managers with experience in China have insights into the functioning of the legal system and are more satisfied with it than less experienced managers.