Firm Constraints Research Articles

Contributions and constraints to continuity in Mexican-American family firms

Purpose The purpose of this paper is to investigate the contributions of both successors and incumbent leaders to family firm continuity, using insights from the family business succession literature and cultural dimensions theory. Design/methodology/approach In a qualitative study, the succession practices of 19 Mexican-American family firms were examined. Findings The findings are encapsulated by seven propositions and a model of Mexican-American family firm generational contributions and constraints to family business continuity. Originality/value In-depth interviews with immigrant and second generation family firm leaders revealed both traditional family firm succession patterns and atypical succession patterns, including generational inversion and equals across generations.

Financialisation, institutions and financing constraints in developing countries

AbstractThe paper uses a consistent firm-level data from the World Banks Enterprise Surveys to explore the impact of financialisation in the economy on firms’ access to finance in 138 developing countries. Access to finance reflects survey-based firms’ perceptions of external financing constraints. Financialisation is proxied by consistent cross-country measures of financial depth. These proxies capture separately the role of bank-based versus market-based financing. Firm-, sector- and country-level information is jointly used for the analysis. Firm-specific characteristics and economic and non-economic national factors are included as controls. The results show that the proxies of financialisation are broadly robust predictors of financing constraints of firms in developing countries. However, the magnitude of the financialisation effect varies between bank-based and market-based channels of financing as well as between low- and high-income countries, and it is influenced by social, institutional and religious factors.

Lending technologies, banking relationships, and firms’ access to credit in Italy: the role of firm size

ABSTRACTThis paper analyses the role of lending technologies and banking relationships on firms’ credit access in Italy. Using EFIGE firm-level data, we show that the depth and strength of firm–bank relationships have heterogeneous effects on credit demand and rationing probabilities depending on the size of the borrower. Multiple banking relationships alleviate financial constraints for small firms, while borrowing from a large number of lenders hinders access to credit for large companies. Small and medium-sized enterprises with a higher share of debt with the main bank have a lower probability of being credit denied, as debt concentration contributes to overcome the opacity problems typical of the SMEs. Long-lasting relationships, by reducing information asymmetries, significantly improve access to credit for small and large firms. Conversely, we find that medium-sized enterprises are more exposed to financing constraints as relationship duration increases, due to possible lock-in effects. Finally, firms maintaining banking relationships based on transactional technologies are more likely to be credit denied, while the use of relationship lending technologies improves credit availability for both small and large enterprises.

A model of credit constraint for MSMEs in India

This study examines credit constraints using standard models in the highly constrained micro, small, and medium enterprises (MSMEs) sector in India. The mixed results may not be reflective of MSMEs in India, as the standard models have been developed for much larger firms in western markets having lower information asymmetry than Indian firms. These models are biased toward long-term financing due to the ready availability of short-term credit in western markets, as against limited access to working capital to MSMEs in India. We propose an augmented model of investment sensitivity based on the framework of the Fazzari and Petersen model and Carpenter and Petersen model that includes the often-neglected role of working capital as both a use and a source of funds, and gross fixed asset formation and leverage as drivers of credit constraints, for the information asymmetric MSME firms. The paper finds the augmented model, also called the Financing Deficit Model, robust for ascertaining credit constraints of Indian MSME firms and its variables consistent with available literature.

Correlation of the rate of Type Ia supernovae with the parent galaxy properties: Light and shadows

Context. The identification of the progenitors of Type Ia supernovae (SNIa) is extremely important in several astrophysical contexts, ranging from stellar evolution in close binary systems to evaluating cosmological parameters. Determining the distribution of the delay times (DTD) of SNIa progenitors can shed light on their nature. The DTD can be constrained by analysing the correlation between the SNIa rate and those properties of the parent galaxy which trace the average age of their stellar populations. Aims. We investigate the diagnostic capabilities of this correlation by examining its systematics with the various parameters at play: simple stellar population models, the adopted description for the star formation history (SFH) in galaxies, and the way in which the masses of the galaxies are evaluated. Methods. We computed models for the diagnostic correlations for a variety of input ingredients and for a few astrophysically motivated DTD laws appropriate for a wide range of possibilities for the SNIa progenitors. The models are compared to the results of three independent observational surveys. Results. The scaling of the SNIa rate with the properties of the parent galaxy is sensitive to all input ingredients mentioned above. This is a severe limitation on the possibility to discriminate alternative DTDs. In addition, current surveys show some discrepancies for the reddest and bluest galaxies, likely because of limited statistics and the inhomogeneity of the observations. For galaxies with intermediate colours the rates are in agreement, leading to a robust determination of the productivity of SNIa from stellar populations of ≃0.8 events per 1000 M⊙. Conclusions. Large stastistics of SNIa events along with accurate measurements of the SFH in the galaxies are required to derive firm constraints on the DTD. The LSST will achieve these results by providing a homogeneous, unbiased, and vast database on both SNIa and galaxies.

Do environmentally sustainable practices lead to financially less constrained firms? International evidence

In this study, we utilise a comprehensive dataset from 41 countries spanning 2002–2013 and show that environmentally sustainable practices (ESP) are negatively associated with financial constraints of firms. We refine ESP into three components: emission reduction, product innovation and resource reduction, and show that firms which are more innovative and efficient in reducing wastage of resources are most benefited by ESP. The findings are even stronger for firms operating in countries with high institutional qualities, in high emission and highly competitive industries. These results are important to lending institutions for making financing decisions. Policymakers and investors could also utilise ESP as a key distinguishing factor for firms to benefit from lower financial constraints. Appropriate support and initiatives from local and national regulators could motivate firms to be more environmentally friendly.

The dynamics of firm growth, size and liquidity constraints for Botswana listed firms

The study employed panel Ordinary Least Squares (OLS) model and panel Vector Autoregressive (VAR) model to examine the dynamic linkages among firm growth, liquidity and firm size. Specifically the study sought to: examine the key variables explaining the growth of firms in an emerging market; examine the reaction of one variable to innovations in another variable within the system and to identify the major drivers of changes in the main variable and the magnitude of the total effect over a certain period of time. Findings, using both panel VAR and panel OLS, showed that growth of firms is financially constrained by the availability of cash flows. There is a significant relationship between cash flows and firm growth which is consistent with theoretical prediction of imperfect capital markets. The panel VAR analysis further that the presence of financial constraints is sensitive to the measure of firm growth. The study shows the existence of causal relationship among firm size, liquidity and growth. Firm size, depending on measure adopted, is affected by availability of cash flows. Variations in investment expenditure were the main drivers of changes in firm growth, firm size and liquidity. The study suggests the need to improve and have a diversified access to finance. Policy makers should aim to develop the financial sector to guarantee sustainable access to bank and stock market finance. The development of strong institutions and reduction of information asymmetry is highly recommended.

Does the Presence of Foreign Firms Reduce Domestic Firms’ Financial Constraints in Sub-Saharan Africa?†

Abstract Firms in the SSAs (sub-Saharan African countries for short) face severe financial constraints. Because financial markets in the SSAs are underdeveloped, policymakers have sought after the establishment of foreign-owned firms in their countries to help, among others, alleviate the financial constraints faced by domestic firms. However, there is no empirical evidence that speaks to the association between foreign firm presence and domestic firms’ financial constraint. Using firm-level data spanning across 36 SSAs from the World Bank Enterprise Survey, we show that the increase in foreign firm presence can ease the financial constraints of domestic firms in the SSAs. One reason is that foreign-owned firms are not only less financially constrained, they are also less likely to apply for bank loans. Therefore, an increase in foreign firm presence may reduce the competition for loans and ease the financial constraints of domestic firms by improving their borrowing success.

Cross-shareholding and financing constraints of private firms: Based on the perspective of social network

This paper examines the impact of cross-shareholding and network positions in the cross-shareholding network on the financing constraints of private firms in China. Two indices are constructed to measure the position characteristics: network centrality and structural holes. Based on the data of listed private firms for 2008-2014, we find that the cross-shareholding relationship can significantly relieve the financing constraints of private firms. However, the role of cross-shareholding in reducing financing constraints is weakened as the level of financial marketization increases. Further, the results suggest that the higher the centralities or the more structural holes of private firms there are in the cross-shareholding networks, the lower the financing constraints of private firms.

On a New Method to Estimate the Distance, Reddening, and Metallicity of RR Lyrae Stars Using Optical/Near-infrared (B, V, I, J, H, K) Mean Magnitudes: ω Centauri as a First Test Case

Abstract We developed a new approach to provide accurate estimates of the metal content, reddening, and true distance modulus of RR Lyrae stars (RRLs). The method is based on homogeneous optical (BVI) and near-infrared (JHK) mean magnitudes and on predicted period–luminosity–metallicity relations (IJHK) and absolute mean magnitude–metallicity relations (BV). We obtained solutions for three different RRL samples in ω Cen: first overtone (RRc, 90), fundamental (RRab, 80), and global (RRc+RRab) in which the period of first overtones were fundamentalized. The metallicity distribution shows a well defined peak at [Fe/H]∼−1.98 and a standard deviation of σ = 0.54 dex. The spread is, as expected, metal-poor ([Fe/H] ≤ −2.3) objects. The current metallicity distribution is ∼0.3 dex more metal-poor than similar estimates for RRLs available in the literature. The difference vanishes if the true distance modulus we estimated is offset by −0.06/−0.07 mag in true distance modulus. We also found a cluster true distance modulus of μ = 13.720 ± 0.002 ± 0.030 mag, where the former error is the error on the mean and the latter is the standard deviation. Moreover, we found a cluster reddening of E(B − V) = 0.132 ± 0.002 ± 0.028 mag and spatial variations of the order of a few arcmin across the body of the cluster. Both the true distance modulus and the reddening are slightly larger than similar estimates available in the literature, but the difference is within 1σ. The metallicity dependence of distance diagnostics agrees with theory and observations, but firm constraints require accurate and homogeneous spectroscopic measurements.

Investment and financing decisions of private and public firms

AbstractWe examine differences in the allocation of cash flow between Western European private and public firms. Public firms have a higher investment‐cash flow sensitivity than comparable private firms. This difference is not attributable to more severe financing constraints of public firms. Instead, because differences in investment‐cash flow sensitivities are only observed for the unexpected portion of firms’ cash flow, the empirical evidence supports an agency‐based explanation. Similar patterns are observable for the expected and unexpected portion of firms’ shareholder distributions. Our results are driven by firms from countries with low ownership concentration and more liquid stock markets, where shareholders have lower incentives to monitor. The results are also more pronounced for public firms with low industry Tobin's q and high free cash flow, which are more prone to suffer from agency problems.

Direct and Indirect Effects of Subsidized Dual Apprenticeships

Traditional apprenticeships based on private arrangements are widespread in developing countries. Public interventions have attempted to address failures in the apprenticeship markets to expand access or improve training quality. Subsidized dual apprenticeships have the potential to address financial constraints for youths and firms' inability to commit to provide general skill training. This paper analyzes the impact of subsidized dual apprenticeships combining on-the-job and theoretical training in Cote d'Ivoire. We set up an experiment that simultaneously randomized whether interested youths were assigned to a formal apprenticeship, and whether apprenticeship positions opened by firms were filled with formal apprentices. We document direct effects for youths and indirect effects for firms, such as whether they substitute between traditional and subsidized apprentices. In the short run, youths increase their human capital investments and we observe a net entry of apprentices into firms. Substitution effects are limited: the intervention creates 0.74 to 0.77 new position per subsidized apprentice. The subsidy offsets forgone labor earnings. Four years after the start of the experiment, treated youths perform more complex tasks and their earnings are higher by 15 percent. We conclude that subsidized dual apprenticeships expand access to training, upgrade skills and improve earnings for youths without crowding out traditional apprentices.

Identifying and Boosting 'Gazelles': Evidence from Business Accelerators

Why is high-growth entrepreneurship scarce in developing countries? Does this scarcity reflect optimal allocations, or constraints? We explore these questions using as laboratory an accelerator in Colombia that selects participants using scores from randomly assigned judges and offers them training, customized advice, and visibility, but no cash. Exploiting exogenous differences in judges’ scoring generosity, we show that alleviating constraints to firm capabilities increases average high-growth by unlocking innovative-entrepreneurs’ potential, rather than by transforming low-quality ideas. Results demonstrate that some high-potential entrepreneurs in developing economies face firm capabilities constraints, and that accelerators can help identify these entrepreneurs and boost their growth.

Investment-Cash Flow Sensitivity and Financing Constraints: Study of Pakistani Business Group Firms

A large discrepancy exists on the use of the investment–cash flow sensitivity as a measure of financing constraints of firms. We examine this discrepancy by considering business group affiliated firms in Pakistan. The study includes 58 group affiliated firms and 32 non-group affiliated firms listed on the Karachi Stock Exchange during 2006-2010. Results of OLS and 2SLS shows a positive investment-cash flow sensitivity for business group affiliated firms and negative investment cash flow sensitivity for non-group affiliated firms. Additional tests accordingly express that investment-cash flow sensitivity of Pakistani group affiliated firms is significantly lower to non-group affiliated firms.

Query optimisation in real-time data warehouses

A real-time data warehouse (RTDW) allows decision makers to analyse fresh data as fast as possible in order to support real-time decision processes. In this paper, we focus on optimisation techniques to speed up query processing; in particular, we propose a dynamic selection of materialised views algorithm (DynaSeV) which selects views from results of incoming queries. Secondly, we suggest a new update policy to dynamically maintain materialised views. In addition, we propose a novel data partitioning approach for RTDW, called 2LPA-RTDW (Two-Level data Partitioning Approach for RTDW) by allowing unbalance of data amount in each partition. Then, we present our architecture called DETL-(m, k)-firm-RTDW architecture (decentralised extract-transform-load approach based on (m, k)-Firm constraints for RTDW) which deals with diversity and disparities in data source systems to reduce the time for ETL. Finally, we evaluate our contributions using the TPC-DS (TPC, 2014) benchmark; the preliminary results are quite promising.

Capacity Constraints and Horizontal Merger Effects

This article examines how capacity constraints affect horizontal mergers. Binding capacity constraints for merging firms may mitigate merger price effects, but capacity constraints for nonmerging firms may either amplify or mitigate such effects. The presence of capacity constraints for both the merging and nonmerging firms in a market further complicates the analysis of merger price effects. Capacity constraints may also confound the relationship between market concentration and merger price effects. In addition, capacity constraints affect market definition analysis and analytical tools such as merger simulation and upward pricing pressure indexes. Analyzing the effects of capacity constraints on mergers continues to be a challenge for merger reviews.

Corporate investment and political federalism: does judicial efficiency matter?

The study exploits the variation in judicial efficiency across Indian states together with the heterogeneity in firm financing constraint and distress indicator to estimate the effect on firm investment. Using data for 2001–2013, we show that financially constrained firms registered in states with high judicial inefficiency exhibit lower investment, an effect that is exacerbated during the crisis. As well, investment is lower for distressed firms in states with high labour activism. Taken together, the evidence is consistent with the law and finance literature, and suggests that quality of contract enforcement and heterogeneity in creditor protection plays a key role in influencing firm investment.

Working hours reduction, financial constraints, and employment: evidence from Korean firms

This study analyzes the effect of reducing working time to a 40-hour week standard on employment, using the data of 1,961 publicly traded firms in Korea. The objective of the study is to empirically estimate the economy-wide effect of this working hours reduction on employment in Korea. This paper also attempts to uncover the effect of financial constraints, defined as the degree of accessibility to finance, on employment stability or sustainability. Some economic theories suggest that financial constraints have mixed or conflicting effects on employment. Building on labor and finance literature such as Garmaise (2007), easing financial constraints helps firms to optimally substitute capital for labor, thereby decreasing employment. Likewise, financially constrained firms are limited by the availability of internal funds, and a decrease in the external financing cost will increase firm-level human resource investment, such as employment. Using a longitudinal data on publicly listed companies in Korea, the author examines variations in the timing of implementing the working hours reduction in terms of establishment size to see if the effect of working hours reduction on employment differs with the degree of financial constraints of firms. This paper finds that the economy-wide effect on employment of work-hours reduction is positive, approximately 3.5% increase in employment. The results, however, show that there is no effect of the working hours reduction on employment in less financially constrained firms or larger corporations, whereas a substantial positive effect on employment is in smaller firms or financially constrained firms, supporting the Garmaise’s prediction.

Director interlocks and the strategic pacing of CSR activities

PurposeThroughout years of corporate social responsibility (CSR) debates, most studies have focused on whether or not a firm should engage in CSR activities, while giving little attention to the firm’s engagement strategy. The purpose of this paper is to demonstrate the optimal way of engaging in CSR activities to maximize firm value while acting in a socially responsible manner.Design/methodology/approachThe sample includes US-listed firms and was initially split into three categories (slow-paced, steady-paced and fast-paced firms) based on how fast the firm increased/decreased the pace of its CSR involvement. The sample was later split into firms that have interlocked directors and those that do not, to highlight the important role played by interlocked directors in moderating the relationship between CSR pace and firm performance.FindingsResults suggest that firms engaging in CSR activities at a slow or steady pace experience superior financial returns than firms engaging in CSR activities at a fast pace. Further analysis indicates that rapid CSR involvement is counterproductive for firms with no interlocked directors. On the other hand, firms with interlocked directors benefit from their directors’ social network, and experience positive returns when engaging in CSR activities at a fast pace.Practical implicationsThis study is of particular importance for firms establishing their CSR engagement strategies. The results highlight the optimal way a firm can engage in CSR activities while still maximizing shareholder wealth.Originality/valueThis paper is the first to study the pace determinants of a firm’s CSR engagement strategy. The absence/presence of interlocked directors is identified as a key moderating variable for the CSR–firm performance relationship. The study pinpoints the absence of interlocked directors as a constraint for firms that rapidly engage in CSR activities.

SME Growth, Financing Constraints, and Corruption: Evidence from Transition Economies

In this study, using a unique firm-level survey database, I investigate which firm constraints in the business environment directly affect growth for over 15,000 mostly small- and medium-sized firms in 30 Eastern European and Central Asian countries. I also examine how financing constraints inhibit firm growth, the determinants of firm financing constraints, and the relevant role of country-level development, institutions, and corruption. I find that out of a full set of ten different growth constraints in the business environment that firms report, only financing and legal constraints negatively affect both firm sales and employment growth. I also find that older, larger, and foreign-owned firms report lower financing constraints while exporting firms report higher financing constraints. In countries with higher levels of GDP per capita, stock market development, legal systems and property rights, and lower levels of corruption, firms face lower levels of financing constraints. I provide novel empirical evidence that both firm- and country-level corruption hinder firms’ access to financing.