Emerging Market Companies Research Articles

Financial performance of emerging market companies during the COVID-19 pandemic: moderating role of sustainability performance

Purpose This study aims to investigate whether sustainability performance (SP) served as a safeguard for firm profitability (FP) and enhanced corporate resilience in emerging markets during the COVID-19 pandemic. Design/methodology/approach Using a sample of 1,091 firms in 25 emerging markets from 2017 to 2021, this study analyses the moderating role of SP on the relationship between FP and COVID-19 by using hierarchical linear modelling at three levels: (a) time-level; (b) firm-level; (c) country-level. Findings The results indicate that during the years 2020–2021, emerging market firms with robust SP showed better FP in the midst of the COVID-19 pandemic. The findings also indicate that all dimensions of sustainability, i.e. environmental, social and governance (ESG), have significantly affected the FP in the post-COVID period. Hence, adhering to ESG principles aids in alleviating adverse financial repercussions during times of crises. Practical implications This study provides valuable insights for companies and policymakers for finding solutions that may assist them in improving SP globally and enduring crises resiliently. The findings are also relevant to institutional investors that consider SP as an investment criteria. Although the COVID-19 pandemic was temporary, the lessons learned could protect firms from future similar global crises. Originality/value This study enhances the understanding of the contingency relationship between sustainability and financial performance by offering up-to-date empirical insights within the context of emerging markets during the pandemic. It demonstrates how different institutional frameworks influenced the SP–FP association during the crisis. Thus, this paper expands the understanding of crisis management literature and bridges the research void concerning the impact of SP on FP in an emerging market context.

The Impact of IFRS Adoption on the Comparability, Quality, and Efficiency of Financial Reporting in Public Administration and Emerging Markets

This article investigates the impact of the adoption of International Financial Reporting Standards (IFRS) on the comparability, quality, and efficiency of financial reporting, both in public administration and in emerging markets. Through a quantitative approach, data from various public institutions and emerging market companies that have adopted IFRS in recent years were analyzed. The results indicate a significant improvement in the comparability and quality of financial reports, although accounting efficiency varies depending on the degree of implementation and administrative modernization in the countries. It is concluded that the adoption of IFRS has an overall positive effect, but its total impact depends on the institutional capacity of countries.

Green innovation drives globalization: a longitudinal case study of Angel Yeast’s evolution from a start-up to a world-class manufacturer

In the increasingly competitive global market, emerging market companies, represented by China, have shown mixed performance during their development process. Many companies grow rapidly in the early stages of development but cannot maintain long-term growth. How to achieve sustainable development has become a major challenge for emerging market companies, and green innovation is considered an effective way to address this issue. Based on the resource-based view, this paper conducts a longitudinal case study on Angel Yeast as the research subject, dividing the development process of Angel Yeast into three stages: the start-up period (1986-2000), the growth period (2000-2010), and the maturity period (2010-present), discussing how Angel Yeast has grown from a small start-up company to a world-class manufacturer. The study finds that Angel Yeast has utilized its unique resources at different stages of development for green technology innovation, green product innovation, green management innovation, green marketing innovation, green supply chain management, and green organizational culture construction, enabling Angel Yeast to gain a sustained competitive advantage and grow into a global leader in the yeast industry. This paper expands the research on the evolution of emerging market companies under the resource-based view theory and enriches the understanding of the role of green innovation in the growth process of enterprises.

The ESG Patterns of Emerging-Market Companies: Are There Differences in Their Sustainable Behavior after COVID-19?

We aim to map the ESG patterns of emerging-market companies from 2018 to 2021 in order to determine whether the COVID-19 pandemic exerted any influence on sustainable corporate behavior. Thus, the ESG performances were assessed by employing the Kohonen Self-Organizing Map (also known as the Kohonen neural network) for clustering purposes at three levels: (i) ESG overall, including country and sectoral perspectives; (ii) ESG thematic; and (iii) ESG four-folded (stakeholder, perspective, management, and focus strategic views). Our results show that emerging-market companies focus their ESG efforts on social and governance issues rather than on environmental. However, environmental and social behavior differ more acutely than governance behavior across clusters. The analyses of country-level ESG performance and that of eleven market-based economic sectors corroborate the geographic and sector dependence of ESG performance. The thematic-level analysis indicates that operational activities and community issues received more attention, which suggests that emerging-market companies address distinct ESG topics according to their particularities and competitiveness. Furthermore, our empirical findings provide evidence that the ESG behavior of companies has changed over the course of the COVID-19 pandemic. Thus, our findings are relevant to policy makers involved in regulating ESG disclosure practices, investors focused on enhancing their sustainable investment strategies, and firms engaged in improving their ESG involvement.

ESG RATING AND BANK FINANCING — EMPIRICAL EVIDENCE FROM THE CHINESE CAPITAL MARKET

This study examines how banks perceive companies’ environmental, social and governance (ESG) performance. Using a sample of Chinese listed corporations for the period 2009–2019, we find that banks value the ESG performance of emerging market companies. The higher a company’s ESG rating, the more likely it is to receive a loan. Moreover, it is easier to obtain long-term bank loans with a lower cost. Compared with state-owned enterprises (SOEs), ESG rating among private companies is more helpful for enterprises to obtain bank loans. Additionally, the positive effect of an ESG rating on obtaining bank loans is stronger in regions with greater banking competition landscape.

Analyzing the external auditor’s perception of the impact of IFRS 15 on the profitability and performance of emerging market companies

Revenue recognition is a very complex area due to user interest in this metric and can even lead to errors and fraud in its understanding. The difficulties of revenue recognition are well known to practitioners because, even if the principles and standards are stable, economic conditions may require new experiences, adaptive knowledge, and flexibility. Therefore, thinking about how to apply the new IFRS 15 standard is more important than ever as the transition to the new standard takes place. In this context, this study aims to evaluate the way external auditors understand how implementing IFRS 15 will probably affect business performance and profitability, and to identify the main problems and obstacles that could come up during that process. In this sense, a quantitative study was conducted using a survey of auditors working for Big Four companies during 2021–2022. To address these problematic aspects of revenue disclosure under the standard, the study’s findings look into how external auditors perceive the complexity of IFRS 15, the openness of their professional judgment, and the anticipated advantages of engagement activities. In addition, the literature review identified business sectors that demonstrated a significant impact on revenue recognition as a result of the implementation of IFRS 15.

There Differences in the Operational Efficiency of Emerging Market Companies with and Without ESG Rating?

The issue of socially responsible behavior of companies is becoming more and more relevant at the present stage. At the same time, the actions undertaken by firms in the framework of socially responsible behavior most often go beyond the procedures set by the current legislation and require additional costs and funding. Positive effects are not obvious, including in the long term, which makes the company's management, especially in developing countries, refuse to implement social and environmental measures. The ambiguity of potential economic effects made it possible to formulate a research question related to assessing the similarity/difference in operational efficiency and financial dependence of companies with and without social responsibility embedded in the business model. The social and environmental responsibility of companies in this study is assessed using the ESG rating. For further research, samples were formed by countries and industries grouped by companies with and without an ESG rating.The empirical analysis was based on statistical tests of difference. The put forward hypotheses were tested using the t-test. The study is based on company data for 2018, 2019, and 2020 in countries of Brazil, Russia, India, China, South Africa, Turkey, Indonesia and Mexico, related to emerging capital markets. For the sectoral cross-section, were used aggregated groups (economic sectors) according to the Thomson Reuters Eikon classification.The study revealed, in most cases, a significant excess of the value of financial leverage in companies with an ESG rating over companies without it. The average return on assets of enterprises with a non-zero ESG rating in all sectors is significantly higher than the return on assets without it. Thus, it is proved that implementing socially responsible behavior into a company's financial policy is economically viable, despite the increase in financial leverage. The results are stable over the entire considered interval; the pandemic did not affect the change in the results.

Sustainable strategy as a lever for corporate legitimacy and long-term competitive advantage: an examination of an emerging market multinational

PurposeThe purpose of this paper is to examine the process of integrating sustainability into the corporate strategy of an emerging market multinational enterprises (EMNE) to achieve and maintain corporate legitimacy over time. The research explores how deploying a corporate sustainability strategy enhances the company’s long-term competitive relevance by creating and maintaining corporate legitimacy and transferring practices based on sustainable development goals within the organization.Design/methodology/approachThe study adopts a qualitative single-case design, focusing on a corporate energy services company (Interconexión Eléctrica S.A.) operating in volatile, uncertain and turbulent environments.FindingsThe findings indicate that integrating sustainability into the corporate strategy enables subsidiaries to effectively meet global requirements, considering internal and external pressures. This integration also fosters the development of unique capabilities and the internalization of standards, addressing liabilities in foreign markets, thus providing a competitive advantage and safeguarding corporate legitimacy among stakeholders.Originality/valueThis research contributes to the international business literature by providing insights into strategy development and implementation in EMNEs. Specifically, it demonstrates how a Latin American emerging multinational enterprise (multilatina) adopts new sustainability strategies to enhance its business competitiveness. The study also offers guidance for emerging market companies on developing sustainability strategies and transferring them to subsidiaries operating in complex institutional environments. Furthermore, the research provides a rationale for governments and civil society organizations on why firms are committed to sustainability, highlighting its positive impact on firm’s competitiveness and survival in international markets.

PREVENTING THE ANTI-CIRCUMVENTION INSTRUMENT FROM UNDERMINING DEVELOPMENT THROUGH INVESTMENT

AbstractCompanies from emerging economies have started internationalizing their production operations; they are following the same path as American, European and East Asian corporations before them, setting up factories in third countries to serve their export markets from closer locations and produce more efficiently. Thus, it is no longer only developed countries’ multinationals which are moving their operations to developing countries, but emerging market companies that are increasingly engaging in production abroad. This is having beneficial effects in countries where these companies invest and might help them start their own industrialization process. This has attracted the ire of developed countries, which are now targeting these downstream production plants abroad by using the so-called anti-circumvention instrument, resulting in trade defence duties imposed on the parent companies being extended to their foreign subsidiaries. This application of the anti-circumvention instrument departs from its historic rationale and might hinder the development of countries in need of foreign investment. Therefore, affected governments should consider taking international legal action to bring developed countries to the negotiating table to put a halt to this abuse of the anti-circumvention instrument.

Ways to neutralize the country-of-origin effect in the emerging market firms international branding1

Abstract Paper’s objectives The purpose of this paper is to examine the ways in which to neutralize the country-of-origin (COO) effect (COE) in the emerging market of firms’ international branding. Design/methods applied/approach used A multiple-case study of five companies from European and Asian emerging markets – owners of household appliances brands, with data sourced from in-depth interviews and secondary sources. Findings Companies from emerging markets neutralize the genuine COO in their international branding in various ways, for example, by applying brand or sub-brand names that do not refer to the genuine country-of-brand-origin, using slogans in foreign languages or establishing brand alliances with partners from developed countries. Originality/value This study offers original insights fostering a better understanding of international branding strategies applied by emerging market companies by identifying the ways they neutralize the COE both at the brand concept level and brand marketing communication tools.

Firm internationalization approaches and performance: the moderating role of the home country's formal institutions

PurposeThis study investigates how the degree of internationalization (DOI) affects the financial performance of emerging market companies by making the distinction between export intensity and multinationality (i.e. foreign direct investment). The authors argue that the different DOI-performance patterns in the literature relate to different internationalization approaches, which are moderated in distinct ways by formal institutions in the home country.Design/methodology/approachBased on data of Brazilian firms in several industries and with different internationalization patterns including 100 exporting firms and 30 multinational companies with varying degrees of multinationality over a period of five consecutive years, the authors test their hypotheses using an unbalanced panel data with 346 firm-year observations. In order to test how the quality of formal institutions moderate the DOI-performance relationships, the authors estimate the changes in the slope of the regression line by adding and subtracting one standard deviation to the Worldwide Governance Indicators (WGI) variables.FindingsA positive and linear association between export intensity-performance (EI-P) highlights the location specific comparative advantages of exporting Brazilian firms, while the multinationality-performance (M-P) relationship points to a horizontal S-shape pattern which conforms to the theoretical assumptions of the three-stage internationalization process. Formal institutions moderate positively the EI-P relationship, but moderate negatively each of the three stages of the M-P relationship.Research limitations/implicationsThe findings from this study provide critical insights that contribute to the ongoing debate on how formal institutions in the home country affect the DOI-performance relationship of emerging market companies (EMCs). However, the authors consider that it has limitations as they focused exclusively on formal institutions captured by governance institutions in the Brazilian context.Practical implicationsThis study provides relevant insights to managers and policy makers. Findings reveal that strong formal institutions in the home country make it easier (cheaper) for EMCs to invest abroad, and, at the same time, increase the efficiency of exporting firms and positively influence financial performance. Moreover, results show that during downturns in their domestic markets, multinational EMCs outperform domestic firms. In that sense, while policy makers can promote the internationalization and competitiveness of EMCs by implementing more supportive formal institutions, managers should consider a proactive approach and invest abroad when conditions in the home country are favorable.Originality/valueBy making the distinction between export intensity and multinationality this study contributes to the literature on the DOI-performance of EMCs providing a more nuanced view on how formal institutions in the home country moderate the EI-P and M-P relationships in different ways.

Ethnic networks in the internationalization of Turkish food producers

Abstract The Uppsala Internationalization Process Model falls short in its ability to explain how emerging market firms internationalize. In this respect, the model needs to be enhanced through theoretical and empirical contributions. In this study, we aimed to increase the relationality of the model by employing the ethnic networks approach. As a case study for emerging market companies, we focused on the internationalization processes of Turkish food companies, which have been relatively little studied until now. Based on data from qualitative interviews, we found that ethnic networks in Germany play an important role in the initial stages of export activities, in location selection, in gaining market information, and in reaching the mainstream retailers and consumers for Turkish food companies. Adopting the ethnic networks approach enables us to see the roles of previously ignored relationships. Our findings show that, in future research, the role of ethnic networks should not be overlooked in the process of applying the Uppsala Internationalization Process Model on emerging market firms.

Explaining the performance of South African firms

PurposeThe discussion of competitive strategy in recent years has turned to exploring the differences between emerging market (EM) companies and traditional companies from the US, Europe and Japan. In particular the question has been: do we need a new theory of EM companies, or can existing theory be applied, perhaps with adaptations? The authors intent in this paper is to show what features enable EM firms to succeed in domestic competition, where institutional settings are different from those in Triad countries. The authors do not explore the issue of EM companies competing internationally.Design/methodology/approach The authors argue that competitive advantages (Porter) or resources (Barney; Wernerfelt) offer a solid base on which to build an understanding of successful domestic strategies of firms in EMs, also recognizing that the specific advantages differ somewhat in EMs, due to institutional differences (Peng). The authors explore characteristics of the 250 largest publicly-traded South African firms which enable them to compete successfully (incl: company size, brand value, company age, international sales and family ownership). The authors conclude that existing theories do indeed serve in this context, but that they need to be adjusted for the different institutional environments in EMs.FindingsFactors that contribute to performance include: company size(+),brand value(+), company age (+), international sales(+) and family ownership(−). The literature that has developed on EM companies competing internationally fails to recognize that most of the features identified exist for all companies in a given country – so they do not explain domestic performance. Of course, even in the domestic context some companies will be better able to take advantage of institutional capabilities such as dealing with the government and with volatile economic conditions than other companies.Research limitations/implicationsThe study results come from only one EM, so there may be limits on generalizing to others. If China is excepted, the results here are broadly applicable to medium-sized and larger EMs today, with idiosyncrasies remaining for individual countries (such as natural resources, location, etc.)Practical implicationsEM companies to succeed in their domestic markets should look to build size/scale, to develop their brands and to expand internationally. They should also expand ownership to non-family investors. These factors were significantly correlated with superior performance of listed companies in South Africa and have been shown to apply elsewhere as well.Originality/valueAlso, most analyses of EM companies focus on their distinctive institutional capabilities for competing with firms from Triad countries. The study analysis focuses on domestic competition rather than on going abroad.

The influence of ownership structure on the extent of CSR reporting: An emerging market study

AbstractTo examine how different ownership structures, varying from diverse ownership bases to narrow ownership bases, influence the extent of corporate social responsibility (CSR) reporting by companies in emerging market. The motivation for this study is the reported inconsistent results for this association in developing countries and the lack of research in emerging markets. Eight hundred observations of 80 nonfinancial sector listed companies in the Amman Stock Exchange for the period 2006 to 2015 were used for a content analysis to assess the extent of CSR reporting. Ordinary least square multiple regression analysis was undertaken to examine the association between five different ownership structures and their extent of CSR reporting. The results reveal three separate associations between the types of ownership and the extent of CSR reporting. First, the two types of ownership (foreign and government) have a significant and positive influence on the extent of CSR reporting. Second, another two types of ownership (Family and managerial) have a significantly negative association. Finally, institutional ownership has an insignificant and negligible influence on the extent of CSR reporting. These findings provide insights into how ownership structure influences the CSR reporting extent by emerging market companies such as Jordan. These findings suggest that policy makers, regulatory bodies, companies, and investors should increase their awareness about how different concentration of company ownership influences the extent companies voluntarily disclose CSR reporting. The evidence adds to the limited body of knowledge about different ownership groups' influence on the extent of CSR reporting in a developing country because few empirical studies have undertaken such a comprehensive analysis of this association.

Does the developed-country brand name still matter? Consumers’ purchase intentions and ethnocentrism and materialism as moderators

PurposeThis study aims to investigate how brand name (home-emerging-country vs foreign-developed-country brand name) applied by emerging market company in conjunction with revealing the actual country-of-brand-origin (COBO) (revealed vs non-revealed origin from developed vs emerging country) affects purchase intensions of durable goods.Design/methodology/approachAn experimental conjoint analysis and multilevel linear models were applied.FindingsResults demonstrate that brand name differentiates consumers’ purchase intentions. However, not every foreign-developed-country brand name may lead to the increase of purchase intentions. Revealing the actual emerging market’s COBO for brands with developed-country brand name may lead to lowering purchase intentions. Moreover, consumer ethnocentrism and materialism moderate the relationship between the brand type in terms of brand name and purchase intentions.Originality/valueThis study contributes to the international marketing literature by simultaneous examination of the impact of brand name type and revealing actual COBO on purchase intentions and the moderating effects of ethnocentrism and materialism, in emerging markets’ context. It also offers novel insights for brand managers regarding the influence of emerging markets’ companies branding strategies on consumer purchase intentions.

Board characteristics and sustainability performance: empirical evidence from emerging markets

PurposeThis study aims to investigate the effects of board attributes, i.e. board independence, gender diversity, board size and board activity, on the sustainability performance of 439 publicly-listed non-financial companies across 20 emerging countries over the period of 2010–2019.Design/methodology/approachWe use Refinitiv environmental, social and governance (ESG) performance scores and board attributes variables derived from Thomson Reuters Eikon database. We examined the relationship between board features and sustainability performance by using the dynamic panel two-step system generalized method of moments estimator.FindingsOverall, our findings suggest that smaller, gender diverse and independent boards that convene frequently achieve better sustainability performance. The authors document a positive relationship between board gender diversity and sustainability performance across a broad spectrum of sustainability indicators. The authors also find evidence that board independence has a positive impact on two sustainability performance measures, i.e. environmental and governance performance. Although board size does not influence aggregate sustainability measures (ESG score, ESG controversies, and ESG combined score), the authors find a negative relation between board size and governance performance. Finally, board activity seems only relevant in explaining ESG controversies, i.e. other things being equal frequently held board meetings significantly reduce sustainability issues (ESG controversies).Practical implicationsThe authors’ findings provide implications to support regulators and emerging market companies on how to improve sustainability performance through the design and use of specific governance mechanisms. These interventions will help resolve agency problems among different stakeholders and, in turn, benefit sustainability.Social implicationsThis study also has social implications because it sheds light on how companies may change their attitudes towards sustainable practices through adjusting their corporate governance structures to increase the welfare of the society.Originality/valueThis study examines the behaviour of companies in emerging markets on sustainability performance by discussing a broad range of board characteristics and covering a large sample of emerging markets. Thus, it provides valuable insights to the companies for further growth opportunities in emerging markets.

Determinants of stock market reaction to cross-border acquisitions: evidence from emerging economies

PurposeThe global economy has witnessed an exponential increase in cross-border acquisitions (CBAs) by emerging market companies (EMCs), demanding a relook at their internationalization strategy. The purpose of the study is to investigate whether the announcement of CBAs by EMCs creates value for the equity-holders of acquiring firms and identify factors affecting the valuation of acquiring companies.Design/methodology/approachThe paper investigates the announcement impact of CBAs of CNX Nifty 500 Indian and SSE 380 Chinese companies. The event study analysis of 553 Indian and 125 Chinese acquisitions supports the contention that CBAs are indeed a strategic choice of EMCs for value creation.FindingsCBAs generate positive and statistically significant abnormal returns for shareholders of both Indian and Chinese acquirers. The markets, however, differ in terms of their motivations; country-level factors have been observed to exert significant influence on the returns of Indian acquirers. Indian companies experience larger value creation on acquiring firms established in developed, institutionally closer and/or economically distant markets. The findings support the asset-seeking motive of Indian companies.Originality/valueThe research work contributes to the evolving stream of CBAs literature with a focus on the globalization strategies of EMCs. The present study is a modest attempt to lay the foundation for a new theoretical framework (asset-seeking perspective) of overseas acquisitions from emerging economies. The existing studies on emerging economies have emphasized, in isolation, either Indian CBAs or international acquisitions by Chinese firms. Being so, the study is unique and original in the sense that it is a comparative study of India and China.

How the U.S. monetary policy affects the corporate investment by emerging market companies

Subject. The article addresses the transmission mechanisms of the U.S. monetary policy. Objectives. Our aim is to evaluate the transmission mechanisms of the U.S. monetary policy. Methods. The paper analyzes how the investment activities of 3,983 companies of the eight non-financial industries (mining, construction, manufacturing, transportation, information sector, trade, and agriculture) of 23 emerging economies respond to the monetary policy decisions for 2010–2017. Results. Investment activities of companies are influenced by monetary policy decisions through the transmission mechanism of financial markets. We found that American companies are more exposed to the monetary policy decisions than other emerging market companies, while Asian companies are indifferent to them. We confirm that capital-intensive and large companies, as well as debt-laden companies are more sensitive to monetary policy decisions. We also confirm that companies at different stages of their development react differently to the said decisions. The article can be valuable for the scientific community as part of the study of issues related to emerging market and monetary policy implications, for representatives of investment community, considering the potential investments in the assets of emerging countries, and for monetary authorities, responsible for the consistent monetary policy and its effects on the real economy, while constructing better models of monetary policy transmission. Conclusions. We show that companies of EMEA, Asia and America macro-regions and firms from different industries react differently to the monetary policy changes.

Business Group-Affiliation and Corporate Social Responsibility: Evidence from Listed Companies in China

Business groups have played a vital role in the development of emerging markets. However, we share very limited understanding in the role of business group that act on affiliated firms’ CSR performance. Using manually sorted data on A-share listed companies and business groups in China from 2010–2017, we examine whether a company’s business group-affiliation affects its corporate social responsibility (CSR) performance and the mediating mechanisms of this association. Our empirical models show that group companies bear a higher level of social responsibility compared to independent companies. This positive relationship between group-affiliation and social responsibility relies on resource allocation through internal capital markets, rent-seeking initiatives, and consideration of corporate reputation. Moreover, group affiliation benefits the firm’s CSR performance in employee’s responsibilities, consumers’ responsibilities and environmental responsibilities, while significantly lower the shareholders’ responsibilities. Our empirical valuation of group companies’ CSR levels can serve as a benchmark for emerging market companies implementing social responsibility policies.

Potential for Upgrading in Financialised Agri-food Chains: The Case of Ghanaian Cocoa.

We revisit functional upgrading opportunities for developing and emerging market companies in the context of highly financialised food systems. We argue that the assessment of upgrading potential within the global value chain literature lacks consideration of constraints posed by financialisation, not only of the sector within which upgrading takes place but also by the global financial architecture more broadly. For the Ghanaian cocoa–chocolate sector, we show that financialisation acts as limiting factor to upgrading, with contradicting tendencies. First, financialisation of lead firms, eager to outsource non-core activities, has promoted cocoa processing in Ghana, but the resulting consolidation of power hinders further functional upgrading. Second, Ghana’s dependency on cocoa for foreign exchange earnings necessitates upgrading into higher value-added segments, while also undermining feasible upgrading strategies that build on domestic or regional markets first. These contradicting tendencies constitute a middle value-added trap, which is difficult but not impossible to overcome.