European Firms Research Articles

Are governments bad entrepreneurs? On productivity and public ownership in Central European post‐Communist countries

AbstractAlthough Central European post‐communist countries have considerably liberalized energy sectors, privatizations have been poorly implemented establishing legal monopolies and retaining governments' pervasive influence. This study examines the effects of state ownership on productivity and Lerner indices, using a dataset on Central European firms, operating in industries of general interest, from 2009 to 2017. This study contributes to the literature by estimating production functions of energy companies, establishing a link between government ownership, and productivity and Lerner indices, applying continuous measures of state ownership, and evaluating impacts across quantiles. The overall results highlight that state ownership is associated with significant productivity losses, which increase over quantiles, and lower market power.

Rebuilding the fortress? Europe in a changing world economy

Two rival visions of Europe’s place in the world economy competed for primacy throughout the post-war era. The idea of an ‘Atlantic Europe’ promoted close economic ties to the United States and integration into the liberal international order. An alternative ‘Fortress Europe’ vision aimed to carve out a sphere of relative European autonomy backed by trade barriers and industrial protectionism. While many argued that the ‘Fortress Europe’ vision was defeated during the globalization of the 1990s and 2000s, concepts such as economic sovereignty, industrial strategy and ‘strategic autonomy’ have returned to EU circles. Is a rebuilding of ‘Fortress Europe’ taking place in this context? This paper argues that the old tension between ‘Atlantic’ and ‘Fortress’ Europe is re-emerging but in a new form and under a new set of international conditions. A ‘selective fortification’ of European industrial strategy and trade policy is taking shape, as EU policymakers develop targeted instruments and institutional capacities that aim to insulate European firms from new patterns of international competition. The selective refortification of European capitalism has implications for debates within international political economy (IPE) on the future of liberal international order, new patterns of competitive regionalization, and the restructuring of the relation between the state and global capitalism.

Reshoring and firm productivity

ABSTRACT This paper investigates the impact of reshoring, defined as the relocation of previously offshored production activities back to the home country or to a neighbouring country, on the productivity of manufacturing firms. It uses data from the European Reshoring Monitor on European firms in the period 2014–18. Reshoring increased total factor productivity of small and medium-sized firms, but did not affect productivity of large firms. The positive effect was stronger for firms that had offshored production to some Asian countries.

Gender diversity in European firms and the R&D-innovation-productivity nexus.

In this paper, we empirically explore whether gender diversity in European firms, measured at different organisational levels, contributes to enhancing their performance in terms of innovation and productivity. Particularly we propose a structural econometric framework that allows us to simultaneously account for gender diversity at the workforce and ownership level throughout different phases of the innovation process, from the decision to engage in R&D to productivity. Our results reveal that gender diversity is strongly related to firms' performance, besides the traditional factors envisaged by the literature. However, some differences emerge according to the firms' organisational levels. Indeed, workforce gender diversity seems to be relevant to all phases of the innovation process. By contrast, the positive influence of ownership gender diversity seems more narrowed as limited to the innovation development/implementation phase; moreover, increasing women's participation beyond a certain threshold is negatively associated with firms' productivity.

Examining the efficacy of non-market and market driving activities of B2B international firms

This study examines the impact of entrepreneurial and branding orientations on the two facets of market driving activities (market and non-market focused) of B2B firms for international market performance. Using empirical data (n = 108) on European firms, this study finds that entrepreneurial orientation influences both facets of market driving activities. Further, these effects are stronger under a strong branding orientation. Market focused aspect of the driving activities fully mediates the effects of entrepreneurial orientation and market performance. Applying resource-based and market orientation theories, and contradicting studies that emphasise the adoption approach of market orientation for business success, our findings suggest that international performance of B2B firms is enhanced using a market driving approach. Unlike market-oriented firms, market-driving companies do not adopt, but instead educate their customers to accept their dominant logic, and by doing so they influence the market structure in their industry. The findings contribute to the non-market, market driving and ambidexterity literature. Managers can learn how entrepreneurial efforts can contribute towards exercising market driving strategies at a global level. They can also learn that strong branding orientation would strengthen the market driving behavior.

Green development, climate risks, and cash flow: International evidence

This study investigates how the interaction between climate risks and cash flow can influence corporate cash holdings across 87 countries. As a secondary goal, we examine how green development affects cash holdings. Our key findings illustrate that cash holdings are positively related to the interaction between climate risks and cash flow and negatively related to green development. Additionally, the effects of the interaction between climate risks and cash flow on corporate cash holdings are more apparent for firms with higher financial constraints, located in countries with higher levels of green development, and for Asian and European firms. Our results suggest that policymakers should consider corporate decisions regarding cash holdings when implementing climate-related strategies, as these policies and the current climate risk impacts can further encourage firms to increase corporate cash holdings as a precautionary measure against external shocks.

Board diversity in family firms across cultures: A contingency analysis on the effects of gender and tenure diversity on firm performance

The initial work on family firm diversity research argued that family influence negatively moderates the board diversity–financial firm performance relationship, whereas more recent empirical evidence has suggested the opposite. Drawing on upper echelons theory, we investigate national culture (i.e., the degree of masculinity in the country of the firm) as a contingency factor influencing how tenure and gender board diversity translate into superior or inferior financial performance in family and non-family firms. Our analyses of 4192 firm-year observations of publicly listed European firms support most of our hypotheses. Our results show that the positive direct financial performance effects of tenure diversity are weakened in family firms, suggesting that the larger differences in values, goals, experiences, and power among family and non-family board members may suppress the benefits of cognitive variety. Furthermore, our results support that the degree of masculinity is an important factor moderating the diversity-family firm-financial firm performance relationship for gender and tenure diversity. We thereby advance diversity research in family firms to explain under what conditions positive or negative diversity effects prevail by introducing national culture as a novel contingency factor that may help to reconcile prior conflicting findings.

Effects of family ownership and family management on the performance of entrepreneurial firms

Extending past research, this paper proposes that the quadratic inverse-U relationship between family ownership and the performance of entrepreneurial firms when moderated by the presence of family management and external blockholding. Specifically, it proposes that both factors exacerbate the decline in performance when the proportion of family ownership in entrepreneurial firms remains high. The proposed hypotheses are tested on ten years of panel data from a sample of European firms. Analysis of data supports the hypotheses. Implications for the theory and practice of entrepreneurial firms are discussed.

Does eco-innovation foster or hinder environmental performance? Recent evidence from Europe

ABSTRACT This study investigates the impact of country-level eco-innovation policies on the environmental performance of European firms. As different industries are expected to produce more pollution, the study then explores the impact on the firms operating in sensitive industries. We use fixed effects panel data models to examine 1,098 firms listed in 22 European countries from 2010–2018. Our results indicate that country-level eco-innovative policies provide an encouraging environment for European firms to adopt environment-friendly practices. Eco-innovation policies help firms achieve CO2 targets and mitigate climate change which supports the product stewardship theory. Our results also suggest that larger, more profitable, and low debt-financed European firms have better environmental performances. We also find a moderating impact of industry sensitivity and make an intriguing discovery that country-level eco-innovation policies hinder the environmental efforts of the firms operating in sensitive European industries. These results are robust to different proxies of eco-innovation and endogeneity issues due to reverse causality.

Can Corporate Sustainability Drive Economic Value Added? Evidence from Larger European Firms

This study analyses the association between firms’ sustainability and economic performance in Europe, considering the channels of margin and turnover. The sample is composed of firms listed in the STOXX Europe 600 Index from 2012 to 2020. The sustainability performance is captured by the combined and individual ESG scores from Refinitiv, and dynamically tested with proxies of economic performance, including economic value added, return on firms’ assets and its components, margin and turnover. The methodological approach comprises different panel data specifications and tackles the potentially unobserved, time-invariant heterogeneity, endogeneity concerns, and reverse causality biases. Our findings point to a strong positive association between firms’ sustainability and economic performance in Europe, although the individual ESG forces are not at play with the same intensity. The environmental pillar is the one that is systematically associated with better economic performance across all estimations. The influence of sustainability performance on economic performance is also channeled by both profit margin and turnover. We find that a 1% improvement in the ESG score yields an increase in the economic value added of 0.08%, EVA over revenues. In general, our findings point to a shift from the conventional business model perspective to the incorporation of a core sustainability proposition and agenda that brings advantages and drives economic performance.

Blockholder ownership and corporate cash holdings: evidence from European firms

PurposeThis study aims to investigate the impact of ownership by large shareholders (blockholders) on corporate cash holdings. The study further investigates heterogeneity in the relationship between blockholder ownership and corporate cash holdings.Design/methodology/approachBuilding on the precautionary and agency motives of corporate cash holdings, the study focuses on publicly listed firms from 22 European countries for the period from 2006 to 2015. Multiple pooled ordinary least square and fixed effects regression models are employed to examine the relationship between blockholder ownership and firms’ cash holdings.FindingsThis study documents a positive relationship between blockholder ownership and corporate cash holdings which indicates the role of blockholders in influencing firms’ cash holdings policies. However, further analyses show that the effect of blockholding on cash holdings depends on the type of blockholder. While the relationship is still positive between cash holdings and ownership by strategic blockholders, it turns negative for the ownership by institutional blockholders.Research limitations/implicationsThis study provides evidence for the important role played by firms’ ownership structures, and especially blockholding, in shaping firms’ cash holdings decisions. The findings are therefore of great value for investors, firms’ management and board and policy makers.Originality/valueThis paper contributes to the literature by providing an explanation of the contradictory results documented in the literature on the impact of blockholders on corporate cash holdings. This study, to the best of the author’s knowledge, is the first to examine the effect of blockholder ownership on cash holdings by distinguishing between different types of blockholder.

Heterogeneous expectations, forecast accuracy and firms’ credit demand

Firm heterogeneity in formulating expectations constitutes a source of friction for the credit market. An expected improvement of credit conditions in the future may slacken current credit demand. Using a panel of European firms in the period 2010–2019, I find that better expectations on future (six-month) access to credit reduce the probability of a firm to apply for bank loans by 3 percent. Results also suggest that access to credit expectations are adaptive. Although firms fail 43 percent of their access to credit forecasts, they adjust their expectations learning from previous forecast errors.

Closer than ever: Growing business-level connections between Australia and Europe

Despite the growing presence of European firms in Australia and vice versa, studies of these business-level connections have been few and far between. Building on points made in our earlier macro-level analysis of Australian-European relations, this study examines business-to-business and business-to-consumer activity at the micro-level between the two continents.We focus on three themes illustrative of these growing business-level relations. First, we examine the different pathways taken by Australian businesses in their quest to develop a European market presence. Second, we discuss instances of business and technological innovation in the Australian context, including stories of success in digital innovation and university-corporate collaboration as well as cautionary tales for European institutions arising from the Australian experience. Third, we compare and contrast how Australian and European businesses have responded to the challenge of climate change, focussing on the issues of green lending and retail insurer performance.In foregrounding these three themes, we offer reflections on the implications and lessons for the growing number of businesses operating across both continents.

Naming as business strategy: an analysis of eponymy and debt contracting

This study proposes that naming a firm eponymously is a mechanism that small private firms can use to signal their superior financial performance and commitment to fulfill debt contract obligations. Using 621,614 small private firms in Europe over the period 2008–2018, we find that small private eponymous firms pay significantly lower interest on their debts and have more long-term debt than non-eponymous firms. Our findings are robust to various controls and placebo tests. Additional analyses show that eponymy lowers the cost of debt and facilitates long-term debt via reputation signaling and private information. We also document that the effect of eponymy on debt contracting is most pronounced when there is less financial development and when firms’ dependence on external financing is low, consistent with the idea that high-quality firms opt for eponymy when they consider less external financing.

Patent remedies and technology licensing: Evidence from a supreme court decision

AbstractResearch SummaryRemedies for infringement are important determinants of the strength of patent protection. However, there has been little emphasis on the role of patent remedies in profiting from innovation via licensing. To address this gap, we examined the impact of patent remedies on technology licensing. Our study exploited a US Supreme Court decision that reduced the probability of issuing injunctions as a remedy to compare US firms' licensing propensity with that of a matched control group of European firms. We found that the decision reduced, on average, US firms' propensity to license. This effect is driven mainly by small firms and especially those in discrete technology industries. This research contributes to the literature on profiting from innovation and presents several implications for firms' licensing strategies.Managerial SummaryThis study demonstrates how patent remedies (i.e., injunctions vs. ongoing royalties) differentially influence firms' incentives to engage in technology licensing. We suggest that injunctions cast a credible threat to potential licensees' product market activities, enhance the bargaining power of licensors in negotiations, and increase the likelihood of making a deal. Our research shows that when the probability of obtaining an injunction declines, firms are less likely to capture value by out‐licensing their technological innovations. Especially for small firms, profiting from innovation via licensing becomes challenging. This effect exacerbates when small firms operate in discrete technology industries. These findings imply that in such conditions, firms may benefit from other value capture mechanisms, such as entering the product market or forming partnerships with industry incumbents.

Environmental sustainability performance and shareholder value: an international fuzzy-set qualitative comparative analysis

PurposeConsidering corporate governance (CG hereinafter) practices' variety across Anglo-American and European countries, this study relies on contingency and complexity theories to investigate the effect of environmental sustainability performance (ESP hereinafter) on shareholder value under various configurations of board of directors (BoD hereinafter), firm and country characteristics.Design/methodology/approachThe author used the Thomson Reuters Environment Pillar Score (ASSET4) and the Total Shareholder Return to assess ESP and shareholder value respectively. The author applied a fuzzy-set qualitative comparative analysis (fsQCA hereinafter) to an unbalanced panel of 2,284 observations from 486 European and Anglo-American non-financial listed firms over the period 2016–2020.FindingsThe author found a positive association between ESP and shareholder value and he displayed notable differences between Anglo-American and European economies regarding causal predictors of this positive association. Within European firms operating under civil law code where investor protection is low and family ownership is widespread, ESP creates shareholder value under configurations of causal predictors that significantly differ from those of their Anglo-American peers. The author's findings are robust to different identification strategies.Practical implicationsThis study assists researchers, practitioners, shareholders and policymakers the significant roles that BoD diversity, organisational and institutional traits are jointly playing as determinants of the ESP-shareholder value relationship.Originality/valueThe author's study offers a more encompassing, complete and theoretically richer picture of the key drivers and outcomes of ESP.

Implications of COVID-19 policies on the sustainable corporate practices of European firms

PurposeThis study aims to analyze how mixes of COVID-19 policy responses are shaping the context in which companies will compete in the following years, defining how the crisis might impact firms’ ability to keep their commitments to sustainable practices.Design/methodology/approachEuropean country-performance data for the years 2019 and 2020 were grouped into indicators of macro sustainability, then cross-analyzed against the policies adopted during the period (also grouped based on their impacts on sustainability pillars), using correlations, factor analysis and clustering.FindingsThe influence of traditional sustainability determinants was reframed according to the novel context shaped by the policy responses to the pandemic crisis. The social and digitalization aspects gained the most relevance and appeared interconnected, with digitalization of employment attaining overall more traction. Moreover, changes in the leadership within sustainability domains were observed for each identified country-cluster, due to newly implemented emergency policies. In fact, environmental innovation, digitalization and social support policies appeared to be the main variables to be impacted by the intensity of the policy efforts.Practical implicationsBusinesses monitoring the developments of sustainability policies closely, will observe novel trends in technological applications.Social implicationsPolicymakers and researchers may gauge the efficacy of policies against the COVID-19 crisis in the domain of sustainable development and resilience.Originality/valueThis paper provides a cross-analysis of quantitative macroeconomic and quantified policy responses to the 2020 pandemic crisis, linking each indicator to the pillars of sustainability that were relevant for companies between the crucial pandemic outbreak years 2019 and 2020.

Giving a New Status to a Dyes Collection: A Contribution to the Chromotope Project

Chromotope, the 19th Century Chromatic Turn, is a multidisciplinary ERC research programme that focuses on the “chromatic turn” of the 1860s in France and England, following the invention of the first synthetic dyes. This project, based on a partnership between Sorbonne University (PI: Charlotte Ribeyrol), Oxford University, and the Conservatoire national des arts et métiers (Cnam), investigates how this turn led to new ways of thinking about colour in art, literature, history, and science throughout the second half of the 19th century. One of the key aims of this research is to reappraise the role played by the Cnam in the dissemination of knowledge about synthetic dyes, from the creation in 1852 of the first chair in dyeing and printing until the Interwar period, when a collection of dyes including more than 2500 references, obtained from major European firms, was formed. A full inventory based on the description of each container has just been made together with a bibliographical research. Nevertheless, 2% of the containers are unlabeled and the reattribution of their composition is the main goal of our study. In order to set an appropriate analysis protocol to identify these orphan containers, a preliminary work was conducted on a random selection of identified dyes. For this purpose, electrospray ionization mass spectrometry and Fourier-transform infrared spectroscopy were used on 13 samples from different dye classes. The relevance of this protocol will be discussed for the identification of unknown compounds.

ESG performance, herding behavior and stock market returns: evidence from Europe

This paper tests how financial performance indicators and combined ESG score for large-cap stocks impact on stock return. In particular, we examine how market capitalization, price to book value, Sharpe ratio and ESG score of large-cap firms in Europe are related to their stock performance. We consider a panel data consisting of six European countries—Portugal, Italy, Greece, Spain, France and Germany—for the period 2010–2020. For Greek and French firms, a firm’s size tends to negatively affect its stock returns. The investors in European countries (except Italy) do not jeopardize their returns by investing in highly ESG scoring firms. We argue that the benefit of not investing in highly ESG-scoring firms might lead investors to select smaller size companies with a higher price to book value and higher Sharpe ratio, as it is more likely to generate higher returns. Moreover, Italian firms are more susceptible to ESG issues, as ESG performance and stock return seem to have a significant negative correlation. This valuable result was confirmed by conducting a robustness test for Europe as a whole using the Euronext100 index. Finally, we find no evidence that ESG motivates herding in our selected sample (this is not the case for Greece and France), while we report evidence of ESG herding behavior during the Covid-19 outbreak in Portugal, Italy and Greece.

Uncertainty and Financial Analysts’ Optimism: A Comparison between High-Tech and Low-Tech European Firms

This study investigates the impact of information uncertainty on analysts’ earnings forecasts for a sample of European companies from 2010 to 2019. We argue that representativeness, anchoring and adjustment, and leniency biases jointly influence analysts’ forecasts and lead to optimism. We suggest that uncertainty boosts analysts’ optimism as behavioral biases increase in situations of low predictability. We test analysts’ optimism through the association between forecast errors and, separately, two modifications (forecast revision and forecast change) when these modifications are upwards and downwards. To examine the uncertainty effect, we implement descriptive and regression analyses for two subsamples of high-tech and low-tech firms. The evidence indicates that analysts are optimistic, as they overreact to positive prediction modifications and underreact to negative prediction modifications. The optimism is more significant for high-tech firms and increases considerably with the forecast horizon. For robustness, we utilize analysts’ forecast dispersion as a second proxy for uncertainty, and we obtain comparable results.