European Manufacturing Firms Research Articles

Environmental and financial performance in the European manufacturing sector: An analysis of extreme tail dependency

In this study, we investigate the impact of environmental performance on financial performance. We argue that environmental performance heterogeneously affects firms with different profitability level. Using data for 288 European manufacturing firms over the period 2005–2016, we investigate the said relationship under the financial slack argument and the contrasting paradigms of neoclassical and the instrumental stakeholder theory. Employing a quantile regression framework enriched with a set of instrumental variables to more effectively approximate environmental performance, we find (i) firms with superior environmental performance tend to be more profitable; (ii) the relationship between environmental and financial performance can be characterised as positive and heterogeneous across the conditional distribution; (iii) financial and environmental performance are endogenously related only when high profitability firms are examined.

Debt specialization and performance of European firms

Abstract Relying on a cross-country comparable sample of European manufacturing firms, this paper investigates the relationship between the level of debt specialization (i.e. composition of the various types of debt) and firm turnover reduction in a time of crisis. The analysis is conducted applying the generalized propensity score matching methodology for continuous variables recently developed by Hirano and Imbens (2004) and Imai and Van Dyk (2004). This quasi-experimental setting allows estimating the (average) firm turnover reduction at each level of debt concentration (i.e. the dose–response function). Consistent with the theoretical analysis of De Fiore and Uhlig (2015) on the flexibility of the financial system, results from the empirical analysis suggest that firms having a diversified debt structure are less likely to experience a severe turnover reduction.

Banking relationships, firm-size heterogeneity and access to credit: Evidence from European firms

Using detailed data on European manufacturing firms, this paper investigates the role of firm-bank relationships and lending technologies in firms’ access to credit during the 2007–2009 financial crisis. Empirical results show that firms’ credit availability improves when banking relationships are tighter and when banks adopt a relationship lending approach. The association between banking relationship characteristics and credit access is characterized by significant heterogeneity across firm size groups. Specifically, we find that relationship lending technologies, the recourse to multiple banking and a consolidated relationship with the main bank are particularly beneficial for the access to credit of informationally opaque small businesses.

Innovation and productivity in family firms: evidence from a sample of European firms

ABSTRACTUsing firm-level data, we estimate the returns to R&D investments for a sample of European manufacturing firms over the period 2007–2009. Results confirm that R&D efforts are positively related to productivity regardless of firm type (family or nonfamily firms). Additionally, we find that family firms invested more in R&D than nonfamily firms, but the returns to their R&D investments are low, emphasizing that they have a lower capacity to translate R&D investments into economic gains.

Bank lending technologies and credit availability in Europe: What can we learn from the crisis?

Using a unique sample of European manufacturing firms, we empirically investigate how bank lending technologies nd soft information adoption affected firms’ credit availability during the 2007–2009 financial crisis. Estimation results indicate that transactional lending technologies increased firms’ credit rationing, whereas soft information mitigated asymmetric information problems and improved firms’ access to credit. By looking at the combined effect of bank lending technologies and soft information, we also provide evidence about the complementarity between transactional lending techniques and soft information adoption. When soft information was incorporated in transactional lending technologies firms’ credit rationing significantly reduced. This result is especially strong for small borrowing firms and for companies matching with large financial institutions.

Backshoring of production activities in European manufacturing

Backshoring – the movement of manufacturing activities from locations abroad back to the home country – has gained some attention in policy discussions and in academic research in recent years. This paper presents empirical evidence on backshoring from a large sample of European manufacturing firms. The data indicate that backshoring is still uncommon among European firms. Around 4% of all firms in our sample have moved production back to the home country between 2013 and mid-2015. The most frequent reasons for backshoring are the loss of flexibility, a lack in quality of the goods produced abroad, and unemployed capacities at home. Flexibility and quality concerns are, in particular, relevant for firms that move production back from Asian countries. Backshoring is most likely for manufacturers of final products and in high-technology sectors, in particular in electrical equipment, information and communications equipment, and the Automotive industry.

Cohesion Policy Meets Heterogeneous Firms

In this paper, we empirically test the effect of the EU Cohesion Policy using a unique dataset of 273,500 European manufacturing firms, combining regional policy data at NUTS-2 level with firm-level total factor productivities (TFP). In a framework of heterogeneous firms and different absorptive capacity by regions, we show that financing by the European Regional Development Fund (ERDF) aimed at direct investments in R&D is associated with improvement of firms’ productivity in a region, while funding designed at overall Business Support is not. The positive association with RTD spending is stronger in the first quartile of the TFP distributions, i.e., for firms that are least efficient in a region, apparently in line with the priority of the policy, which aims at improving firms’ competitiveness with an eye towards small and medium enterprises (SMEs). We finally argue that considering the heterogeneous distribution of firms’ inefficiencies within a region is crucial for a better design of the Cohesion Policy, better than looking at regional aggregates, to avoid a misallocation of resources.

Exploring the relationship between scenario planning and strategic flexibility and complexity

An organisation's ability to deal with uncertainty and to adapt to changes is a key strategic capability in dynamic environments. Thus, firms need a flexible planning in order to adapt and survive. Scenario planning is one of the tools that stimulates strategic thinking and offers strategic choices by creating multiple futures. However, little evidence is available about its effects on organisational competencies. This paper explores the direct contributions of scenario planning to strategic flexibility and complexity. A structural equation modelling (SEM) is used to evaluate the causal links between concepts. Data analysis derived from a sample of 108 European manufacturing firms.

Balancing Internal and External R&D Strategies to Improve Innovation and Financial Performance

Abstract This research investigated the complementarity of internal and external R&D for innovation development and the effect of innovation on the financial performance of European manufacturing firms. Using multigroup structural equation modeling, this study partially supported that internal and external R&D are complementary in firms from high-technology industries, whereas they are not in firms from low-technology industries. For the two groups of firms, both internal and external R&D separately had a positive effect on innovation performance. These results suggested that if low-tech firms, which had lower absorptive capacity than high-tech firms, want to improve their innovation performance in the long term, they should start prioritizing internal R&D to improve their absorptive capacity while achieving a short-term satisfactory innovation outcome. As absorptive capacity rises, more complex strategies balancing internal and external R&D should be adopted. Contrary to expectations, the empirical analysis indicated that innovation performance did not influence short-term financial performance for the whole sample. However, in countries more affected by the 2008 crisis (for instance, Baltic countries, Portugal and Spain), this effect was detected, indicating that innovation helped firms to recover faster.

Markups and Productivity under Heterogeneous Financial Frictions

We incorporate heterogeneous financial frictions in a setting of monopolistically competitive firms with endogenous markups. Before producing, firms must pledge collateral to obtain a bank loan, needed to cover part of production costs. Firms differ both in productivity and in their cost of raising collateral. Firm-specific financial frictions, together with productivity, therefore figure in the equilibrium expressions of prices and markups. We validate our theoretical results on a representative sample of European manufacturing firms surveyed during the financial crisis. Guided by our model we retrieve from balance-sheet data firm-specific measures of access to finance, total factor productivity and markups, and then use these variables to estimate our equilibrium equations structurally. Consistent with our model, we show how heterogeneity in access to finance explains part of the dispersion of prices and markups, even after controlling for firms' productivity and size. In the aggregate industry equilibrium, the amount of collateral required by banks significantly affects the cost pass-through to prices.

A Comparison of the Financial Characteristics of European and Asian Manufacturing Firms

Abstract Comparing the financial characteristics of firms in different countries has been a popular research topic in finance. However, general financial characteristics of European and Asian manufacturing firms have never been compared. In this paper, we undertake such a study with the MANOVA (Multivariate Analysis of Variance) technique. Our research uses all European and Asian manufacturing firms included in the Research Insight/Global Vintage database at the end of 2015. Our findings may provide valuable insights for financial managers and global investors. We find that Asian firms tend to have less liquidity risk but more bankruptcy risk compared with European firms. European firms have more efficient accounts receivable management and higher fixed and total assets turnover rates. However, Asian firms have higher inventory turnover and sales growth rates. Return on equity is not significantly different in European and Asian firms. However, Asian firms have significantly higher net profit margin and return on assets compared with European firms.

An empirical investigation of the effects of firm characteristics on the propensity to adopt cloud computing

Cloud computing (CC) is emerging as a new paradigm of resource acquisition and management of information and communication technologies (ICT) by firms, which can offer significant benefits, but at the same time can pose significant risks as well, so its adoption by firms has been lower than the initial expectations. Therefore, it is quite important to gain a better understanding of the factors affecting positively or negatively the adoption of CC. This paper presents an empirical investigation of the effects on a firm’s propensity to adopt CC of a set of firm characteristics referring to technological infrastructure, strategy, personnel skills, size and competition. Its conceptual foundation is the Technology, Organization and Environment theory of technological innovation adoption. Our study is based on data from 676 European manufacturing firms from the glass, ceramics and cement sectors, which have been collected through the e-Business Survey of the European Commission. The results indicate that in the above sectors ICT infrastructure sophistication has the strongest positive effect on CC adoption propensity among all examined firm characteristics. Furthermore, we have found that the existence of an ICT investment reduction strategy, the employment of specialized ICT personnel and the existence of previous experience of ICT outsourcing also have positive effects on a firm’s propensity to adopt CC. On the contrary, employees ICT skills, price and quality competition do not affect CC adoption propensity. Finally, our results also indicate that in the three examined sectors firm size has no significant influence on the propensity to adopt CC.

The effect of public support on investment and R&D: An empirical evaluation on European manufacturing firms

This paper investigates the effect of government support on investment and on R&D expenditure. The empirical analysis is based on a large representative and cross-country comparative sample of manufacturing firms across seven European countries. Estimates from a non-parametric matching procedure suggest that public grants have a positive effect both on firms' investment and R&D, implying that recipient firms spend more than they would have without public aid. This may suggest that the possibility of perfect crowding out between private and public funds can be rejected. More in detail, grants appear to consistently affect traditional investment and similarly, R&D incentives have a positive impact on research spending. The paper also finds that grants trigger the use of long medium term credit suggesting that public policy may possibly help firms facing financial constraints and foster their growth. Finally, the analysis reveals some heterogeneity across the seven countries considered.

Relationship Lending and Firms’ Leverage: Empirical Evidence in Europe

AbstractUsing a novel measure of relationship lending based on the kind of information banks use to assess borrowers, we investigate the role of relationship lending in firms’ capital structure. Using a unique dataset of European manufacturing firms, we measure relationship lending based on three dimensions (closeness, soft information, exclusivity) and relate them to firms’ leverage. Overall our results support the hypothesis that supply factors matter. We find that the actual use of soft information increases leverage and only firms without soft information‐intensive relationships increase their leverage through multiple relationships. However, the effect of relationship lending on leverage varies across countries.

Dynamic multi-directional inefficiency analysis of European dairy manufacturing firms

This paper extends the method of multi-directional inefficiency analysis to account for dynamics of firms’ production decisions. The resulting approach – dynamic multi-directional inefficiency analysis – measures variable input- and investment-specific inefficiency using Data Envelopment Analysis. The empirical application focuses on panel data of large dairy manufacturing firms over the period 2005–2012 in three European regions (Eastern, Southern and Western). The results show that investments are the most inefficient factor for firms in all European regions, followed by labour and materials. However, the findings also suggest a high dispersion of investment-specific inefficiency scores within the sample. The paper also finds that the median dynamic inefficiency is changing rapidly in the years after the beginning of the financial crisis.

A Comparison of the Financial Characteristics of U.S. and European Manufacturing Firms

Abstract Comparing the financial characteristics of firms in different countries and regions has been a popular research topic in finance. In this paper, we compare the financial characteristics of U.S. and European manufacturing firms with the MANOVA (Multivariate Analysis of Variance) method and financial ratios. Our findings indicate that the overall financial characteristics of U.S. and European manufacturing firms are significantly different. We find that U.S. manufacturing firms are more profitable and they have less liquidity and bankruptcy risks compared with European manufacturing firms. European manufacturing firms are more efficient in managing their fixed assets. However, U.S. manufacturing firms are more efficient in managing their accounts receivable and total assets. U.S. manufacturing firms are able to achieve significantly higher sales and total assets growth rates compared with European manufacturing firms.

Failure processes of old manufacturing firms in different European countries

This study aims to detect failure processes on the example of old bankrupted European manufacturing firms. Two study designs are applied, namely the original six variables from Laitinen’s (1991) model and an extended dataset with eleven variables for a five-year timespan before declared bankruptcy. On both occasions, two different failure processes are detected which indicate elements of either quickly or gradually failing firms. Clear contingencies between detected processes and firms’ countries of origin exist. There is some evidence that firms of different sizes follow varying failure processes, but this does not apply when discriminating between exporters and non-exporters

Do Innovation and Offshoring Make a Difference? An Empirical Exploration of the Effects on the Performance of European Firms

<p>This study attempts to answer the question of whether European manufacturing firms that undertake offshoring, innovation or both benefit from higher productivity and profitability. From a methodological point of view, the driving forces that push firms to innovate and/or to offshore can be seen as self-selection mechanisms that make the estimation of their economic impact more difficult if the confounding factors affecting these mechanisms also affect the economic performance of the firms. To disentangle the effect of both offshoring and innovation on firms’ performances from the effect of firm characteristics, the propensity score matching methodology in a multi-overlapping treatment setting is used.<strong> </strong>The study targets European countries using the EU-EFIGE/Bruegel-Unicredit dataset. Decisions to offshore and innovate do not seem to have a significant effect on productivity, whereas the decision to innovate only has a significant effect on firm profitability.<strong> </strong></p>

Closing the energy-efficiency technology gap in European firms? Innovation and adoption of energy efficiency technologies

This article investigates the determinants of the adoption of energy efficiency technologies in European manufacturing firms and the role of product and process innovations in the adoption process. The empirical results show that product and process innovation are positively related to adoption of energy efficiency technologies. Moreover, there is a positive association between environmental performance measurement systems and adoption of the aforementioned technologies. Interestingly, product innovative firms are more likely to adopt additional energy efficiency technologies only if they have already introduced these technologies in the past.

Semiparametric stochastic metafrontier efficiency of European manufacturing firms

In this paper a semiparametric stochastic metafrontier approach is used to obtain insight into the performance of manufacturing firms in Europe. We differ from standard TFP studies at the firm level as we simultaneously allow for inefficiency , noise and do not impose a functional form on the input–output relation. Using AMADEUS firm-level data covering ten manufacturing sectors from seven EU15 countries, (1) we document substantial and persistent differences in performance (with Belgium and Germany as benchmark countries and Spain lagging behind) and a wide technology gap, (2) we confirm the absence of convergence in TFP between the seven selected countries, (3) we highlight a more pronounced technology gap for smaller firms.