Firm Assets Research Articles

Visualization and Statistical Modeling of Financial Big Data: Log-Linear Modeling With Skew Error

In this paper, we consider the visualization and statistical modeling of financial data (e.g., sales, assets) for many global firms which are listed and delisted. This study presents an exploratory data analysis carried out in the R programming language. The results show that a log-linear model with skew-t error is useful for modeling the total sales volume (in thousands of U.S. dollars) as a function of the number of employees and the total assets (in thousands of U.S. dollars), and is obtained by comparing the Akaike information criteria between several log-linear models with error terms which are independent and identically distributed random variables with skew distributions. These models are also evaluated by cross-validation.

The Rise in Corporate Saving and Cash Holding in Advanced Economies: Aggregate and Firm Level Trends

Using cross-country national accounts and firm-level data, we document a broad-based trend in rising gross saving and net lending of non-financial corporates across major industrialized countries over the last two decades, though most pronounced in countries with persistent current account surpluses. We find that this trend holds consistently across major industries, and is concentrated among large firms, driven by rising profitability, lower financing costs, and reduced tax rates. At the same time, higher gross corporate saving have not supported a commensurate increase in fixed capital investment, but instead led to a build-up of liquid financial assets (cash). The determinants of corporate cash holding and saving are also broad-based across countries, with the growth in assets of large firms, R&D intensity, and lower effective tax rates accounting for most of the increase over the last 15 years.

Net Present Value Analysis in Finance and Real Estate: A Clash of Methodologies

Executive SummaryWhile the finance discipline focuses on the added value of a capital investment project to the firm's assets (NPVA), the real estate discipline typically looks at the impact on the firm's equity investors (NPVE). The two approaches will generate the same value provided that the project and the firm are equally leveraged. However, if the project's capital structure differs from that of the firm, NPVE will differ from NPVA. This study explores the effect of different capital structures for the project and the firm in three scenarios—a single-year project, a project generating a single cash flow multiple years into the future, and a project generating multi-year cash flows— and the resultant discrepancy between NPVE and NPVA. Using two adjustment routes, we show that NPVE can be recalculated to equal NPVA in each scenario, although the adjustment process is complicated, particularly in the more complex scenarios.

How Important Are Dismissals in CEO Incentives?: Evidence From a Dynamic Agency Model

I estimate a dynamic agency model to quantify the importance of dismissals in CEO incentives -vis-a-vis pecuniary compensation. The model features endogenous dynamics in deferred and flow compensation, as well as exogenous departures, and endogenous dismissals after poor firm performance. Thus, the model functions as a classification device for CEO turnover events that exploits information from all the departures in the data. I estimate the model via the Simulated Method of Moments, using data for CEOs in U.S. public firms appointed from 1993 to 2013. The estimated CEO dismissal rate is 1.2 percent, and the CEO replacement cost represents 3.4 percent of firm assets, 64 million in 2015 U.S. dollars for the median firm. Poor governance, proxied by director independence, increases the replacement costs for big firms. The relationship reverses in small firms, so board independence must also capture better hiring policies or career concerns of directors. The results confirm that CEO dismissals are infrequent. However, changes in the cost of replacements that generate small increases in the underlying dismissal rate lead to substantial reductions in the size of incentive compensation.

Supply Chain Quality Management Practices, Complementary Firm Assets, Competitive Advantage and Firm Performance

Supply Chain Quality Management Practices, Complementary Firm Assets, Competitive Advantage and Firm Performance

Analyzing Determinants of Dividend Payout Practices in Pakistan Textile Industry (2008-2013)

This study of 151 textile firms, each having 6 yearly (2008-13) data, provided a total sample size of 906 observations for analyzing dividend payout practices and its various determinants. Of a total sample of 151 textile firms, 14% were found having negative and 86% were found having positive equity. Majority (75%) of these negative equity bearing firms, on average, have total assets worth Rs.709, 834 million against which they each have to pay Rs. 871, 213 million as total debts. These firms are paying no dividend and their dividend cover ratio (number of times an organization is capable of paying dividends to shareholders) is also equal to zero. Hence these firms are technically bankrupt. Of the total 129-130 positive equity bearing firms, 45-46 firms (35%) are yielding negative and 84 firms (65%) positive net profit before tax (NPBT). The leverage of former type of firms is much higher (2.9 times) than that of later type of firms. The average total asset of latter firms is 392.78 times of that of the former. The average dividend payout of the latter firms is 935.92 times of the former. The average total debt of the latter firms is 316.50 times of the former. The average total equity value of the latter firms is 615.89 times of that of the former. The average sale of the latter firms is 22,345.39 times of that of the former firms. Analysis of the 84 positive NPBT yielding firms portrays statistically significant negative relationship between dividend payout and leverage and dividend payout and debt while statistically significant positive relationship between dividend payout and variables like net profit, sales and equity. Since fourteen percent of the total 151 sampled textile firms on the basis of 6 years data (2008-13) appear to have negative equity values, suggesting that such firms have already gone in to bankruptcy. Thirty-five percent of the remaining firms, which though have positive equity values, yield negative net profit before tax (NPBT) and 65% firms yield positive NPBTs. High debts and high ratios of leverage are suspected as the prime reason for bankruptcy and negative NPBTs of the firms. A detailed enquiry is recommended to reconfirm our findings and for an appropriate remedial step. Eighty-four firms (55.63% of total 151 sampled textile firms) bear positive equity values and also yield positive NPBTs; an analysis of such firms indicate a statistically significant positive relationship between dividend payout and net profit before tax, firms’ total sales and equity value of the firms but statistically significant negative relationship between dividend payout and leverage and debt. Since a stable dividend payout practice is considered desirable and dividend payout and equity financing are positively correlated, it is therefore recommended that firms pay greater attention towards equity-financing relative to debt-financing of the firms.

Impacting Factors of the Chinese Military Enterprises’ Capital Structure and Approaches of Importing Private Capital

This paper analyzes the impacting factors of the capital structure of military listed companies in China, based on the 2001–2015 panel data of 104 Chinese listed companies, and we explore practical approaches for Chinese private capital entering the military enterprises, given the strategy of the civil–military integration. We show that: (1) state-owned shares and domestic legal person shares negatively impact the capital structure of military enterprises and mainly show in non-current liability. While the foreign legal person shares and the shareholding ratio of executives and managers have no significant impact. (2) As for the financial indicators, coefficients of firm size, asset tangibility, and growth are positive, while those of profitability, non-debt tax shield, and growth opportunity are negative. (3) Given the civil–military integration strategy, equity financing imposes a negative impact on the capital structure of military enterprises. The negative impact increases, with the increase in military enterprises’ profitability, business risk, and growth opportunities, and with the decrease in military enterprises’ growth and firm size. (4) The negative impacts of equity financing are significant, if debt ratios of the military enterprises are too small or too large. While the state-owned shares only have significant negative impact on military enterprises whose debt ratios are too small. As a conclusion, we suggest private capital to prioritize the corporate bonds or short-term borrowing to enter the military industry, and choose smaller or medium-sized military enterprises with more growth opportunities and lower business risks.

Information Disclosure, Real Investment, and Shareholder Welfare

This paper investigates the preferences of a firm's current and future shareholders for the quality of mandated public disclosures in a dynamic setting with real investments. We find that while the firm's investment monotonically increases in disclosure quality, the welfare of the firm's current shareholders can be maximized by an imperfect disclosure regime. In particular, the current shareholders prefer an intermediate level of public disclosures if (i) the firm's current assets in place are small relative to its future growth opportunities, and either (ii) the firm's investment is observable by the stock market and sufficiently elastic with respect to the cost of capital, or (iii) the firm's investment is not directly observable by the stock market and is sufficiently inelastic with respect to the cost of capital. The firm's future shareholders prefer more precise public disclosures if the firm’s growth rate during their period of ownership is sufficiently high.

Employee Treatment and Contracting with Bank Lenders: An Instrumental Approach for Stakeholder Management

Adopting an instrumental approach for stakeholder management, we focus on two primary stakeholder groups (employees and creditors) to investigate the relationship between employee treatment and loan contracts with banks. We find strong evidence that fair employee treatment reduces loan price and limits the use of financial covenants. In addition, we document that relationship bank lenders price both the levels and changes in the quality of employee treatment, whereas first-time bank lenders only care about the levels of fair employee treatment. Taking a contingency perspective, we find that industry competition and firm asset intangibility moderate the relationship between good human resource management and bank loan costs. The cost reduction effect of fair employee treatment is stronger for firms operating in a more competitive industry and having higher levels of intangible assets.

Value creation and value distribution in Chinese listed firms: the role of ownership structure, board characteristics, and control

We investigate how ownership structure and board characteristics affect the value creation and value distribution in Chinese listed firms. Our results reveal that value creation – captured by firm profitability, labor productivity, and asset utilization efficiency – is superior when the firm’s largest ultimate shareholder controls a larger fraction of voting rights. Ownership by managers and by countervailing shareholders both improve value creation, yet only in privately controlled firms. In state-controlled firms, value creation is better when independent directors occupy a larger fraction of board seats. As to the proportional distribution of the generated value, operationalized by related-party transactions (RPT) and by cash dividends, we note that RPT are more extensive when the government controls a larger fraction of voting rights. In state-controlled firms, the wedge between the government’s voting rights and cash-flow rights is also positively associated with RPT, while negatively associated with the firm’s disbursement of cash dividends. Ownership by managers helps curb RPT in state-controlled firms, while it stimulates cash dividends in privately controlled firms. Regardless of who controls the listed firm, ownership by countervailing shareholders contributes to the proportional distribution of the firm’s generated value. Finally, independent directors have a positive influence on the distribution of cash dividends in Chinese listed firms. Overall, companies that generate more value trade at a larger market-to-book ratio. The effects of our measures of value distribution on a firm’s stock market valuation are generally insignificant, except for the negative impact of RPT in privately controlled firms.

Corruption and business cycle volatility: a corporate governance perspective

This study develops a model arguing that corruption and weak corporate governance institutions magnify economic fluctuations. Corruption increases the difficulty of corporate governance and decreases the costs to controlling families of misusing firm assets as collateral for bank loans and creating credits for their own high-risk business, thus increasing cyclical fluctuations in inflation and production. Consistent with the predictions of the model, our longitudinal analyses covering 155 countries from 1995 to 2015 suggest that corruption increases the Hodrick-Prescott cyclical volatility of inflation and production in the following 10 years. We also find that inflation volatility mediates the relationship between corruption and production volatility. However, corruption does not show significant effects on unemployment fluctuations.

Why do inconsistencies occur? Detangling the relationship between technological diversification and performance in Chinese firms

This paper proposes and investigates three potential reasons (dimensions, capability order and contingency of technological diversification) which may explain why there are inconsistencies in the findings of studies on the relationship between technological diversification and firm performance. The results indicate that: (1) a more comprehensive definition is necessary, which combines the two dimensions of technological diversification (breadth and depth), which are positively linked to firm performance; (2) in low-tech firms, technological diversification serves as a higher-level capability resulting in higher performance; however, in high-tech firms, technological diversification serves as a zero-level capability that does not contribute to firm performance and (3) intangible complementary assets negatively moderate the relationship between technological diversification and performance. Further research should consider the two dimensions to reach a more comprehensive understanding of technological diversification. Firms should increase both the depth and breadth of their technological diversification to enhance performance.

Accounting in the London Stock Exchange's extractive industry: The effect of policy diversity on the value relevance of exploration-related disclosures

The accounting treatment of exploration expenditure in the extractive industry has historically been a challenging issue for regulators. This paper examines the accounting policies for, and value relevance of, the exploration assets of firms listed on the London Stock Exchange from the oil & gas and mining sectors. The policies used by oil & gas firms range from the relatively conservative Successful Efforts to the most aggressive Full Cost method, whereas mining firms employ a range of policies from the Successful Efforts to the most conservative Expense All method. The results suggest that the income statements of Main Market-listed extractive firms contain value relevant information regardless of the policy followed by the firm. There is no significant difference between the value relevance of exploration asset disclosures by Main Market-listed oil & gas firms following the Successful Efforts or Full Cost methods. For AIM-listed oil & gas companies only the Full Cost method provides value relevant information on exploration assets. In the mining sector, exploration-related asset disclosures are only value relevant for AIM-listed firms following the Expense All method. The results suggest that flexibility in accounting for exploration expenditure is necessary to facilitate the disclosure of value relevant accounting information.

Does Macro-Asset Pricing Matter for Corporate Finance?

In an asset-pricing model calibrated to match the standard asset pricing empirical properties -- in particular, the time-variation in the equity premium -- we calculate the value implications of sub-optimal capital budgeting decisions. Specifically, we calculate that an investment policy that ignores the time variation in the equity premium, such as would occur with a cost of capital following the CAPM, incurs a 11.7% value loss. We also document the implications for a firm's asset returns in this context.

Information and Knowledge Management at South African Law Firms

Global and national law firms alike operate in a challenging business environment and managing the firm's information and knowledge assets is increasingly viewed as a key factor in efficient legal service delivery. In legal practice, information management technologies, for example intranets, portals, workflow management systems, document and content management systems, case and project management systems and online dispute resolution systems are becoming important means of legal service delivery. The reason for applying information management technologies and implementing knowledge management strategies in law firms is not only to satisfy clients' growing need for a trusted online platform to interact with legal service providers, but for law firms to capitalise on their intellectual assets, to continuously modernise legal practice management, to empower lawyers, to increase productivity, to use time efficiently, to transfer skills and knowledge from senior to junior professionals, to improve service delivery and to gain competitive advantage. This article firstly reviews the role of information and knowledge management in providing an effective legal service to clients and compares foreign and South African law firms' information management related contexts, challenges and benefits. Secondly, it presents the findings of a survey conducted at South African law firms based on their knowledge management practices. The aim of the article is to provide insights into law firm knowledge management and its effect on providing legal services in an online business environment.

Patent Citations and Financial Analysts’ Long-Term Growth Forecasts

This paper examines the influence of patent citations, a proxy for the quality of firms’ innovation outputs, on financial analysts’ long-term growth forecasts for firms. We find that financial analysts are more likely to issue long-term forecasts for firms with higher patent citations. In addition, we find that financial analysts’ long-term forecasts are more positive for firms with high patent citations. These results imply that patent citations increase financial analysts’ coverage, and result in more positive forecasts for firms with impactful patents. Considering that financial analysts play important roles in allocating financial resources in capital markets, our findings suggest that patents are valuable assets for firms in securing capital from capital markets, and are thus essential for the sustainable growth of firms.

Determinants of investment in fixed assets and in intangible assets for high-tech firms

Determinants of investment in fixed assets and in intangible assets for high-tech firms

ANALISIS PENGARUH PERTUMBUHAN ASET,UKURAN PERUSAHAAN, PROFITABILITASDAN RISIKO BISNIS TERHADAP STRUKTUR MODAL SUB SEKTOR KOSMETIK DAN KEPERLUAN RUMAH TANGGA

The purpose of this study was to examine the effect of asset growth, firm size, profitability and business risk simultaneously on the capital structure. The population of this study there are companies manufacturing sub-sectorsof food and beverages listed on the Stock Exchange during 2010-2015. The total number of samples is 5 companies. The sampling technique used was purposive sampling. The method of data analysis that uses regression and statistical description. The size of the company, Profitability and the business risk is partially not significantly affect the capital structure. Asset growth has a significant effect on the capital structure partially. Simultaneously variable firm size, profitability, asset growth and business risk significant influence terhasap capital structure. The results showed of four independent variables, firm size, profitability and business risk significantly affect the capital structure is simply asset growth. The three others variable despite having influence, but not significant. Raise capital to take advantage of outside capital into opportunities that can be used see the low risk businesses owned most of the companies manufacturing sub-sectors of cosmetics and household use. DOI: https://doi.org/10.26905/ap.v3i1.1327

The currency composition of firms' balance sheets, asset value correlations, and capital requirements

We extend the Tasche (2007) model on the asset correlation bias caused by a currency mismatch between assets and liabilities to the more realistic situation where just some assets and liabilities are denominated in a foreign currency. To test the significance of the remaining bias we rely on a unique database constructed by the Inter-American Development Bank (IADB) containing time-series of the asset and liability currency composition of firms in some Latin American countries. We find that the asset correlation bias and associated underestimations of Basel II capital charges are economically significant even when we account for the actual (partial) currency mismatch.

Does the Variability of Other Comprehensive Income (OCI) Play a Role in the Determination of Cost of Debt, Capital Structure and Credit Ratings?

We examine the usefulness of other comprehensive income (OCI) to debt investors in nonfinancial companies. Motivated by Merton’s (1974) real options framework, we construct a measure of incremental OCI volatility, designed to capture the effect of OCI on overall firm asset volatility, which is a primary driver of credit risk in Merton’s (1974) model. We find that the volatility of incremental OCI influences the likelihood of default, credit ratings, and the cost of debt. Overall, our evidence suggests that creditors use information from OCI in their assessment of firm credit risk and in pricing debt contracts.