Firm Capacity Research Articles

How does supply chain collaboration improve innovation performance of SMEs? The roles of absorptive capacity and business environment

There is increasing awareness that customers and suppliers serve as key external information sources for the innovation of small and medium-sized enterprises (SMEs). However, existing research on the influence of customer participation (CP) and supplier participation (SP) remains inconsistent. This study addresses this gap by investigating how CP and SP affect different types of innovation performance of SMEs in China. Furthermore, by addressing the gap regarding the unclear mechanisms of CP and SP in SMEs’ innovation performance, this study explores the mediating role of a firm's absorptive capacity on innovation performance and the conditions under which absorptive capacity will be more effective. Based on a sample of 1861 SMEs in China, the findings highlight that CP positively impacts product innovation performance, with absorptive capacity acting as a partial mediator. Additionally, both CP and SP influence process innovation performance directly or through absorptive capacity. Meanwhile, the business environment moderates the effect of absorptive capacity on product innovation performance. These findings contribute to the theory of open innovation and offer valuable insights for SME managers, entrepreneurs, and scholars in enhancing innovation outcomes.

An economic foundation for assessing the credibility of corporate net zero transition pathways

AbstractThe G20 has highlighted the urgency and importance of financing net zero transition. Investors, however, lack a systematic framework to assess the credibility (incentive‐compatibility) of corporate transition claims. As such, negative screening based on current GHG emissions or even sectors remains a dominant climate investment strategy. In response, this paper develops an economic foundation for credible corporate net zero transition. Our model shows that, besides its current emissions, both a firm's transition capacity and urgency should be considered when assessing its likelihood of attaining net zero; interestingly, it shows how the concavity of its transition pathway may serve as a litmus test. Finally, we discuss how the Task Force on Climate‐Related Financial Disclosures (TCFD) framework can be utilized for credibility assessment of corporate transition pathways. Our findings and recommendations are one of the first attempts to address the market call for systematic approaches to evaluate forward‐looking climate mitigation claims.

Trade policy uncertainty and capacity utilisation rate: Firm‐level evidence from China's WTO accession

AbstractThis paper was one of the first to explore the impact of trade policy uncertainty (TPU) reduction on Chinese firm capacity utilisation rate from the perspective of trade policy variation. Based on a quasi‐natural experiment of the implementation of Permanent Normal Trade Relation (PNTR) after China's WTO accession, this paper adopts the difference‐in‐difference (DID) method to conduct empirical analysis, and finds that reduction in TPU significantly raises firm capacity utilisation rate. The mechanism tests show that export expansion is an important channel through which reduction in TPU raises firm capacity utilisation rate, especially for firms exporting to the United States; reduction in TPU also raises firm capacity utilisation rate through the improvement of production efficiency; in addition, reduction in TPU raises firm capacity utilisation rate along the downstream linkages, whereas the effect of the upstream linkages is insignificant. Finally, this paper takes a step further to conduct empirical analysis at industry level, the results show that reduction in TPU also significantly raises manufacturing aggregate capacity utilisation rate, and the improvement of resource reallocation efficiency (especially the exit of the firms with backward production capacity) plays an important role. Our study was helpful to understand the driving forces of the changes in Chinese manufacturing capacity utilisation rate in recent years, and it also provides new ideas for solving over‐capacity.

Corporate misconduct and innovation: Evidence from the pharmaceutical industry

We examine the relationship between corporate misconduct and pharmaceutical firm innovation and performance. Pharmaceutical firms obtain significantly fewer new product approvals by the U.S. Food and Drug Administration (FDA) following corporate regulatory violations, lawsuits, and Securities and Exchange Commission (SEC) regulatory enforcement actions. We also examine the potential reasons why innovative capacity is reduced for culpable firms. Following instances of misconduct, pharmaceutical firms are 50 percent less likely to engage in business expansions, engage in significantly fewer new strategic alliances and partnerships, and are awarded fewer government R&D grants. We attribute these results to the reputational loss associated with public knowledge of corporate misconduct. In support of this hypothesis, we find pharmaceutical firms experience negative cumulative abnormal stock returns (CARs) surrounding SEC enforcement announcements, and misconduct incidents increase the probability of analyst concerns. Overall, our results are consistent with the reputational loss associated with corporate misconduct being an important factor in future reductions in pharmaceutical firm innovative capacity.

Excess Capacity and Demand-Driven Business Cycles

Abstract I build a macroeconomic model that features chronic excess capacity. Firms can use their capacity to compete for buyers who are not fully attentive to prices. If one firm expands capacity while other firms do not, it “steals” or attracts profitable demand from others. Theoretically, I show that this capacity competition can cause an over-accumulation of capacity. In the presence of chronic excess capacity, capital resources can be slack, and demand shocks can have large effects on output. The model is consistent with stylized facts about capacity utilization and survey evidence from Switzerland. Quantitatively, when the model is estimated to match the U.S. macro data, demand shocks turn out to be the main driving forces of business cycles.

Dual Impacts of Space Heating Electrification and Climate Change Increase Uncertainties in Peak Load Behavior and Grid Capacity Requirements in Texas

AbstractAround 60% of households in Texas currently rely on electricity for space heating. As decarbonization efforts increase, non‐electrified households could adopt electric heat pumps, significantly increasing peak (highest) electricity demand in winter. Simultaneously, anthropogenic climate change is expected to increase temperatures, the potential for summer heat waves, and associated electricity demand for cooling. Uncertainty regarding the timing and magnitude of these concurrent changes raises questions about how they will jointly affect the seasonality of peak demand, firm capacity requirements, and grid reliability. This study investigates the net effects of residential space heating electrification and climate change on long‐term demand patterns and load shedding potential, using climate change projections, a predictive load model, and a direct current optimal power flow (DCOPF) model of the Texas grid. Results show that full electrification of residential space heating by replacing existing fossil fuel use with higher efficiency heat pumps could significantly improve reliability under hotter futures. Less efficient heat pumps may result in more severe winter peaking events and increased reliability risks. As heating electrification intensifies, system planners will need to balance the potential for greater resource adequacy risk caused by shifts in seasonal peaking behavior alongside the benefits (improved efficiency and reductions in emissions).

Exploring the Drivers and Constraints of Firm Capacity Utilization in the Middle East and North Africa

This study analyzes the drivers and constraints affecting enterprise capacity utilization (CU) in the Middle East and North Africa (MENA) region. We used data from the World Bank Enterprise Survey and a fractional logit model to examine the impacts of institutional, infrastructural, and sustainability factors on firms’ CU. Our analysis highlights corruption and competition in the informal sector as significant impediments to firms’ CU, alongside complex infrastructure barriers that hinder the optimization. Conversely, environmental responsibility and innovation emerge as critical drivers for enhancing CU. Surprisingly, top managers’ experience introduces a counteractive influence that negatively affects CU. Beyond the empirical findings, this study’s implications extend to various stakeholders, notably policymakers. Emphasizing the need to address corruption, foster an enabling business environment, strategically invest in infrastructure, promote sustainability initiatives, and foster innovation to enhance CU are paramount. Additionally, providing targeted managerial training to mitigate negative managerial influences is crucial. Implementing these recommendations promises to foster an environment conducive to improved CU, driving economic growth, and sustainable development in the MENA region and benefiting stakeholders across sectors.

How and when CEO servant leaders fuel firm innovation: the role of social capital and knowledge absorptive capacity

Firm innovation is a characteristic of firms with a robust entrepreneurial orientation that wish to have a strong competitive position in their sector. Drawing on the theories of servant leadership and upper echelons, this study aims to highlight the mechanisms through which CEO servant leadership enhances firm innovation. This paper examines (1) knowledge absorptive capacity as a mediator in the CEO servant leadership–firm innovation relationship, and (2) the moderating role of social capital (internal and external) in this relationship. Original data from 176 large and medium-sized hotels in the Canary and Balearic Islands (Spain) were used to test the hypotheses, and a partial least squares (PLS) analysis using Smart PLS 4 revealed that CEO servant leadership was positive for firm innovation, which was, in turn, mediated by firm knowledge absorptive capacity. Furthermore, the relationship between CEO servant leadership and firm knowledge absorptive capacity was found to grow stronger as internal social capital increased, while external social capital strengthened the positive link between firm knowledge absorptive capacity and firm innovation. New light is therefore shed on how and when CEO servant leadership is most effective in fostering firm innovation. Additionally, our firm-level findings contribute to the servant leadership literature, which is dominated by individual and group-level research, and expand the mounting evidence for the positive impact of CEO servant leadership on firm-level outcomes.

The determinants of debt renegotiation: Evidence from Brazil

We investigate factors that affect debt renegotiation in an emerging economy, focusing on Brazil's publicly-listed non-financial firms. We manually collect novel data from more than three thousand notes to financial statements. The results show that the deterioration in the financial condition of companies - marked by declining profitability and increasing leverage - increases the probability of debt renegotiations. Furthermore, our findings reveal that the impairment in a firm's payment capacity, such as reduced profitability, cash flow, and interest coverage heighten the chances of renegotiations incorporating debtholder compensation mechanisms. Our results expand the knowledge about renegotiation to a context that has been scarcely addressed in previous studies: emerging markets. Additionally, it provides novel insights into the use of compensation mechanisms during renegotiations — an aspect little explored in the literature, although very present in renegotiations. We also innovate by addressing renegotiations with bondholders, an aspect largely overlooked in extant literature.

Optimal investment timing and size decision‐making with jump risk and time‐inconsistent preferences

AbstractThis paper analyzes a firm's investment timing and capacity decision by considering the manager's time‐inconsistent preferences and continuous economic depreciation of the capital stock cannot be completely offset. The demand shock of the underlying product evolves according to a double exponential jump‐diffusion process. Within a real options framework, we derive the explicit expressions for the optimal investment threshold and investment size when the manager is sophisticated. We find that time‐inconsistent preferences will lead the firm to delay investment when capital depreciation rate is low and accelerate investment when the rate of capital depreciation is high. Further, we show that capital depreciation rate has a monotonic positive effect on the investment size of a time‐consistent manager but a non‐monotonic effect on that of a sophisticated manager. A sophisticated manager tends to choose a smaller investment size than a time‐consistent manager. Finally, we demonstrate that compared with the geometric Brownian motion, the firm invests later with a larger capacity under the jump‐diffusion model.

Does excess capacity strengthen firms' dependence on the polluting path? Evidence from Chinese iron and steel firms

AbstractThis paper studies the relationship between firms' excess capacity and their environmental behaviour by matching the environmental data of China's major iron and steel firms with the Chinese Industrial Enterprises database. The findings are as follows. (1) A firm's excess capacity leads to myopic decisions, and firms will pay more attention to short‐run economic benefits at the cost of long‐run environmental benefits, which strengthens their dependence on the polluting path. (2) The dependence is positively correlated with the transformation barriers, and either a higher innovation cost or a higher possibility of regulatory capture in local official governance would lead to greater dependence on the pollution path. (3) Mergers & acquisitions (M&As) may hopefully cut such dependency, but only cross‐provincial M&As led by central state‐owned enterprises (SOEs) can effectively alleviate the “pollution effect” of excess capacity, while intra‐provincial M&As led by local SOEs fail to achieve such a goal.

System planning with demand assets in balancing markets

Balancing markets will become more and more relevant with the increased volatility in the electricity system due to the increase in the renewable quota. New policies are paving the way for customers flexibility participation as demand response in reserve products. This paper contributes with an assessment of the impact of demand response participation in the reserve market when planning the electricity system’s operation and investment in new technologies. The model used has been conveniently upgraded and a set of scenarios have been raised to conduct the analysis. The residential and services sectors' consumption for heating, cooling, hot water, and electric vehicles are considered as sources of flexibility. Each one has their own modeling to represent their nature. Main findings show that demand response receives and offers more benefits for the system on the wholesale market than in balancing services, although their participation in them is quite relevant. This is due to the decrease in firm capacity investment needs thanks to reducing systems’ peak technologies and the decrease of spillages from renewables. Additionally, increasing demand response percentages in the systems lead to cost reduction. However, there is a limitation associated with an increase of CO2 emissions due to the usage of existing polluting technologies to avoid investments in storages. Finally, flexibility providers are compared to determine their flexible capabilities.

Firm digital investments and capacity utilisation: A perspective of factor inputs

Data resources empower traditional inputs and promote capacity utilisation. Previous research has proven the positive role of digitisation on capacity utilisation from the perspectives of information asymmetry and technological innovation, but there is still a lack of theoretical foundation. This study proposes a model of the impact of information and communications technology capital on capacity utilisation. We empirically test the relationship between firms' digital investments and capacity utilisation using the data of Chinese manufacturing-listed companies from 2007 to 2021. First, an inverted U-shaped feature exists between firm digital investments and capacity utilisation, and the main mechanisms are the ‘cost effect’, ‘capital allocation effect’ and ‘labour input effect’. Second, firms' bargaining power, industrial technology density and regional market development influence capacity utilisation when firms engage in digital investments. Third, narrowing the digital gaps within industries and regions and increasing investments in artificial intelligence, big data and digital technology applications can enhance the non-linear impact of firm digitisation on capacity utilisation. Fourth, digital transformation can resist the negative impact of external shocks on capacity utilisation to some extent. Our research provides theoretical and practical support to facilitate the high-quality development of firms.

The effect of firm absorptive capacity on learning by importing: mediation role of industry policy-induced intermediate input import

The effect of firm absorptive capacity on learning by importing: mediation role of industry policy-induced intermediate input import

Organizational Mindfulness Perspective on Driving Enterprise System Adaptation and Organizational Agility

Nowadays enterprise system(s) (ESs) have become a pervasive digital platform and are widely utilized by firms. However, uncertain environments require firms continuously adapt their ES. ES adaptation involves the postimplementation changes of an ES to meet changing business needs. How firms adapt their ES to facilitate organizational agility remains an understudied issue. Drawing from the literature of organizational mindfulness, this article holds that firms need to foster organizational mindfulness—a firm's willingness and capacity to capture and refine discriminatory details about its environments—to facilitate ES adaptation and organizational agility. We build and test a model based on 138 responses of Taiwanese manufacturing firms. Our findings demonstrate that organizational mindfulness can help firms to achieve better ES adaptation and organizational agility. Specifically, organizational mindfulness can facilitate not only ES adaptation but also entrepreneurial and adaptive agility that is the offensive and defensive dimensions of organizational agility. ES adaptation is mainly related to entrepreneurial agility. This article contributes to the agility literature by proposing and testing a model of how organizational mindfulness affects ES adaptation and organizational agility.

Conceptual Review of Colonial Beliefs and Attitudes in “Othering” During Postcolonial Africa: Lessons for Nigeria

There has been a growing concern regarding post colonialism and its relative role of colonial beliefs and attitudes in “othering”, and this has, also consequently, been a subject of keen inquiries amongst scholars in contemporary international politics. Most of such inquiries have emerged from a wide range of scholarly disciplines including international relations. The primary aim of this research was to examine the role of colonial beliefs and attitudes in “othering” in postcolonial Africa with reference to Nigerian settings. The specific objectives include investigating colonialism in postcolonial Africa and Nigeria in contemporary international politics. It also examined the association between colonialism and othering in postcolonial Africa and Nigeria within the international politics. The central notion of this study was to present the role of colonial beliefs and attitudes in othering in postcolonial Africa. Efforts were made through conceptual orientations with emphasis on colonialism (that is, colonial beliefs and attitudes, othering) and post colonialism. The paper recommended that there should be a growing call among scholars and practitioners to conceptualise race using more complex historical foundations capturing nuances of gender, ethnicity, and skin tone rather than simplifying race as binary. Postcolonial theory should be carefully studied to provide a strong theoretical foundation to understand race and intersectional identity and also to provide a firm capacity to understand race relationships.

Research versus development, external knowledge, and firm innovation

AbstractWhile the positive influence of external knowledge on firm innovation is widely recognized, our understanding of the interplay between the quest for external knowledge and internally conducted research and development (R&D) remains incomplete. Previous research has identified certain conditions that shape the synergy between internal and external knowledge, such as the institutional origin of the external knowledge and the overall scale of the firm's internal R&D activities. In this study, we focus on an important but not yet considered dimension and analyze whether the returns from external knowledge sourcing are contingent upon a firm's internal involvement in basic or applied research as opposed to development. We argue that engaging in research, while supporting a firm's absorptive capacity, leads overall to lower benefits from seeking external knowledge because of knowledge crowding out and spillover effects. We test our predictions using a representative panel dataset from Spain (Panel de Innovación Tecnológica [PITEC]) and show that the benefits of external knowledge decrease for higher shares of internal research investment. This substitution effect is particularly pronounced in settings where sector‐level appropriability is limited and in nonhigh‐tech sectors. We contribute to the innovation literature by underscoring the important role of the nature of internal R&D efforts in shaping firms' capacity to benefit from external knowledge sources.

AI-Enhanced Innovation Ambidexterity: The Role of IC, DC, and Innovation Orientation in the Pharmaceutical Industry

Dynamic challenges and opportunities mark the global pharmaceutical industry, necessitating firms to effectively balance innovation ambidexterity—simultaneously exploring new opportunities while exploiting existing resources. This study investigates the complex interplay of Intellectual Capital (IC), Dynamic Capabilities (DC), and innovation orientation (IO) in driving innovation ambidexterity in the Egyptian pharmaceutical industry. A quantitative methodology was utilised, collecting data via a questionnaire survey administered to experts working in the pharmaceutical industry. The study generated and evaluated hypotheses to investigate the links between IC, DC, innovation ambidexterity, and the moderating effect of IO. The findings reveal that IC significantly influences innovation ambidexterity, highlighting the critical role of knowledge resources. DC mediate the relationship between IC and innovation ambidexterity, emphasising the importance of a firm's capacity to sense and seize opportunities.
 Furthermore, IO moderates the relationship between IC and innovation ambidexterity, showcasing the contextual relevance of firms' innovation focus. This study contributes to our understanding of innovation ambidexterity in the pharmaceutical industry and underscores the importance of IC in fostering this capability. Firms are encouraged to invest in IC and cultivate DC to successfully navigate the evolving pharmaceutical landscape. The moderating effect of IO suggests the need for tailored strategies based on firms' specific contexts. The implications of this research extend to organisations striving to achieve innovation ambidexterity in dynamic industries.

Human resource management, absorptive capacity and reverse knowledge transfer

PurposeThe objective of this study is to analyze the process of reverse knowledge transfer (RKT) occurring in multinational companies (MNCs), examining whether headquarters' absorptive capacity and the human resource management (HRM) practices developed by the parent unit influence success.Design/methodology/approachThe data were collected through a questionnaire completed by the human resource manager of multinational company (MNC) headquarters. The analysis has been carried out on a sample of 115 Spanish MNCs by using structural equation models (SEM).FindingsThe results indicate that a parent firm's absorptive capacity positively influences RKT and that, in turn, this absorptive capacity is greater if headquarters implement certain practices of employee staffing, training, participation and performance appraisal.Originality/valueThis study extends existing research on RKT by examining the absorptive capacity of headquarters. Its main contribution is to provide evidence that MNCs can improve their RKT through HRM practices developed by the parent unit. This is original because most studies on RKT focus on HRM practices used by subsidiaries.

Does empowering leadership help firms to establish collaborative culture and organizational commitment to stimulate frugal innovation?

PurposeGiven innovation's significance, this research examines the link between empowered leadership and frugal innovation. The research also explores how collaborative cultures and organizational commitment mediate empowered leadership's effect on frugal innovation.Design/methodology/approachQuantitative method is used with the approach of hierarchical regression to test the hypotheses with data obtained from Pakistani small- and medium-sized enterprises (SMEs) through the questionnaire from 288 participants.FindingsThe results of this study show that empowered leadership has a considerable impact on the firm's capacity for frugal innovation. Additionally, this study shows that organizational commitment and collaborative culture significantly moderate the association between empowering leadership and frugal innovation.Research limitations/implicationsFuture studies should examine mediating factors, including employment experience, education and perceived organizational support, and moderating variables like employee psychological empowerment and leadership styles.Practical implicationsThis research advises SMEs in developing nations to utilize frugal innovation since they cannot afford to spend extensively on technologies that add creativity and innovation to goods and services.Originality/valueThis study advances how leadership both directly and indirectly helps organizations strengthen their capacity for frugal innovation through the mediating roles of collaborative culture and organizational commitment.