Firm Costs Research Articles

The Effect of Export on R&D Cost Behavior: Evidence from Korea

Purpose - This research intends to find out whether R&D cost stickiness shows differentiated aspects depending on exports in Korea. A cost behavior that indicates a lower rate of costs decrease when sales decrease than the rate of costs increase when sales increase is called cost stickiness. This sticky cost behavior is caused by considering the adjusting costs. This study aims to empirically verify that R&D cost stickiness is greater in export firms than in non-export firms. We also investigate the effect of exports on R&D cost stickiness is nonlinear.
 Design/methodology - We obtain data for the analysis from Kis-Value and TS2000 from 2012 to 2020. This study tests for R&D cost stickiness of exports using the cost stickiness model developed by Anderson et al. (2003) that is used in a lot of prior literature. To explore the nonlinear behavior of R&D cost stickiness we include a quadratic term of exports in our model.
 Findings - The results of our analysis are as follows. First, we observed that R&D costs of export firms are more sticky than that of non-export firms. Our result indicated that export firms are less likely to reduce R&D costs in decreasing sales periods in preparation for future sales recovery. Second, our empirical evidence shows that export firms view R&D costs much favorably. However, we hypothesize that the effect of export intensity on R&D costs may not necessarily be linear. Our result shows the effect of exports intensity on R&D stickiness is thus nonlinear, forming a reverse U-shaped curve. When export intensity exceeds a certain threshold, the growth rate of R&D costs appears to be viewed negatively. Firms with relatively high export intensity do not support R&D costs, viewing them as taking away firms’ resources from other more productive costs. On the contrary, those with export intensity under the threshold view R&D costs as beneficial and therefore promote further R&D costs when revenue decreases.
 Originality/value - The results of this research can contribute academically to the expansion of empirical research on R&D cost stickiness. R&D cost stickiness varies by industry. As a result of our research, the managers of export firms recognize the importance of R&D to lead innovation. We expected that this research contributes to further studies on R&D costs and cost stickiness. Second, this research has implications from a business perspectives. Our findings of export firms’ R&D stickiness suggest that export firms’ managers should consider keeping the stickiness of R&D when revenue decreases because it is essential for exporting firms to maintain their R&D stickiness to secure longterm competitiveness. R&D stickiness can be used on a practical basis to emphasize the need for continuous investment in exporting firms’ R&D activities.

Assessing the impact of digital technologies on transaction costs of firms

Subject. The article considers measuring the impact of digital technologies on firms' transaction costs. Objectives. The purpose is to review the use of digital technologies by firms in marketing activities, when choosing counterparties, concluding and executing contracts, and to analyze the impact of information technology on transaction costs of organizations. Methods. We employ methods of logical analysis, synthesis, and theoretical generalization. Results. We reviewed scientific articles on methods of assessing transaction costs of firms, highlighted three main groups of methods proposed in the academic literature, conducted a survey of owners and directors of firms in Russia to study the use of digital technologies in the marketing activity of firms, in negotiation and execution of contracts, and in ensuring their execution by counterparties. The empirical study revealed the relationship between the increase in firms' spending on digital technologies and the decrease in transaction costs. We offered and tested a formula for estimating the elasticity of the impact of digital technology costs on the corresponding transaction costs of organizations. Conclusions. The study confirmed the hypothesis that firms are increasing the use of digital technologies to reduce their transaction costs. This enabled to propose and verify the said formula.

The post-scarcity world and the post-pandemic office.

We are not yet in the post-scarcity world that John Maynard Keynes famously envisioned, and vaccines have only recently allowed us to hope that a post-COVID-19 future may arrive soon. However, it is not too early to consider the impact of both on the traditional office, and on attempts to bring it back for reasons that may be socially harmful. One lesson of the pandemic is that many workers can be as—or even more—productive working from home, thanks chiefly to software such as Zoom, Microsoft Teams, and Slack, among others, which enable better collaboration across distances than was previously possible. At the turn of the century, we moved toward an economy in which important products were increasingly characterized by low marginal costs of production, such as pharmaceuticals and software. Over the past decade, we have seen fixed costs reduced in some situations—consider how Uber greatly eliminates the need for a central taxi dispatcher, and makes use of idle capital invested in personal vehicles. The traditional office represents a massive fixed cost for many industries; tech-driven work-from-home greatly reduces the need for this fixed cost. While software, Internet connectivity and the cloud are not free, preliminary estimates suggest that replacing traditional offices with work-from-home greatly lowers costs, creates economic efficiencies and, relatedly, reduces environmental harm. That said, the story of work-from-home is not one of unbridled optimism. Real estate firms and local governments are already trying to use law as a tool to return workers to the pre-pandemic traditional office. Various levels of government seek to return workers to physical offices, often motivated by declines in tax receipts. Attempts to bolster a return to the traditional office may raise fixed costs for firms and generate substantial avoidable environmental damage. This Chapter recommends competition advocacy to counterbalance state and local attempts to prevent the efficient disruption of the traditional office's fixed costs. Work-from-home represents an important step toward the post-scarcity world; but without a focus on what amounts to state-and-local protectionism in this sphere, we could wind up taking another step backwards.

The value of shareholder rights in family firms: Global evidence from a death in the family

AbstractResearch QuestionHow does the protection of shareholder rights affect the pricing of family firms?Research FindingsInvestor reaction to a death in the family, measured using abnormal stock returns, averages 0.58% and is significant. Investors perceive the death to be a value enhancing event with the potential to dilute family control. The positive investor reaction is amplified in countries and periods with weaker protection of shareholder rights.Theoretical ImplicationsExternal and internal corporate governance mechanisms limit the extent to which majority shareholders can take actions that hurt firm value. As such, investor perceptions of how faithfully their interests are protected depend on the extent to which legal rules protect shareholder rights.Policy ImplicationsInvestors pay attention to the regulatory environment of the country, as well as corporate governance in the firm when evaluating agency costs. Our research has important policy implications because we show how better protection of shareholder rights affects the pricing and hence the funding costs of family firms.

Ownership Design and Managerial Efficiency

The relationship between strategy and structure is a longstanding one. In this paper, we argue that corporate groups are organized to maximize managerial efficiency in the presence of diversification. We construct a novel dataset that tracks the ownership links of nearly 1.2M parent companies from 201 countries down to nine layers of controlled subsidiaries. These 2.9M ‘ownership paths’ allow us to investigate in detail the legal organizational structures of companies around the world and derive new insights. We demonstrate that vertical (or pyramidal) ownership structures are rarely used to magnify the control rights of ultimate owners. We propose, rather, that vertical ownership structures exist to minimize monitoring costs in (industrially and geographically) diversified firms. The results show that more diversified and unrelated firms have longer ownership paths, that is, more pyramidal structures. This is consistent with the idea that these structures may allow for more efficient management in diversified or unrelated conglomerates.

The Paradox of Relation-Specific Investment: Customer-Supplier Relationships under Uncertainty Shock

Strategy research has long highlighted relation-specific assets as a key source of relational rents. We instead reveal a potential dark side of relation-specific investment by examining how such investment by suppliers may turn into a source of adjustment costs for customer firms, thwarting customers’ responses to uncertainty shocks that afflict their suppliers. Using a matched sample of customer-supplier relationships, our difference-in-differences estimation shows that customer firms significantly reduce sourcing from a supplier that is exposed to a terrorist attack. However, such strategic responses are impeded, when the supplier has made greater investment specific to the customer, compared to other existing suppliers or potential suppliers. Our study provides new insights in linking together relation-specific assets and adjustment costs, two important topics of strategy research.

A Study on Financial Feasibility of Cloud Kitchen Firms in Hyderabad Region in Telangana, India

Cloud kitchens are commercial kitchens that prepare food only for delivery purpose and do not provide dine-in facility for customers. In the cloud kitchen model, a brand owns or rents a space where its chefs work and uses its own or third-party order and delivery systems. It may also provide a takeaway service where customers can wait to collect their food. The cost incurred to establish a cloud kitchen is much lesser than conventional restaurant and can be situated within a small area and it has less operational costs due to which cloud kitchens are more profitable than normal restaurants. In this perspective, the study is conducted to analyze the financial viability of cloud kitchen firms. Hyderabad city was preferred as the study area. For the analysis, data was collected through personal interviews from the selected cloud kitchen firms with the help of structured questionnaire. Data regarding the establishment and operational costs of cloud kitchen firms are taken from cloud kitchen. The analytical tools NPV and B: C ratios are used to know the financial feasibility of the cloud kitchen firms.

The impact of privatization of state-owned enterprises on innovation in China: A tale of privatization degree

Despite the massive privatization of state-owned enterprises (SOEs) in China, its impact on firm innovation remains poorly understood. Prior literature fails to capture some significant phenomena because it inappropriately measures SOE privatization as a dummy variable, which, in actuality, should be measured by “degree”. Using a unique Chinese Patent Census Database (1991–2018) to identify patent quality, we systematically investigated the impact of SOE privatization (as measured by privatization degree) on innovation (as measured by both patent quantity and quality). We found that first, SOE privatization significantly promotes innovation and has greater effects over the long term, mainly through reduced agency costs of firms. Our findings provide empirical support for the ongoing privatization of SOEs in China, and validates the managerial view of SOE theory. Second, unlike previous studies that only considered whether SOEs were privatized or not, we considered the degree of SOE privatization and obtained two novel findings: SOE privatization only promotes innovation when privatized firms are controlled by domestic non-state-owned capital, and progressive privatization benefits innovation more than radical privatization does. These findings reveal the preferred path and rate of SOE privatization. Third, the promotional effects of SOE privatization on innovation are greater for commercial SOEs, central SOEs, large SOEs, and SOEs in high-tech industries compared with their respective counterparts. These findings provide guidance for the different strategies for the privatization of various SOEs.

Do female directors mitigate asymmetric cost behavior? Evidence from international data

Using an international sample of firms across 37 countries from 1999 to 2018, we find that firms with more gender diversity exhibit lower cost stickiness. The results are robust for alternative measures of variables and after addressing endogeneity issues through a two-stage least squares estimation. Furthermore, the impact of board gender diversity on firm cost stickiness is more pronounced in firms that have higher agency costs, lower corporate governance, higher risk-taking, and non-overconfident managers. Overall, our findings contribute to the extant literature by offering evidence of the role female directors play in minimizing agency problems and reducing asymmetric cost behavior.

Theoretical Analysis of a Multi-Tier Supply Chain Management Process Integration: A Case Study Method

Purpose: - Case studies of 12 automotive supply chains are used to build a theory of multi-tier supply chain management (SCM) processes integration which links patterns of multi-tier process integration with cost and differentiation strategies of the focal firms.
 Design/Methodology/Approach: The cases build on previous researches by examining the rationales and extents in which a focal firm integrates the key supply chain management processes across first, second and third-tier suppliers, logistics service providers and authorized dealers. Data was collected in two rounds, followed by codification and analysis.
 Findings: The analyses suggest that firms with lower scope and span of process integration prioritized cost efficiency and firms with larger scope and span of process integration prioritized both cost efficiency and customer service differentiation. As a result, propositions for explaining strategic priorities driving multi-tier SCM process integration are developed.
 Implications/Originality/Value: This study provides managerial accounts and theoretical foundation to explain the needs for different levels, scopes and span of SCM process integration and the extent to which the span of integration (tiers) should be extended.

The effect of environmental regulation on the marginal abatement cost of industrial firms: Evidence from the 11th Five-Year Plan in China

The Chinese government set specific provincial reduction targets for sulfur dioxide (SO2) and chemical oxygen demand (COD) in the 11th Five-Year Plan. However, due to the limitations of firm-level data, there is a research gap on the impact of this policy on the marginal abatement cost (shadow price) of targeted pollutants for industrial firms. First, we estimate the shadow prices of SO2 and COD emissions for industrial firms in China from 1998 to 2009 using the quadratic output directional distance function based on the stochastic frontier analysis (SFA). We also use the Environmental Survey and Reporting database, which is a unique nationwide firm-level database including firm-level emission information. Then, using the difference-in-difference-in-differences (DDD) strategy and combining the variation in pollution reduction targets across provinces with the before-and-after policy change, as well as the firms' emissions, we identify the effect of the provincial reduction targets on the shadow prices of the two pollutants. The estimated average shadow prices of SO2 and COD emissions are 3454.96 yuan/ton and 17,560.18 yuan/ton, respectively. The heterogeneous characteristics show that non-state-owned enterprises (non-SOEs), large-scale firms, and firms in the eastern region have higher shadow prices than state-owned enterprises (SOEs), small and medium-scale firms, and firms in the central and western regions. The DDD estimations show that the setting of provincial reduction targets significantly increases the shadow prices of SO2 and COD emissions for industrial firms. Specifically, when the pollution reduction target is one standard deviation higher than the mean, the shadow prices of industrial firms' SO2 and COD emissions increase by 26.11 yuan/ton and 85.52 yuan/ton, respectively, whose SO2 and COD emissions are 10% higher than the average value. Finally, several policy implications are hereby proposed.

COST REDUCTION TECHNIQUES AND ITS IMPACT OF FINANCIAL PERFORMANCE

In any firm there are two functions, namely Production function, Cost function. At the time ofstarting the production firm costs is decided and varies circumstantially. As the production increases the fixed cost remains same but the variable cost increases with increase in the production. There are only two ways to maximize profit of the organization either to increase sale price of product, to reduce cost of product. Cost reduction implies real and permanent reduction in the unit cost of goods manufactured or services rendered without impairing their product suitability for the use intended. The main objective of the study is to evaluate the application of cost control/reduction tools and techniques in manufacturing organizations

Macrofinancial Risks of the Transition to a Low-Carbon Economy

A disorderly transition to a low-carbon economy may pose significant costs for both financial and nonfinancial firms through the stranding of physical assets, firms’ defaults, and volatility in asset prices. The spread of these disruptions through production and financial networks may exacerbate transition costs. Green financial and monetary policies may help to mitigate the cost of transitioning to a low-carbon future, but coordination among public institutions (governments, central banks, and financial supervisors) is needed. We discuss qualitative, empirical, modeling, policy, and institutional research on this topic and identify priorities for future research.

The Effect of Key Indicators on the Operation Costs for Public Toll Roads

At the end of the build-operate-transfer road concession period, an optimal model for the operation of public toll roads is created based on user heterogeneity regarding the values of time for different road users. The impact of user heterogeneity on operation costs for government and private firms is subsequently analyzed on the following critical variables: user values of time, road volume/capacity ratio, and road capacity. Concerning the values of time for different road users, the mean residual and failure functions are established to describe three optimization hypotheses: maximization of social welfare with operation by the government, two extreme cases with operation by a private firm, and a Pareto-optimal solution with operation by a private firm. It is concluded that the mean residual values of the time function are a linear function of the user values of time under a Pareto-optimal operation by the government. It is also determined that private profit is related to the demand-related operational cost of the government and private firm under a Pareto-optimal operation by a private firm. These conclusions suggest relevant recommendations for the government on policymaking for the operation of public toll roads.

Trust, social capital, and the bond market benefits of ESG performance

We investigate whether a firm’s social capital and the trust that it engenders are viewed favorably by bondholders. Using firms’ environmental and social (E&S) performance to proxy for social capital, we find no relation between social capital and bond spreads over the period 2006–2019. However, during the 2008–2009 financial crisis, which represents a shock to trust and default risk, high-social-capital firms benefited from lower bond spreads. These effects are stronger for firms with higher expected agency costs of debt and firms whose E&S efforts are more salient. During the crisis, high-social-capital firms were also able to raise more debt, at lower spreads, and for longer maturities. We find no evidence that the governance element of ESG is related to bond spreads. The gap between E&S performance of firms in the bottom and top E&S terciles has narrowed since the financial crisis, especially in the year prior to accessing the bond market.

Bargaining your way to success: The effect of Machiavellian chief executive officers on firm costs

AbstractResearch SummaryThis study builds on insights from the upper echelons tradition in strategy to examine the effects of chief executive officer (CEO) Machiavellianism on relevant firm costs. While Machiavellianism has been usually construed as a purely negative trait, we argue that the pragmatic focus on the outcomes of exchanges and psychological obsession with winning in transactions that Machiavellian CEOs infuse in their organizations can have important effects on firm cost, a fundamental but frequently understudied driver of financial performance in strategic management research. In line with our arguments, we find that CEO Machiavellianism has negative effects on production costs, financing costs, and acquisition premiums. We find support for our ideas with a sample of S&P 500 CEOs, operationalizing CEO Machiavellianism using a videometric approachManagerial SummaryIn this study, we investigate the effect of CEO Machiavellianism on firms’ costs. We show that firms with more Machiavellian CEOs will have lower costs than other firms in the market. Rather counterintuitively, this study suggests an explanation for why a personal characteristic that is usually seen as problematic for organizations is rather common in their upper ranks. Ultimately, the study demonstrates the value of the bargaining attitude that Machiavellian CEOs bring to their organizations and suggests this value should be weighed against their risks or acknowledged to manage the risks this common personal characteristic implies.

The impact of digital technologies on transaction costs of firms

Subject. The article deals with measuring the impact of digital technologies on transaction costs of firms. Objectives. The focus is on the analysis of the use of digital technologies by firms in marketing activities, in choosing counterparties, concluding and executing contracts, and the impact of information technology on transaction costs. Methods. The study draws on methods of logical analysis, synthesis, and theoretical generalization. Results. I analyzed scientific articles on the impact of digital economy on transaction costs of firms, conducted a survey of owners and directors of firms in Russia to study the use of digital technologies in marketing, in verifying the reliability of potential counterparties, in coordinating contract terms and in ensuring their fulfillment by counterparties. I also investigated priorities and barriers to the introduction of digital technologies by firms to reduce transaction costs. The study enabled to test the hypothesis about increased use of digital technologies by firms to reduce transaction costs. Conclusions. The paper confirms the hypothesis that firms expand the use of digital technologies to reduce their transaction costs. The growth in the use of digital technologies is also affected by a number of obstacles faced by firms.

Türkiye'de Kaynak Verimliliği Yöntemlerinin Analizi: Üretim Maliyeti ve Satış Hacmine Etkisi

Rapid economic growth along with carelessness related to environmental problems have caused adverse impacts on nature and to civilization as a whole. The effects on nature include temperature changes and increased climactic and environmental disasters. To minimize the negative effects of climate change and reduce future emissions, several governments have announced charges for greenhouse gas emissions. However, these charges present extra operational costs for firms and impact their financial health. This study analyses the impact of offering ecological friendly products and services on the production costs and sales volume of resource-efficient Turkish Small and medium sized enterprises (SMEs) using data from the Flash Eurobarometer 456. The findings reveal that offering “green” products do not increase the sales volume. However, resource efficiency activities can influence SMEs’ production costs. This result can help practitioners who are looking for opportunities for cost reductions in manufacturing to apply more resource-efficient mechanisms. Key Words: Small and medium sized enterprises (SMEs), Resource Efficiency Activities, Environmentally friendly products, Green economy JEL Classification: M11

Board corruption and loan contracts

AbstractIn this study, we examine the effects of board corruption on the financing costs of firms. We construct an index of perceived corruption that uses the average level of corruption that is linked to a director's surname. The evidence shows that lending banks attach higher spreads and stricter covenants to the loan contracts of firms with high perceived board corruption. Specifically, when the perceived board corruption increases after mergers and acquisitions, firms are charged higher loan spreads. Further analysis shows that the effects of board corruption on financing costs become stronger when firms have weak governance mechanisms. These results show that banks recognize board corruption as a source of agency problem with borrowers when they make lending decisions.

The impact of CSR on the financing cost of Jordanian firms

PurposeThe purpose of this paper is to examine the impact of corporate social responsibility (CSR) disclosure on the firms’ weighted average cost of capital (WACC) of Jordanian industrial firms listed in the Amman Stock Exchange (ASE) over the 2009–2019 period. In particular, this paper examines whether stockholders and creditors value CSR information disclosure positively when they decide to provide financing to the firm.Design/methodology/approachTo investigate the relationship between the firm's disclosure of CSR and its WACC within Jordanian industrial firms, this study used the generalized method of moments. This study first describes the variables and then the model specification. The dependent variable is the WACC, calculated as the weighted average cost of debt and the cost of equity. For the main independent variable, this study used the CSR disclosure index developed by Abu Qa'adan and Suwaidan (2019), which includes 42 items of information classified into four categories: environmental information, human resources information, community involvement information and product/services to customer information. The sample includes 42 industrial firms listed in the ASE over the period 2009–2019.FindingsThis study finds find that there is no impact of total CSR disclosure on the WACC. However, firms that do not disclose enough information and engage in socially responsible activities related to the environment and the human resources are considered high risk to the market participants (i.e. creditors and equity holders) and consequently are penalized by being charged high financing costs. Furthermore, profitable firms that engage in CSR activities are seen to be highly risky.Research limitations/implicationsAs the period chosen for the study is considered a period of an economic slowdown in Jordan, it is highly likely that the impact of the economic slowdown increased the required return on investment by equity holders. The results of the study are consistent with the idea that managers regard CSR as philanthropy rather than as a necessary activity that leads to the sustainability of their businesses. On the other hand, it could be that investors do not give any attention to the CSR information provided by the firm, and hence, their required return is determined by other factors.Originality/valueThis research contributes to the literature on CSR in the following: first, contrary to previous research that examines the impact of CSR on a firm's value or its cost of equity capital, this study will examine the effect of CSR disclosures on the company’s WACC. Second, this research examines the CSR disclosure in a small market where information asymmetry is high, thus the authors suggest that their CSR disclosure is one channel through which firms can reduce this information asymmetry and improve their performance.