Firm-level Characteristics Research Articles

Firm Characteristics, Financing and Firm Innovation in Africa

The study employed firm level data from the World Bank’s Enterprise Survey Indicator Database to investigate firm characteristics associated with firm innovation in 32 African countries, for the period 2009 to 2018. We find that firm level innovation, including the introduction of significantly new products (H1), new or significantly improved methods of manufacturing products (New Technology) are strongly associated with external funding sources (funds from Banks and non-banking institutions). In addition, firm level characteristics such as firm age, female ownership, capacity utilization, educated labor force, exposure to competition is strongly associated with firm innovation. These findings are very important for countries in Africa (and other less-developed countries) who spend less on research and development due financing and structural constraints but want to accelerate economic growth and increased productivity.

Micro-Foundations of Platform Ecosystems

The popularity of digital platform ecosystems has soared due, at least in part, to how they empower individual complementors to interact and transact with each other. Many studies investigate their performance based on macro-platform and firm-level characteristics, but, little attention has been paid to the effects of complementors’ individual characteristics on their performance. Collecting a large-scale Airbnb hospitality dataset, we investigate the performance implications of host gender, social responsibility, and neighborhood racial diversity. We find that female gender is negatively associated, but complementor social responsibility and neighborhood racial diversity are positively associated with complementor performance. Our results also indicate that complementor social responsibility strengthens, while neighborhood racial diversity weakens, the negative effects of female gender on complementor performance.

The role of funding portals as signaling offering quality in investment crowdfunding

We examine the effect of the issuer fee paid to portals on the success of investment crowdfunding using 1,694 offerings launched in the US during May 2016 – September 2019. We show that a mixed issuer fee (i.e. fixed gross fee and a share of securities) influences the probability of success, suggesting a positive signaling-effect that mitigates adverse selection problems between retail investors and issuers. Specifically, the use of a mixed issuer fee increases the probability of success by 33.5%. This effect remains after controlling for other information-risk-reducing mechanisms and it is contingent on firm-level characteristics.

Payment choice of M&As: Financial crisis and social innovation

The payment choice of mergers and acquisitions (M&As) influences firm performance and facilitates wealth transfer to shareholders and realises synergy through stakeholders' implicit contract. This study examines the choice of payment methods and firm-level characteristics of UK M&As during the financial crisis referring to the business-to-business (B2B) market in a broader sense. Further, conceptualising social innovation as a process-outcome-value construct, this study evaluates the choice of payment methods and firm-level characteristics of M&As through the lens of corporate social responsibility (CSR). The findings suggest that a stock payment method is favoured well over a cash payment method by the acquirers of M&A firms and firms that are pursuing social innovation through CSR activities. The results further document that a volatile market affected by the financial crisis reacts to the financing choice of M&As, making a sizable impact on firms' capital structure, ownership concentration, and asymmetric information. Acquiring firms that opt for stock payment methods register a significant increase in their firm-level characteristics, such as market-to-book-value, deal value, growth, and CARs compared to the cash payment method deals.

Identifying board of director network influence for firm characteristics

We utilize multiplex network analysis to evaluate the relationship between firms’ characteristics and board of director networks. Studying a sample of 384 board members of 20 largest US energy and utility firms, 10 from each sector, the firms are differentiated by a clustering analysis on their firm-level characteristics. The firms’ board member connections are represented in a multiplex network consisting of two layers, one for the board members’ direct connections and another for their indirect connections. Four additional sub-layers are identified for each major layer of the multiplex network to represent corporate, non-profit organization, education and government/military connections between the board members. Weights assigned to each layer of the multiplex network allow combining their effect in the resulting single layered directors’ network. The weights of the multiplex directors’ network are learned by optimally relating firms’ director network characteristics with firm clusters’ characteristics. We observe that director network displays significant connectivity at all multiplex network layers and firms belonging to the same cluster display similar director network characteristics, specifically enhanced by appropriate weighting of director network layers. The optimal value of network sub-layer weights indicate that, while corporate board member connections play the most significant role, the non-profit and military & government connections are also important, where non-profit connections lead to inferior firm outcomes.

기업의 수명주기가 재무분석가의 이익예측 정확성에 미치는 영향

This study examines the impact of a firm’s life cycle on the accuracy of analyst forecasts by considering the life cycle as a proxy of time-series change in a firm’s environment. The results show that the accuracy of analyst forecasts is lower in introduction and decline stages than the other stages. In contrast, forecasts in the growth and mature stages show relatively higher accuracy. Furthermore, the systematic association between life cycle stage and the accuracy of analyst forecast is derived from firms reporting high quality accruals and clients of Big 4 auditors. The results are consistent in case of using the two-stage regression tests to mitigate endogeneity concern existing in firms between analyst-followed and non-followed. Also, the results are robust when using the forecasts that are close to the earnings announcement date and those that are not. This study extends prior research that finds the effect of firm-level characteristics on analysts forecasting activities by exploring the macro-level consequences through life cycle stages.

Pulling from the front or pushing from behind: how competency prioritisation should differ to optimise firm competitiveness

Purpose This study aims to contrast the disparities in optimal competitiveness configurations across international economies. Additionally, we analyse the competitive efficiency across firms of different performance endowments to identify distinctions and determine whether standardised or customised competitiveness configurations are optimal. Design/methodology/approach This study uses a multilevel regression model to confirm country-specific effects followed by a non-parametric “Benefit-of-the-Doubt” (BoD) method to conduct an international comparison of the competitive efficiency of top- and poor-performing firms across eight European and Latin American economies. Findings Not only are national ecosystems significant differentiators of competitive efficiency, but contras firm-level characteristics also explain these differences. It is found that more recent start-ups tend to experience significantly greater competitive efficiency. However, by separating the top-performing firms from the poor performers in each economy, it is found that the configurational outputs that potentially contribute most to competitive efficiency are not necessarily the same; while “technology” is a key factor for driving the competitive efficiency of top-performing firms, “market” drivers are most essential for improving the competitive potential of poor performers. Originality/value The configurational outputs that potentially contribute most to competitive efficiency are not necessarily universal.

Equal chances, unequal outcomes? Network-based evolutionary learning and the industrial dynamics of superstar firms

With the advent of platform economies and the increasing availability of online price comparisons, many empirical markets now select on relative rather than absolute performance. This feature might give rise to the ‘winner takes all/most’ phenomenon, where tiny initial productivity differences amount to large differences in market shares. We study the effect of heterogeneous initial productivities arising from locally segregated markets on aggregate outcomes, e.g., regarding revenue distributions. Several of those firm-level characteristics follow distributional regularities or ‘scaling laws’ (Brock in Ind Corp Change 8(3):409–446, 1999). Among the most prominent are Zipf’s law describing the largest firms‘ extremely concentrated size distribution and the robustly fat-tailed nature of firm size growth rates, indicating a high frequency of extreme growth events. Dosi et al. (Ind Corp Change 26(2):187–210, 2017b) recently proposed a model of evolutionary learning that can simultaneously explain many of these regularities. We propose a parsimonious extension to their model to examine the effect for deviations in market structure from global competition, implicitly assumed in Dosi et al. (2017b). This extension makes it possible to disentangle the effects of two modes of competition: the global competition for sales and the localised competition for market power, giving rise to industry-specific entry productivity. We find that the empirically well-established combination of ‘superstar firms’ and Zipf tail is consistent only with a knife-edge scenario in the neighbourhood of most intensive local competition. Our model also contests the conventional wisdom derived from a general equilibrium setting that maximum competition leads to minimum concentration of revenue (Silvestre in J Econ Lit 31(1):105–141, 1993). We find that most intensive local competition leads to the highest concentration, whilst the lowest concentration appears for a mild degree of (local) oligopoly. Paradoxically, a level playing field in initial conditions might induce extreme concentration in market outcomes.

Multinational Company (MNC) Client Influence on the Internationalization of Professional Services Firms: A Panel Data Analysis

Purpose - This paper investigates how the internationalization of professional services firms such as corporate law firms is affected by their multinational corporate clients and further explores firm-level characteristics moderating this relationship. Design/Methodology/Approach - The author has analyzed panel data on overseas branch openings of 233 U.S. corporate law firms from 1986 to 2008 using the negative binomial regression. The author also confirmed the robustness of the results by using the two-stage regression model to address some of the endogeneity issues raised in modeling the relationship between multinational corporate clients and their law firm internationalization. Findings - This study found that professional services firms such as corporate law firms are more likely to open overseas branches when they have been more dependent on multinational companies (MNCs) for their business. Moreover, additional results indicate that the effect of multinational corporate clients on the internationalization of U.S. corporate law firms varies by a particular firm-level characteristic such as firm orientation toward external expansion. Research Implications - By emphasizing existing relationships with the prominent market exchange partners (i.e., MNCs) as interorganizational antecedents of firm internationalization in the professional services sector, our study contributes to the literature on service firm internationalization and the adoption (and diffusion) of organizational forms and practices. This study also offers valuable insights for professional services industry participants and managers alike by shedding light on the interaction between the firm’s external environments and its strategy orientation.

ChiNext IPOs' initial returns before and after the 2013 stock market reform: What can we learn?

We examine ChiNext IPOs' performance before and after the 2013 stock market reform. Majority of firm-level characteristics differ significantly over the two sub-periods. The initial return looks normal before the reform. It exhibits a uniform distribution truncated at the maximum 44% initial cap imposed by the reform thereafter and the cumulative return, based on listing day closing price keeps rising at a steady pace over the 1st month. The 2013 reform pushes the ChiNext IPO market off its track of becoming more efficient. Instead, it widens income gap in China. Our findings and recommendations support the 2020 new regulatory changes.

Crisis, firm characteristics and stock performance: evidence from Hospitality and Tourism sector

ABSTRACT This study investigates the critical firm-level strengths and weaknesses that explain cross-sectional variations in abnormal stock returns of Hospitality and Tourism (HT) firms during different phases of a crisis. We used the event study and multivariate regression framework for analysing the Indian HT firms’ data around the COVID-19 crisis. While reporting a significant negative influence of COVID-19, we identified the early crisis, market crash and continuation of the crisis periods. Furthermore, we observe that during the early-crisis period, business diversity, financial stability and board diversity improved HT firms’ strength to withstand the risk, while business group affiliation was of little help. During the market crash and continuation of the crisis phase, better capital intensity and financial stability proved helpful. The managers of HT firms can take cues from this study to understand firm-level characteristics that provide resilience to their firms’ value in managing different phases of the crisis.

Individual and Institutional Ownership, Firm Age and Productivity

Total factor productivity represents a dimension of output that cannot be attributed to factors of production; it is unique to the firm, and central to its competitiveness. We posit that ownership structure plays a key role in productivity. However, ownership structure has an effect on productivity which changes with a firm’s age. Ownership structure that is optimal for new firms may not be optimal for older firms. We here consider the impact of ownership structure as defined by shares of individuals’ versus (broadly defined) institutional ownership. Our empirical counterpart draws on the UK company data for 2008-2017, obtained from the Orbis database. Our key explanatory variables are the joint share of the individual owners in equity and its square, but we also control concentration of ownership indices, along with a range of other firm-level characteristics. Applying fixed effects models along with instrumenting ownership with regional level variables, we found that new companies with majority individual owners and minority institutional owners outperform others. As firms age, however, these differences begin to disappear, with individual owners losing their control-related advantage. The results of the relative advantage of individual owners in the early stage is consistent with the property rights theory, which emphasises that residual control rights should remain with those whose investment is critical. It can be argued, however, that for whom the investment is critical changes as firm ages. Our managerial implications emphasise ownership competence in optimising ownership structure, which should evolve along the stages of the life-cycle of the firm.

Firm-level Effects of Minimum Wages

We investigate how increases in minimum wage affect various firm-level characteristics. We study firm-level data from Poland, where the minimum wage experienced a large and persistent increase in 2008 and 2009. We show that firms which were more exposed to the minimum wage increase faced higher increases in total labour costs and larger reductions in profitability. Intuitively, higher total labour costs driven by higher minimum wages directly reduce firm profits in the absence of price adjustments. We also show that the sharp increases in the minimum wage increased capital and decreased overall labour productivity and employment. The impact of policy is statistically significant only on capital.

Institutions, financial development, and small business survival: evidence from European emerging markets

In this paper, we traced the survival status of 94,401 small businesses in 17 European emerging markets from 2007 to 2017 and empirically examined the determinants of their survival, focusing on institutional quality and financial development. We found that institutional quality and the level of financial development impact the survival probability of the researched SMEs in statistically significant and economically meaningful ways. The evidence holds even when we control for a set of firm-level characteristics such as ownership structure, financial performance, firm size, and age. The findings are also uniform across industries and country groups and robust beyond the difference in assumption of hazard distribution, firm size, region, and time period.

What are the Consequences of Being Sustainable? Some International Evidence

The objective of this paper is to empirically explore the economic and financial effects of renewable energy consumption on firms’ financial performance. We collect information from Bloomberg and ORBIS (Bureau Van Dijk) databases of a sample of more than 500 firms from 18 countries during the 2009-2017 period. Applying a 2SLS methodology to control for the potential endogeneity concerns, our results indicate a positive effect of renewable energy consumption on firms’ financial performance. This relation is not homogeneous across firms or countries. In particular, our results indicate that this relation is dependent on specific firm-level characteristics and on the national legal and institutional environment.

Firm-Level Determinants of Corporate Social Responsibility


 
 
 This paper examined firm-level determinants of social performance among small and medium-sized enterprises (SMEs) in Ghana, using specific traits, such as firm age, firm size, financial performance, leverage and managerial competence. It contributes to our knowledge on how firm-level characteristics influence the corporate social responsibility (CSR) initiatives among SMEs. The study analysed primary data of 423 SMEs, using regression analysis. It documented positive relationships between managerial competence, financial performance and CSR, and a negative relationship between leverage and CSR. The thrust of the study is that, besides managerial competence, financial performance variables were far more important determinants of the social performance of SMEs than non-financial ones. Therefore, it recommended that policy makers that desire active participation of the SME sector in addressing societal problems should institute measures that will improve their financial performance. These could include providing cheaper alternatives to accessing funds and maintaining a sustainable macroeconomic environment that support the financial prosperity of this sector. Finally, since it has been proven that managerial competence improves social performance, SME owner/managers are being encouraged to invest a lot of time and resources in sharpening their managerial competencies.
 
 

Firm strategies and distributional dynamics: labour share in Italian medium-large firms

Using an original database on medium and large Italian firms built by merging the Rilevazione Imprese e Lavoro run by INAPP in 2010 and 2015 with the AIDA archive by Bureau Van Dijk, we show that the trend of the labour share differs along the labour share distribution. We carry out Unconditional Quantile Regression decompositions to explore the main drivers behind this heterogeneity. Thus, we contribute to the literature on the dynamics of the labour share since we investigate phenomena which cannot be observed through a macro perspective or by looking at a single parameter of the labour share distribution. After including in our specifications several firm-level characteristics and considering composition effects, we find that outsourcing is the main factor which plays a role in reducing the labour share along the distribution. Further different mechanisms act in the various parts of the distribution: unionization contributes to increase the labour share at the top of the labour share distribution, while the introduction of some forms of product (process) innovations is associated with a negative (positive) change in the labour share for those firms at the bottom of the labour share distribution.

Taxes and Firm Investment

We investigate the firm level investment responses to narrative shocks to average personal and corporate tax rates using a universal micro dataset of publicly traded U.S firms for the post- 1962 period. By allowing for heterogeneous effects over the business cycle and accompanying monetary policy regime, as well as over firm-level characteristics, we show that : (i) corporate tax multipliers are negative overall, but this result is driven by smaller firms who face larger borrowing constraints, especially during high-unemployment periods or when the accompanying monetary policy is contractionary; (ii) while the magnitude and the significance of personal income tax multipliers are smaller on the aggregate, there is some evidence of positive personal tax multipliers in high-unemployment state by large (dividend-paying) firms, which is consistent with the recent literature.

Reconsidering Equity Issue Performance: A Focused Criticism of the Fama-French Factor Models

The Fama and French (2015) 5-factor model is commonly used to measure the performance of stock return portfolios. Importantly, we find that three of the Fama and French (2015) firm-level characteristics (i.e., size, BV/MV, and profitability) have no significant explanatory power in the cross-section of returns for companies above the median NYSE capitalization during 1963-2020. Small firms comprising less than 8% of the total market capitalization drive the patterns of the 5-factor model. This paper also reexamines equity issuer performance in the context of the 5-factor firm level characteristics and finds that small and large issuers have similar underperformance.

Slope Factors Outperform: Evidence from a Large Comparative Study

Does the method used to construct long-short factors from firm-level characteristics change the assessment of the factor risks (risk-factors) that are incorporated in the cross-section of expected returns? Is the method of construction important for the pricing performance of those risk- factors? We compare factors constructed by three methods: pure-play slope factors (estimated OLS slopes from cross-sectional regressions), differential factors (difference in returns of 2 by K sorts of stocks) and rank factors (normalized rank weighted returns). Starting from 62 firm level characteristics, we construct 62 such factors from each method. For each set of 62 factors plus the market factor, we examine the posterior distributions of market prices of factor risks to infer risk-factors, and apply a Bayesian pricing criteria to determine the evidence in favor of pricing for a large collection of portfolios, ETFs and stocks. The evidence shows that the slope risk-factors strongly dominate, with important implications for empirical finance.