Firm-level Factors Research Articles

The impact of IFRS convergence on market liquidity: evidence from India

PurposeThis study aims to investigate the effects of IFRS convergence on market liquidity and to analyze the firm-level heterogeneity in liquidity effects based on reporting incentive, firm size, ownership structure and firm leverage.Design/methodology/approachThe empirical analysis is based on firm-fixed effect regression using several proxies of market liquidity as dependent variables. The sample consists of 337 firms listed on the National Stock Exchange (NSE) who shifted to IFRS from the financial year 2016–2017.FindingsThe empirical findings indicate that IFRS convergence has contributed to the significant increase in market liquidity in a weaker enforcement country, i.e. India. Additionally, when the study performs the heterogeneity test of IFRS impact, the results indicate the presence of significant cross-sectional differences in such liquidity effects across firms. Thus, altogether the findings suggest that both accounting convergence and firm-level factors are likely to be the mechanism underlying the observed improvement in market liquidity.Originality/valueIn the current literature, there is an ongoing debate about whether the observed post-IFRS effects are driven by the change in accounting standard per se or by other related factors. Therefore, by studying the liquidity effects of IFRS convergence in India, this study provides evidence regarding the sources of the documented IFRS effects. Moreover, the study indicates the significance of firm-level factors in determining the observed liquidity outcomes around IFRS adoption, which is unique to the literature.

Relatedness, Organization Structure, and Market Entry: Evidence from a Demand Shock

Prior literature on market entry suggests that a firm’s related knowledge and capabilities explain entry decisions into new market segments. Yet this literature has generally focused on entry decisions at the firm-level, without explicit consideration of the dynamics of individual divisions within the firm itself. We argue that a focus solely on firm-level factors can obscure division-level mechanisms that can deepen our insight into the link between organization structure and market entry decisions. Given the limited degree of empirical research on division-level market entry outcomes, we conduct an exploratory study to gain insight into patterns of division-level entry over time. We set our analysis in the context of an industry-wide demand shock, the September 11 attacks, which led to the need for firms to reshuffle their product market profiles in order to adapt to new demand conditions. A central finding is that, in contrast with what we might expect from a naïve application of market relatedness logic, a focal division’s entry into a particular market can increase as a result of the market relatedness of its sister division, even when the focal division is less related to the target market than its sister division. We explore the extent to which knowledge sharing among divisions within a firm can explain this finding, focusing on factors such as the presence of a shared customer and the relative knowledge dispersion.

Does Increased Labor Market Demand Affect CEO Compensation? Evidence from a Natural Experiment

This study investigates whether and to what extent a demand increase in the CEO labor market affects CEO compensation. Prior literature has largely focused on internal determinants of CEO compensation (e.g., CEO- and firm-level factors contributing to CEO compensation); yet relatively little is known about the role of external market demand on CEO compensation. Using the sudden deaths of CEOs between 1997 and 2019 as a natural experiment that generates the positive demand shock for industry peer CEOs, I conduct coarsened exact matching combined with a difference-in-differences analysis to identify the causal effects of the sudden CEO deaths at a firm on the total compensation of industry peer CEOs. As predicted, the results show a significant increase in industry peer CEOs’ compensation following the sudden CEO deaths. I also find that this effect is stronger when an industry peer CEO has an outsider origin and holds an MBA degree. These findings contribute to the literature by identifying the role of the CEO labor market on CEO compensation.

James Bond Chief Executive Officer and Firm Internationalization:

By integrating upper echelon perspective (UEP), dynamic capability view (DCV) and international entrepreneurship (IE) literature, a conceptual model is developed to illustrate how the interaction between Chief Executive Officer (CEO) dark personality traits (narcissism, psychopathy, Machiavellianism) and firm-level factors including entrepreneurial orientation (EO), opportunity exploration and opportunity exploitation may influence the firm internationalization. The interaction between these variables can stimulate firm internationalization activities, potentially resulting in following an early and accelerated internationalization (Born-Global) rather than traditional internationalization (e.g., Uppsala model) by firms run by CEOs high in dark personality traits.

Meso-level factors fostering or hindering the implementation of age-related HR practices in firms

PurposeThis paper aims to examine two types of age-related human resources (HR) practices, i.e. age-specific and age-inclusive HR practices and firm-level (meso-level) factors that foster or hinder the implementation of these two types of practices.Design/methodology/approachBased on a cross-case analysis of four firms across industries in Thailand, a developing country, the empirical evidence draws on semi-structured interviews with the top managers, HR managers and aging employees of four firms; field visits; nonparticipant observations; and a review of archival documents and Web-based reports and resources.FindingsThis paper proposes that age-specific HR practices primarily include those HR practices under the regulation HR bundle and some HR practices under the maintenance and recovery HR bundles. Additionally, the factors fostering the implementation of age-specific HR practices in firms include group corporate culture, nonunionism within the workplace, paternalistic leaders, a focus on the development of internal labor markets within firms and the need for tacit knowledge transfer from aging employees to younger-generation employees, whereas the factors hindering the implementation of age-specific HR practices in firms include age biases within firms. Moreover, age-inclusive HR practices primarily include HR practices under the development HR bundle and some HR practices under the maintenance and recovery HR bundles. Additionally, the factors fostering the implementation of age-inclusive HR practices in firms include the procedural justice climate, the transition from a family ownership structure to a professional ownership structure and result-/output-based corporate culture, whereas the factors hindering the implementation of age-inclusive HR practices in firms include experience-/seniority-based corporate culture. In fact, some of the meso-level factors that foster or hinder the implementation of age-specific and age-inclusive HR practices tend to be influenced by the national institutional and cultural contexts of the developing country where firms that implement such HR practices are located.Originality/valueThis paper aims to fill the research gap by examining both age-specific and age-inclusive HR practices. Additionally, this paper analyzes the factors fostering or hindering the implementation of these two dimensions of age-related HR practices across firms by using a case study of firms in Thailand, a developing country. To date, most studies in this area have focused on one of these dimensions, while comparisons between different HR dimensions are rather scarce. Finally, this paper contributes to the prior literature on strategic HR and comparative institutional perspective on HR strategies and practices as proposed by Batt and Banerjee (2012) and Batt and Hermans (2012) that future research should go beyond the meso-level (organizational) context. In this regard, some of the factors that foster or hinder the implementation of age-specific and age-inclusive HR practices tend to be influenced by the national institutional and cultural contexts of the developing country of Thailand.

Determinants of reinsurance costs for Turkish non-life insurance companies

Purpose- Reinsurance is one of the most common practices in the insurance sector, however, it is not free of charge. The insurance companies have to bear some costs to assure the reinsurers for sharing the risks of potential losses. The objective of this article is to explore the firm-level factors that may affect the cost of reinsurance to an insurance company. In order to achieve the objective, the relationship between reinsurance cost and financial and technical ratios, which are good monitoring tools for insurance companies, has been analyzed. Methodology- The relationship between reinsurance cost and financial and technical ratios has been analyzed using panel data analyses. The data was obtained from the official website of the Insurance Association of Türkiye (IAT). The data set include variables for 26 non-life companies for the period of 2009 - 2021. Two separate models have been developed; one model with financial ratios and the second model with technical ratios. The analyses are also repeated by uncovering the COVID-19 period and the 2018 currency crisis. Findings- The findings of the study revealed that the financial ratios, namely return on assets and debt ratio; technical ratio as retention ratio all have a negative significant effect on reinsurance cost. That is the higher the profit, debt level, and retention ratio, the more reluctant the insurance companies are to bear insurance costs and carry most of the risks. Such variables have a negative effect on reinsurance costs with a higher significance level, even after uncovering the recent COVID-19 pandemic and 2018 currency crisis periods. When COVID-19 and 2018 currency crisis periods are excluded from the data set, Net Combined Ratio becomes an additional significant factor affecting the reinsurance costs. Conclusion- As long as there is an insurance sector, there must be a reinsurance sector alongside. Companies from both sectors need to go hand in hand in order to eliminate the possible future severe damages in case of fire, flood, or earthquake. However, reinsuring an insurance contract would generate costs like every transaction in this economic system. The findings indicate that determinants of reinsurance cost are as follow; return on asset, debt ratio, and retention ratio. This result would help management teams of insurance companies foresee the cost of reinsurance when they monitor closely the ratios. In other words, the management team of an insurance company could control and handle the condition of reinsurance contracts that generate cost. Keywords: Reinsurance cost, insurance, firm performance, panel data analysis, ratio analysis. JEL Codes: G22, L25, C23

Impact of Board Characteristics, Firm Level Factors and Political Connections on Cost of Capital: Evidence from Pakistan

The purpose of the study is to analyze the impact of board characteristics, firm level factors and political connections on cost of capital. The sample of study comprises of 175 non-financial companies listed on Pakistan Stock Exchange from 2008 to 2021. Fixed effect model is used for analysis of data. The findings revealed that Increasing board independence and leverage has a negative influence on the cost of capital. Whereas, Board size, Audit committee size impact the cost of capital positively. The study resolute that the cost of capital is not influenced by political connections, firm size, or institutional ownership. The research identified that there was a decline in the cost of capital, along with an increase in board independence and leverage. In addition, the cost of capital is unaffected by political connections, the size of firms and institutional shareholdings. In contrast, the cost of capital grew due to an increase in the size of the Board and the Audit Committee. The study suggests that In Pakistan non-financial firm’s maximum family own business and very low focus on management and foreign owners. Alternative prospective of managerial and foreign ownership firms should minimized the agency problems as family ownership. And for the best improvement of corporate governance board of directors should bring a transparency, accountability and fairness financial reporting.

Impact of Country-Level Governance and Ownership Concentration on Firm Value in Central Europe

Purpose: The article considers country-level governance factors (legal/regulatory system and financial development) and ownership concentration that impact the value of non-financial firms in Central European nations, specifically by describing a study done in Austria, Czech Republic, Germany, Hungary, Slovenia, and Switzerland. Methodology: A fixed effect panel data regression analysis was applied to a strongly balanced panel data using a collection of six diverse Central European countries’ non-financial firms across the sample period of 2010–2020. Results: According to regression analysis, the legal and regulatory system as well as financial development have a positive relationship with firm value. The firm’s value rises as the legal and regulatory system improves. Furthermore, the growth of financial markets adds to the firm’s value. However, our study reveals a negative relationship between ownership concentration and firm value, which indicates that ownership concentration is too high to allow for effective supervision, implying that more ownership concentration lowers firm value, as the expropriation theory suggests. Originality: The study examines the value of a firm by incorporating both country- and firm-level factors, which broadens the current literature’s insight. Implications: Overall, our findings add to the literature on the value of non-financial firms by providing new significant information. Some of the recommendations may be beneficial to the long-term success of non-financial companies.

Impact of COVID-19 on family business performance: evidence from listed companies in Germany

PurposeThe COVID-19 pandemic has hit different industries and firms with widely differing degrees of severity. The authors investigate whether ownership structure (family vs non-family) might represent a differentiating factor. The article's purpose is to conduct an initial, descriptive analysis of the impact of COVID-19 on different stock and operating performance measures of listed German companies.Design/methodology/approachThe authors use a sample of 299 listed companies in Germany and gathered operating as well as stock market performance data following the outbreak of COVID-19. For the purpose of this paper, the authors solely focus on static and descriptive observations thus far. The intention of this paper is to describe potential implications for more differentiated, especially multivariate causal research, on family businesses in a post-COVID world.FindingsThe results indicate that, over the last five years, stock returns of family businesses have been higher than those of non-family firms. This effect seems to have been more pronounced during the first month following the COVID-19 outbreak. When applying operating measures, the outperformance becomes even more evident. The findings therefore seem to support the hypothesis proffered in the literature that family involvement enhances the potential for resilience in such firms.Originality/valueScholars on COVID-19 crisis performance have begun to explore firm-level factors related to financial and organizational factors, industry characteristics and country-level factors. The research extends this line of inquiry by probing the importance of family involvement in ownership.

Financial Crisis and Leverage Determinants : A Juxtaposition of Pre and Post-Crisis Periods Using HLM

The present study examined the direct and indirect influences of firm-level and industry-level determinants on capital structure for all BSE-listed firms in India. The study analyzed financial data from 2000 – 2019 and employed the hierarchical linear modeling technique of regression as firms are a subset of industries. The output demonstrated that a few capital structure determinants either did not have any impact or had the same effect in both pre and post-crisis periods. However, a few determinants such as short-term liquidity, firm profitability, and Z - score had a conflicting impact on leverage in the two time periods. Determinants such as median industry tangibility, median industry leverage, industry munificence, industry liquidity, and industry dynamism had a significant impact in one period and an insignificant impact in another period. This showed that the direct effect of capital structure determinants changed when equity market and credit supply conditions varied. We showed that industry-level factors moderated the relationship between leverage and firm-level factors. Further, it was exhibited how economic conditions affected not just the direct influences of firm and industry level factors but also the indirect influences of industry-level factors. The results of the present study highlighted the complexity of corporate leverage decisions by exhibiting how changes in economic conditions and industry characteristics led to changes in leverage levels.

The stock market tips

We investigate the influence of public companies on their local economies through the spending of their employees on local goods and services. Using the taxicab industry in New York City as a laboratory, we find that tips paid for taxis taken near firms’ headquarters are higher on the days the firms’ stock returns are higher. This effect is short-lived, is stronger for firms offering greater stock-based compensation, and varies across industries. In addition, tipping increases gradually following the initial public offerings (IPOs) of firms, and this increase becomes significant at the end of the IPO lock-up period. Idiosyncratic stock returns are more strongly associated with tipping than are aggregate stock market or industry returns, suggesting that the increase in tipping with stock returns is due to firm-level factors. The number of taxis taken near firms’ headquarters, too, increases with their stock returns. Additional tests suggest that these findings are non-spurious.

Extended contextual validation of stakeholder approach to firm technology adoption: moderating and mediating relationships in an innovation eco-system

PurposeThe need for context-specific adoption models led to the development of the firm technology adoption model (F-TAM) model. Among small to medium-scale enterprises (SMEs); however, firm-level factors were rather insignificant in engendering SME level adoption of technological innovation. This study aims to examine the effect of firm size and other moderating and mediating factors on the relationships between personal, firm, societal and technological factors proposed in the stakeholder-oriented F-TAM among SMEs.Design/methodology/approachA research instrument was developed, reviewed by experts, and pilot tested with a sample of 25 respondents. Data were purposively collected from four hundred (400) SMEs and analyzed with partial least squares structural equation modeling (PLS-SEM).FindingsThe study discovered that employees, societal and technological factors moderate the relationship between firm factors of adoption and firm adoption. Without these moderating effects, firm factors of adoption would have been insignificant at the SMEs’ level of organizational technology adoption. The study further discovered that firm size, as well as risk propensity, also affect the relationships proposed in the model.Research limitations/implicationsData was collected on voluntary adoption from the most cosmopolitan area of a developing country. It, therefore, needs further contextual validation across the country and different countries.Practical implicationsThe engagement of innovations in firms must be planned with employees and society as major stakeholders.Originality/valueThe significance of this finding is the study’s emphasis on an eco-system approach for examining the phenomenon of innovation adoption. To the best of the authors’ knowledge, this study is the first to examine the effect of firm characteristics on is proposed eco-system of stakeholders.

Systemic risk in the Chinese financial system: A panel Granger causality analysis

In this paper, we investigate China’s changing financial interconnectedness via the presence of Granger-causality between firm level factors (Leverage, Market To Book Value and Returns) and systemic risk measures (ΔCoVaR, MES, and SRISK ). The analysis is based on 161 Chinese financial intermediaries (14 Traditional Banks, 16 Finance Services, 131 Real Estate Finance Developers) continuously listed over the period 2007:1–2021:1. We find that, in addition to traditional banks, finance companies and real estate finance developers pose systemic threats to the Chinese financial system, in particular during the Global Financial Crisis and the 2015 Chinese stock crash. Finally, the outbreak of COVID-19 pandemic has put under strain the Chinese financial system, in particular the finance services.

Towards comprehensive corporate sustainability reporting: an empirical study of factors influencing ESG disclosures of large Czech companies

PurposeBusinesses nowadays face unprecedented pressures from stakeholder groups to become more transparent by issuing comprehensive reports describing their environmental, social and governance (ESG)-related activities, strategies and policies. This paper’s primary motivation is to understand which ESG disclosure factors are relevant for large Czech companies.Design/methodology/approachTo achieve the above-stated goal, the total ESG disclosure index, consisting of three subindexes (ESG) was constructed and calculated for the 100 largest Czech companies. Furthermore, the relationships between firm-level factors and ESG disclosure indexes were estimated by using censored regression models.FindingsThis study found that revenue, number of employees and profitability positively influenced the total ESG disclosures. On the level of the three ESG components, this study found that revenue positively impacted environmental and governance disclosures while the number of employees positively affected social and governance disclosures. Moreover, profitability affected social and governance disclosures positively for large Czech companies. However, this study did not observe a significant relationship between board attributes and ESG disclosures.Originality/valueThis paper extends academic literature on ESG disclosures by verifying the significance of firm-level factors in the context of Czech business realities before the adoption and transposition of the Corporate Sustainability Reporting Directive. More specifically, this study has investigated the ESG reporting together and separately for ESG factors. This separation is vital as firms vary in reporting processes across these factors.

Post-Earnings Announcement Drift in Latin America

Purpose – This research investigates the post-earnings announcement drift (PEAD) anomaly in the Latin American stock markets.Theoretical framework – The theoretical fundamentals of PEAD analysis lie in the efficient market hypothesis (EMH).Design/methodology/approach – We use firms from Argentina, Brazil, Colombia, Chile, Mexico, and Peru. We examine the PEAD anomaly by estimating the cumulative abnormal returns (CAR) around earnings announcement dates. We replicate the analysis using a sample of firms from the New York Stock Exchange (NYSE) for comparison. We analyze how firm-level and country-level (institutional) variables can explain the PEAD anomaly.Findings – Under different specifications, we find that good news firms yield positive CAR while bad news firms yield negative CAR even after a window of 20 days. We find that the effect of earnings surprises on CAR in Latin Americavaries with firms’ size and countries’ risk, while in the US it varies with firms’ size and the market-to-book (MTB) ratio.Practical & social implications of research – We fill a gap in the literature on the role of accounting in the capital markets by analyzing the Latin American markets, which are usually left unexplored. In addition, our results are important for portfolio selection strategies, since the PEAD anomaly represents an opportunity to gain abnormal returns based on earnings surprises.Originality/value – We contribute to the literature on the PEAD anomaly by providing evidence on how investors react to earnings announcements in Latin American countries. While other studies have investigated how accounting numbers are useful for investment strategies in the region, by including earningssurprises we go back a step and first investigate the reaction around these surprises. Keywords: Post-Earnings Announcement Drift, Latin America, abnormal returns, firm-level factors, country-level factors.

The psychological and economic roles of culture on global underpricing difference: A new hierarchical evidence

This paper investigates the ongoing phenomenon of Initial Public Offerings (IPOs) underpricing in cross-country setting by focusing on how national cultures can exert direct and indirect influences on global underpricing difference. In the IPOs market, participants navigate between two types of information asymmetry that attributes to the existence of underpricing difference across countries. Commonly explored are internal category of information asymmetry related to firm-level characteristics and the external category associated with the characteristics of national cultures is less understood. We capture the hierarchical structure of the data across different cultural environments by employing a full Hierarchical Linear Modelling (HLM). We employ 10,212 IPO-issuing firms over 22 years covering 12 advanced, and 10 emerging countries. We find that variations in cultural dimensions measuring the psychological and economic roles of culture directly explain up to 0.999 and 0.980, respectively, while firm-level factors only explain up to 0.097 of the variability in IPO underpricing. Our results produce exclusive evidence showing that culture indirectly influences underpricing variance in three ways: first, by modifying the correlation between the incentive of IPO issuers and underpricing by up to 0.154; second, by modifying the relationship between underwriter reputation and underpricing by up to 0.010; and third, by modifying the association between ex-ante uncertainty surrounding the offering and underpricing by up to 0.273. The findings contribute to the emergent and underdeveloped literature on the association between national cultures and underpricing of IPO firms in the global market.

Post-Acquisition Performance of Emerging Market Firms: A Multi-Dimensional Analysis of Acquisitions in India

M&A performance is a multifaceted, compound construct with no overarching factor that captures all different dimensions. This paper examines the concept of acquisition performance and proposes a model that links firm-level factors and transaction parameters with firms’ short-term and long-term performance, extending to financial-, market- and innovation measures. Building on past empirical studies on the influence of various factors on M&A performance, a multi-dimensional structural equation model has been developed and it has been tested with a dataset on acquisitions in the Indian technology sector over a period of ten years. The results suggest that: (a) smaller acquirers with higher book value and leveraged firms demonstrate better long-term performance; (b) contrary to established understanding, short-term market returns are not influenced by deal parameters; (c) majority stake purchases show relatively lesser gains—suggesting the possible presence of post-acquisition integration issues and, (d) acquirers with high intangible assets continue to do well on innovation performance post-acquisition. By indicating situations and conditions under which an acquisition would potentially lead to a performance gain for the acquirer, these results provide significant insight to practitioners pursuing M&As for growth opportunities.

The dark shadow of corruption on new product development

PurposeThe study examines the effects of corruption activities on new product development of firms. The roles of senior managers in the relationship between corruption activities and new product development are also studies.Design/methodology/approachThe data of Indian firms are collected from the Enterprise Survey conducted by World Bank in 2014. Variables on corruption, new product development, and other firm level factors are considered in the study. Logistic regression is used to examine the effect of firm's engagement in corruption activities on new product development.FindingsCorruption activities of firms is negatively related to new product development. Senior manager's industry experience and engagement in regulatory activities weaken the negative relationship between firm's engagement in corruption activities and new products development.Practical implicationsWith the increased focus on innovation, organizational managers have to work on the development of new products, and understanding of the negative relationship between engagement in corruption activities and new product development will help them to achieve the desired organizational goals.Originality/valueThe study contributes in three ways. Firstly, the paper extends the theoretical understanding of the implication of a non-market strategy, corruption on new product development. Secondly, the study contributes to the existing literature on the antecedents of new product development. Finally, the roles of senior managers helps to understand the importance of their industry and regulatory experience in the main relationship.

The role of firms in the gender wage gap

Recent research suggests that firm-level factors play a significant role in the gender wage gap. This paper analyses the role of sorting between and bargaining within firms for gender wage gap using the methodology of Card, Cardoso and Kline (2016) and employing linked employer-employee data from Estonia, a country with the highest gender wage gap in EU. We find that firm-level factors explain 40% of the gender wage gap and that the within-firm bargaining plays important role. This latter effect can reflect institutions like low minimum wages and union power. The role of firm-level factors has increased over time and is especially important at the top of the wage distribution and amongst workers that are more skilled. We also find, in contrast to some recent evidence from other countries, that parenthood is not activating the effects of firm-level wage premiums on the gender wage gap. This is likely related to work-family institutions in our sample country, such as job protection of mothers after childbirth and generous availability of formal childcare. The results point to the importance of institutions in the manifestation of firm level factors in the gender wage gap.

A landscape level analysis of entrepreneurship and sustainable energy transitions: Evidences from Gujarat, India

AbstractIn accordance with India's sustainable energy targets of achieving 175 GW of renewable energy (RE) installed capacity by 2022 and 450 GW by 2030, the role of private sector actors has become increasingly important. As presently, 96 percent of the total installed RE utilities in India are privately owned; this makes sustainability driven entrepreneurship the core of India's energy sector transition. It is vital to explore various individual and firm level, policy and market related factors that enable entrepreneurs to induce innovative RE technologies in the existing conventional energy regime in India. So, this study adopts a multi‐level perspective approach to understand what and how processes at the landscape level (national, sub‐national policy, and international concerns) interplay with niche (sustainability driven entrepreneurs) and regime (existing fossil fuel regime) to create windows of opportunities for sociotechnical transition from conventional to clean energy. This empirical study incorporates structured interviews with 54 RE entrepreneurs operating in Gujarat, to understand the role of policy and international factors in facilitating innovation and firm growth in this sector. As Gujarat contributes around 12 percent to the total RE basket in India and with its culture of innovation and entrepreneurship, ranks among the top 10 states in terms of Ease of Doing Business (2019) the study area has been delimited to this Indian state. The study finds that despite having policy regulations such as tax incentives, Renewable Purchase Obligations, safe‐guard duties, and financial subsidies to promote innovation and entrepreneurship in the RE sector, the profitability of these entrepreneurs is low. Moreover, there are loopholes in implementation of policies which further impede growth of RE entrepreneurship hence leading to hindrance in adoption and diffusion of clean energy technologies in India.