Firm Profitability Research Articles

Relationship between Profitability Indicators and Maximization Market Value A dded a nd I ntr insic for the I ndustr ial Companies

Purpose: This research aims to study the impact of profitability indicators on maximizing the market value added and intrinsic value for industrial companies listed on the Iraq Stock Exchange. Design/methodology/approach: The research was structured using the analysis study method, incorporating various financial indicators, such as Net Profit Margin, Basic Earning Power, Return on Assets, Return on Equity, to examine their impact on market value added and intrinsic value. Findings: The researchers utilized financial data form fourteen industrial companies operating in Iraq ; listed in the financial market, spanning the period from 2011 to 2022. The data underwent analysis employing financial methods and various statistical tools, including single and multiple regression analysis as well as transaction analysis. The results revealed that the profitability indicators adopted by the studied companies exerted varied effects on maximizing the market value or intrinsic value. This variance was observed in accordance with the nature and orientations of each company. The underlying reason for this variation can be attributed to the direct relationship of the financial indicators used directly with the investors, thereby influencing management decisions. Research limitations/implications: The paper focuses on four variables representatives of firm profitability indicators to maximize both the market value added and the intrinsic value; it is necessary expanding the independent variables. Originality/value: This research contributes to the literature on Maximizing value levels for industrial companies. It aids firm leaders and decision-makers understanding the significant role of profitability indicators in maximizing value in financial markets by offering a more comprehensive view of their effectiveness.

Optimal pricing and capacity management in service systems with delay-sensitive mixed-risk customers

In service systems with delay-sensitive customers, customer decisions to join the queue or balk influence demand, impacting service provider profits. Studies show that customers can be risk-seeking for short waits and risk-averse when waits exceed expectations. Prior research on this mixed-risk attitude is limited, focussing on optimal pricing policies from a social welfare perspective. This study fills this gap by investigating the impact of this behaviour on customer joining strategies and the provider's pricing and capacity policies. We analyse a profit-maximising firm managing an unobservable queue where customers display mixed-risk behaviour towards delay parameterised by a risk-switching point and a degree of risk propensity. Customers join or balk based on expected utility, while the firm determines the service price and rate to maximise expected profit. We derive optimal strategies for both customers and the firm under scenarios with concave or convex capacity costs. Computational experiments show that optimal pricing, capacity, and profit peak at intermediate risk-switching points. For smaller points, optimal price and capacity rise with the customers' degree of risk propensity, while larger points have minimal impact. Numerical exploration emphasises the significance of capacity cost and the effectiveness of leveraging price over controlling capacity for maximising firm profitability.

Market-based oil spill(overs): Market reactions to the energy windfall tax announcements and disclosures in the United Kingdom

We investigate the market reaction to a windfall tax regulation announcement for oil and gas firms in the UK. We find that firms subject to the windfall tax experience a significant abnormal price effect of 6.0 to 7.3 %. The effect is concentrated among large and more profitable firms. The results also show that firms voluntarily disclose more precise information after the regulation to offset the negative abnormal price reaction at the windfall tax announcement date. Evidence suggests that these disclosures are largely effective at allaying the price effects associated with increased investor disagreement. Moreover, our analyses show that firms within the same industry experience a negative spillover effect and decreased investor demand associated with heightened policy uncertainty about the implementation of windfall tax regulation. This version: February 2024

Assessing impacts of emergency industry demonstration on firm profitability: the role of blockchain strategies and technologies

PurposeThe objective of this study is to explore the impact of a government-supported initiative for operational security, specifically the establishment of the national security emergency industry demonstration base, on the profitability of local publicly traded companies. Additionally, the study investigates the significance of firms' blockchain strategies and technologies within this framework.Design/methodology/approachUsing the differences-in-differences (DID) approach, this study evaluates the impact of China's national security emergency industry demonstration bases (2015–2022) on the profitability of local firms. Data from the China Research Data Service (CNRDS) platform and investor Q&As informed our analysis of firms' blockchain strategy and technology, underpinned by detailed data collection and a robust DID model.FindingsEmergency industry demonstration bases have notably boosted enterprise profitability in both return on assets (ROA) and return on equity (ROE). Companies adopting blockchain strategies and operational technology see a clear rise in profitability over non-blockchain peers. Additionally, the technical operation of blockchain presents a more pronounced advantage than at the strategic level.Originality/valueWe introduced a new perspective, emphasizing the enhancement of corporate operational safety and financial performance through the pathway of emergency industry policies, driven by the collaboration between government and businesses. Furthermore, we delved into the potential application value of blockchain strategies and technologies in enhancing operational security and the emergency industry.

THE MICROECONOMIC DETERMINANTS OF THE PERFORMANCE OF LARGE COMPANIES: CASE OF ALGERIAN COMPANIES

This research aims to identify and study the internal factors that can influence the financial performance of large Algerian companies and make them sustainable. This study is based on a sample of 78 large Algerian companies operating in four sectors: construction, trade, industry and services, over a period of four years from 2018 to 2021. For this purpose, we used the panel data regression method that takes into account both individual and temporal dimensions. The results of the statistical and econometric analysis showed that the debt ratios play negatively and very significantly on the economic profitability of large Algerian firms, it is also the case for the tangibility of assets, the sectors of activity, the public sector and the size of the firm. However, the capital turnover ratio and the age of the companies act favorably and significantly on their profitability. Self-financing, liquidity and the sector of activity present insignificant coefficients.

The Effect of Cash Conversion Cycle on Company Earnings and Profitability

"Finance serves as the lifeblood of every business, and effectively managing finances stands as a crucial element for any company’s sustenance. This study delves into the examination of how a Cash Conversion Cycle (CCC) influences a company’s earnings. For this purpose, five companies from the Fortune 500 list are selected and ten years of data are extracted from their annual reports for analysis. Employing statistical methodologies, using a sample of firms from diverse industries, we employ regression analysis to examine how variations in the CCC affect profitability yardsticks like Return on Assets (ROA) and Return on Equity (ROE). Implications of this probe extend to financial managers, policymakers, and investors, emphasizing the paramountcy of efficient working capital management in enhancing firm profitability, earnings, and sustainability in competitive markets."

Unravelling the Impact of Executive Confidence on Firm Profitability

The focus of this research is on the Upper Echelon Theory, asserting that CEO&’s cognitive attributes exert a major effect on organizational outcomes. The present study adds to the behavioural finance and strategic management literature by investigating the association between Chief Executive Officer&’s (CEO) confidence and firm profitability in the Indian context. A sample of S&P BSE 100 Indian firms for five financial years has been used to examine the aforementioned relationship, using panel regression analysis. The findings reveal that CEO overconfidence favourably impacts the company&’s profitability as overconfident CEOs enjoy the early mover advantage in the market through quick and innovative decisions and gain competitive strength by overinvesting in good but risky projects. These findings contribute novel insights to the existing literature by exploring the most prevalent managerial behavioural bias and its impact on corporate profitability in the Indian context. The analysis may assist the policymakers responsible for framing recruitment and compensation policies and developing an optimum monitoring system to capitalize on the cognitive traits of top executives in India.

Renewable energy input strategy considering different electricity price regulation policies

This paper examines the impact of the electricity price cap regulation and different policies on renewable energy inputs, electricity prices, demands, and the profits of power firm. Specifically, we compare the impact of the peak-trough electricity price policy (PP policy) and the uniform electricity price policy (UP policy) based on electricity price cap regulation. The findings are as follows: (1) Regardless of the cap, the UP policy consistently results in no lower renewable energy input level and total electricity demand compared to the PP policy. However, power firm earns higher profit in the PP policy. (2) During peak period, the electricity price in the PP policy is not lower than in the UP policy, but the electricity demand is lower. Conversely, during the trough period, the electricity price in the PP policy is lower, and the electricity demand is higher than in the UP policy. (3) When the firm is subject to the electricity price cap regulation, increasing the cap leads to higher electricity prices, renewable energy input levels, total demands, and firm profits. In the absence of the cap regulation, factors of cross-price competition and renewable energy preference increase all equilibrium solutions, while the renewable energy input cost factor has the opposite effect. In the field of renewable energy input, there is no literature considering the impact of the electricity price cap regulation, while our study considers the input behavior of power firm to renewable energy through electricity price cap regulation and different pricing policies. The findings provide substantial theoretical and practical insights for power firm and government in decision-making processes.

A Sectoral Analysis of BSE-Listed Indian Pharma Companies

Purpose: Investors, including domestic and international firms, venture capitalists, and financial institutions, rely on research to evaluate investment opportunities in the Indian pharmaceutical sector. Research helps assess factors such as market potential, company performance, R&D capabilities, regulatory environment, and risk-return profiles. Research plays a crucial role in guiding research and development (R&D) investments and priorities within the Indian pharmaceutical industry. By identifying unmet medical needs, emerging therapeutic areas, and technological advancements, research helps companies allocate resources effectively and focus on areas with the highest potential for impact and return on investment. The current research includes analysing financial statements, such as income statements and cash flow statements, to assess the profitability and earnings stability of pharmaceutical firms, and also investigate factors influencing EPS growth, such as revenue trends, cost structures, research and development (R&D) investments, regulatory environments, and market dynamics. Additionally, the study of DPS involves evaluating dividend payout ratios, dividend yield, dividend stability, and factors driving dividend decisions, including company profitability, cash flow generation, capital requirements, and shareholder preferences. Understanding the relationship between EPS and DPS in the Indian pharmaceutical sector provides valuable insights for investors, analysts, and policymakers in assessing the financial health, investment attractiveness, and shareholder value creation of pharmaceutical companies. Pharmaceutical companies listed on the Bombay Stock Exchange were selected for the study. Speculations were tested using ANOVA and T-TEST. The audit revealed that investors can invest in Dr. Reddys Laboratories, Abbott India, and Themis Medicare for their EPS to be maximum and Dr. Reddys Laboratories, Abbott India, and Novartis India for their DPS to be maximum. Methodology: Fifteen BSE-listed pharmaceutical companies are considered for the present research work and analysed by using EPS and DPS. Result: Selected Large, medium, and small Indian pharmaceutical companies listed on the BSE were the subjects of this study's analysis of their EPS and DPS. The websites of Money Control and the BSE provided the majority of the time series data used in the study on two different variables, EPS and DPS. Five years, from 2019 to 2020 to 2022–2023 are included in the analysis of the EPS and DPS. The BSE-listed Indian pharmaceutical businesses' EPS and DPS were examined in this study. Descriptive statistics (mean, standard error, standard deviation, skewness, and kurtosis) were computed for the determined EPS and DPS. An ANOVA test is run on the EPS and DPS data to find the differences between the chosen pharmaceutical businesses listed on the BSE. It is recommended that investors put their money into Abbott India, Themis Medicare, and Dr. Reddys Laboratories in order to maximise their EPS, and Novartis India, Abbott India, and Dr. Reddys Laboratories in order to maximise their DPS. Originality/Value: The BSE-listed Indian pharmaceutical businesses' EPS and DPS were examined in this study. Descriptive statistics (mean, standard error, standard deviation, skewness, and kurtosis) were computed for the determined EPS and DPS. Based on the study, the right companies for the investors are recommended. Paper Type: Exploratory research.

Merchant guild culture and innovation: evidence from China

ABSTRACT In this study, we explore the implications of merchant guild culture for corporate innovation. We find that merchant guild culture significantly improves corporate innovation, particularly strategic innovation. Further analyses show that merchant guild culture promotes corporate innovation by alleviating financing constraints and curbing earnings management. The results of the heterogeneity test show that the positive effect of merchant guild culture on innovation is more significant in firms owned by non-state, with high integration of foreign cultures, high government subsidies, and higher marketability. In addition, the stronger merchant guild culture influence is, the more innovation affects firm profitability and productivity. Collectively, our results suggest that merchant guild culture is a driving force that promotes trust and cooperation between firms. Therefore, merchant guild culture can effectively enhance innovation and performance as well as exerting a positive influence on innovative economic development.

Working capital management and firm performance: A comparative analysis of developed and emerging economies

The literature on working capital management (WCM) provides mixed evidence on the effect of working capital on firm profitability and performance. We use firms from developed and emerging economies to explore how working capital and its components relate to firms' performance while controlling for firm-specific and macroeconomic factors. The findings show that the cash conversion cycle (CCC) is inversely related to firm performance in developed and emerging economies—however, there are differences in the CCC's components. While firms in developed economies exhibit higher firm performance with longer days' inventory on hand, firms in emerging economies have lower firm performance with longer days' inventory on hand, extended collection periods, and longer payable periods. Company-specific factors, such as firm size, growth, profitability, and leverage, influence the efficiency of WCM. We also find that country-specific variables such as gross domestic product (GDP), interest rate, and inflation have varying impacts on a firm's WCM.

Firm profitability and forced wage labour in Portuguese Africa: Evidence from the Sena Sugar Estates, 1920–74

AbstractForced wage labour (FWL) in colonial‐era Portuguese Africa came to encompass a majority of working age men and persisted until the early 1960s. On the basis of reconstructed financial records from the Sena Sugar Estates in today's Mozambique, we estimate the long‐run profitability of the firm. With this we associate rates of extraction from native labour, defined as the difference between actual levels of remuneration and those under counterfactual freer market conditions. We estimate that coercion suppressed workers’ remuneration by about two‐fifths, representing a significant cost saving to the firm. However, a production function analysis indicates that coercion also negatively affected productivity. Using these results, we calculate that the firm's profitability might have remained broadly robust without FWL. This suggests other factors, including fiscal imperatives and technological factors, likely contributed to the persistence of labour coercion in Mozambique.

Industrial technology progress, digital finance development and corporate risk-taking: Evidence from China's listed firms.

Industrial technological progress, as an essential industrial-technological and institutional phenomenon, brings with it the possibility of high profits for firms but also implies new norms and rules of competition, which affect the willingness and propensity of firms to bear the costs of undertaking venture capital projects. This study empirically investigates the causal impact of industrial-technological progress on corporate risk-taking and the mechanism of digital financial growth on the relationship between the two, based on data from China's A-share listed businesses from 2011 to 2020. This paper finds that (1) industrial technological progress improves enterprise risk-taking levels. Moreover, digital financial development has an incentive effect on industrial technological progress and enterprise risk-taking levels. (2) Industrial technological progress under digital financial development generates financing constraint relaxation effects, input capital return enhancement effects, and innovation performance incentive effects, increasing enterprise risk-taking. (3) The positive moderating effect of digital financial development on the relationship between industrial technological progress and the risk-taking level of enterprises in the eastern regions and enterprises in the high-tech industry is more prominent. The study's findings provide a theoretical foundation and policy insights on the crucial elements of industrial-technological progress and enterprises' increased ability to take risks throughout the development of digital finance.

Business Models of Chinese Firms Impacted by the Crisis Based on Case Studies

The Covid-19 pandemic has hit businesses extremely hard. Because of reduced social contact, many business models (BMs) have been limited, and some have become unviable. In the current external crisis, timely BM changes are crucial for more effective responses to challenges of critical importance. Based on the resource-based view theory, this study adopts a multi-case study approach to investigate the core competencies demonstrated by firms in different industries in adjusting to the external environment. Integrating and adapting existing BMs to form new BMs presents significant differences in operational outcomes between firms. This study focuses on the response and development of firm crisis management during the Covid-19 pandemic. Successful BM can enable firms to survive the crisis and even achieve improvement in the crisis. In addition, this paper distinguishes between business model innovation (BMI) and business model adaptation (BMA) at the theoretical and substantive levels, mainly from the perspective of firm value, including value proposition, value creation, value capture and value transfer, to differentiate between BMI and BMA. This study explains the impact of various BM changes on sustainable firm profitability and value through a detailed collection of media and company official reports. The emphasis on strategic flexibility has positively impacted firm BMs and value, which has implications for providing insights into companies’ long-term development.
 
 Received: 15 November 2023 / Accepted: 9 February 2024 / Published: 5 March 2024

Robots in action

AbstractThis empirical study delves into the intricate factors that shape firms' choices regarding the adoption of robots within the Spanish context. Using a dataset encompassing a diverse set of industries, we employ an empirical analysis to uncover the determinants of robot adoption and investigate the associated outcomes on market variables. Our findings reveal several key factors that significantly influence a firm's likelihood of adopting robots. We find that firm profitability, exporter status, the control variables including share of R&D, and capital intensity exhibit strong positive relationships with robot adoption. Conversely, the impact of the level of human capital on adoption decisions is less pronounced. Furthermore, our study explores the impact of robot adoption on firm performance. We observe that firms embracing robotisation experience notable improvements in the output, exporting activities, and reduction in labour cost share. This study incorporates a gradient boosting‐based machine‐learning model, specifically XGBoost, along with instrumental variable regression models, to conduct rigorous robustness analyses and validate the obtained results. These findings contribute to the understanding of the dynamics and implications of robot adoption in the manufacturing sector, explaining the factors that drive firms' decisions and the subsequent market effects.

The effect of capital structure on firm profitability

This work examines the current state of capital structure impact on firms’ profitability, from the literature by reviewing empirical investigations most recurrent impact of capital structure from 2015 till 2020 on different firms’ performance have been evaluated. The result explains distinctive finding, many explain appositive association while, from findings of some scholars’ firm’s performance negatively associated with capital structure. Thus, Inconclusive result on this topic explains a necessity for more academic work in this regard. But, quite easily finding explains a significant implication on capital structure on organizations performance and reflects financial health and firms- survival.

Investigating social sustainability practices in global supply networks: A fuzzy-set qualitative comparative analysis

Given the paucity of research that examines the impact of Social Sustainability Practices (SSP) on performance outcomes, this study investigates the adoption and influence of these practices on firms' and suppliers’ overall performance, whilst also considering the level of complexity of operational environments of global supply networks. A Fuzzy-sets Qualitative Comparative Analysis (FsQCA) approach is adopted, based on eight primary case studies within the food, chemical and textile sectors, with data collected through semi-structured interviews conducted with representatives from each company.The research identified four key categories of SSP: informative, control, collaborative, and supply network redesign practices. The findings offer empirical support for the notion that SSP adoption yields improved performance outcomes for both the firm and its suppliers. These positive effects encompass enhanced firm profitability, increased supplier efficiency, and heightened supplier innovativeness. Nevertheless, the research uncovered that the relationship between adopting SSP and their impact on performance is not always straightforward. In certain instances, a combination of these practices may be necessary to achieve the desired performance level.In addition, a prudent consideration of the operational complexity present in global supply networks is crucial for informed decision-making pertaining to the selection and adoption of the most appropriate SSP. Driving profits in complex operational environments requires integrating both informative and collaborative practices, whilst tight control is necessary to improve supplier efficiency, regardless of the extent of complexity. Collaboration also emerged as a core factor of success in enhancing supplier innovation regarding social sustainability. Decision makers should also collaborate with external entities, particularly Non-Governmental-Organisations (NGOs) and industry associations/peers, to educate suppliers, thus creating an auspicious environment where suppliers are accountable for their own sustainability performance. This research carries significant practical implications. Managers should evaluate diverse combinations of SSP to confront global sustainability challenges through the utilization of customized strategies that can yield enhanced performance results. Expanding sustainability beyond primary suppliers can often be challenging in a global supply networks, given a firm's limited oversight, transparent knowledge and control over lower tier suppliers. Consequently, managers should seek to strengthen controls and oversight within the manageable segments of the supply network, all the while facilitating self-adaptation within the extended supply network with the adoption of informative and collaborative practices that extend reach, homogeneity, and improve overall governance.

Does Capital Structure Affect Profitability of Listed Ghanaian Firms?

ABSTRACT: Capital structure is one of the crucial decisions managers must make that can affect a firm's short-term and long-term value maximization prospects. Though extant studies have shown capital structure significantly affects profits, researchers have struggled to find an optimal mix of capital structure ideal for value maximization due to the influence of macro and micro factors. There is therefore the need for this to be properly studied contextually. Building on the Pecking Order Theory, this study examines the capital structure effects on profitability from a short-term, long-term, and total debt financing perspective on listed Ghanaian firms between 2003 and 2013. An unbalanced panel data of 23 listed manufacturing and service firms that are listed on the Ghanaian Stock Exchange are subjected to robust maximum likelihood heteroskedastic linear estimation models. Three main regressions that are run explain the short-term debt, long-term debt and total debt effect on firm profitability. The results show that short-term debt exhibits a positive effect on return on equity (ROE), whilst the relationship reverses for long-term debt, indicating that short-term financing was beneficial to firms rather than long-term financing. Also, total debt exhibited a negative and non-significant effect on return on equity. The author also found that firm liquidity exhibited a more pronounced positive effect on profitability for firms with short-term debt than long-term debt. Financial risk negatively affected the returns of only firms with short-term debt. Market share had a pronounced positive effect on ROE across firms whilst firm age exhibited a less pronounced positive effect on firm profits. Firm size and growth had increasing profit effects but was not significant in the dataset. Financial risk also negatively affected profits, but this was only significant in firms with short-term debt structures. This study finds that managers need to adopt more short-term debt financing rather than long-term financing as the former leads to more profits. There is a need for policymakers to develop long-term debt financing structures to compete in the Ghanaian debt market. It is also recommended that managers exercise due care when supplementing equity capital with debt.

Annual Report Complexity and Firm Profitability: The Roles of Agency Costs and Financial Risk as Moderating Variables: A Case of Egypt

Annual Report Complexity and Firm Profitability: The Roles of Agency Costs and Financial Risk as Moderating Variables: A Case of Egypt

Firm Characteristics and Corporate Governance Mechanisms as Drivers of Corporate Social Responsibility Disclosure in Zimbabwe

This study extends the literature on the determinants of voluntary disclosure of corporate social responsibility (CSR) in a sample of 61 annual reports from the Zimbabwe Stock Exchange for the year ended 31 December 2020. The purpose of the study is to determine why firms voluntarily disclose CSR and whether corporate governance mechanisms have an impact on firms’ disclosure policy. An unweighted disclosure index consisting of 30 corporate social responsibility attributes was developed; using content analysis to determine the level of corporate social responsibility disclosure. The results show that corporate social responsibility disclosure is low, with the most corporate social responsibility information disclosed being community involvement disclosure (40%), followed by environmental disclosure (30%), products and consumer information disclosure (29%), and human resources disclosure (28%). In addition, using multiple regression analysis and after accounting for size, leverage, profitability and industry, the findings indicate that board independence and board of directors’ qualifications have a significant positive influence on corporate social responsibility disclosure whereas ownership concentration was found to be insignificant. With the exception of profitability, all other firm characteristics, leverage, firm size and industry sector were positive and significant in explaining the variation in corporate social responsibility disclosure. It appears that profitable firms are not motivated to increase corporate social responsibility disclosure. This may be consistent with the shareholder wealth maximization approach which renders corporate social responsibility disclosures as less important. Financial markets in Zimbabwe may not be sufficiently efficient in penalizing firms for incomplete corporate social responsibility disclosure and that regulators may need to mandate such disclosures if information asymmetry is to be reduced and market efficiency enhanced.