Firm-specific Determinants Research Articles

DETERMINANTS OF WORKING CAPITAL IN INDIAN REALTY SECTOR

Working capital is important aspect which ensures sufficient short-term capital to maintain the firm’s day-to-day operations and creating maximum value to the firm. As working capital may have a major impact on profitability, understanding the firm-specific determinants of working capital is important. This study was conducted on the firm-specific determinants of working capital in the Indian Realty Sector. The independent variables employed in the study includes firm size, asset tangibility, leverage, profitability, sales growth, and fixed assets growth, while the dependent variables employed in the study are inventory, receivables, payables, and cash conversation days. The study based on the sample of thirteen companies of Indian Realty Sector, of which five were large-cap, five were mid-cap, and three are small-cap companies. The study was conducted for the period of 2011-20. The study employed fixed-effects panel regression to analyse the significance of the firm-specific determinants of working capital in the Indian Realty Sector.

Female directors on corporate boards and their impact on corporate social responsibility (CSR): evidence from China

PurposeThis study aims to examine the determinants of the female representations on Chinese listed firm’s boards. This study also investigates the effect of gender diversity on corporate social responsibility activities.Design/methodology/approachThe Tobit regression model is used because the data is censored and using ordinary least square regression can give spurious results. For robust check, the authors also used Heckman’s (1979) two-stage self-selection model to remove the sample self-selection bias.FindingsThe authors find that the female representations on the corporate board are positively associated with firm age, firm performance, corporate governance, family ownership, institutional ownership and managerial ownership while negatively related to firm size and state ownership. This study also incorporates predictors of the critical mass of women on the Chinese listed firm’s board. The study also tests the female-led hypothesis and concludes that the female representation increases in firms with female chief executive officer (CEO) or female chairpersons. The Chinese listed firms with gender-diverse board are socially responsible.Research limitations/implicationsThe importance of diversity in corporate boards has been demonstrated in light of the agency theory and the resource dependence framework. The results contribute to the previous literature by documenting the determinants of female representations on board, robust by alternative measures of gender diversity, firm size, corporate governance and estimation techniques.Practical implicationsThe economic significance of gender diversity stirred the firms to increase female representation. The policymakers can understand the reasons for female underrepresentation in Chinese boards and can reform the regulation to enhance governance quality, non-state ownership and risk aversion among the listed firms.Originality/valueThis study contributes to the literature by providing empirical evidence on the key predictor of the world’s largest emerging economy, specifically the study focuses on the firm specific determinants, different governance attributes, ownership structure and firm risk measures. This study also seeks to answer if the presence of a female in the Chairperson or CEO position encourages the firms to hire more female directors or not?

Determinants of Financing Obstacles of SMEs in Western Balkans

Abstract The main aim of this paper is to investigate the determinants of the financing obstacles and the effect of financial obstacles on the Small and Medium Enterprises (SME) growth in the Western Balkan region. The study employs OLS and probit models and using data from the Business Environment and Enterprise Survey (BEEPS V), conducted by EBRD and World Bank in the period 2012 – 2016. The econometric models used to achieve the main aim of this paper include the OLS and probit regression. From the results of the OLS, the study concludes that revealing the financial obstacles is an important determinant of SMEs’ growth in the Western Balkan countries. Further, among the firm-specific determinants of the financial constraints of SMEs, the study concludes that large firms face fewer financing obstacles than small firms, while older firms are more financially constrained than new enterprises. In addition, in the context of the ownership, findings reveal that SMEs with high foreign ownership of the firms, report fewer financial constraints. Given the presented results, it is important to emphasize the vital role of SMEs as the main employer in the Western Balkans region, emphasizing the need for policymakers to address possible reforms in achieving better regulation, institutional development, and governance efficiency, accounting standards, business, and better credit environment.

Investigating the Impact of Firm Specific Determinants of Non-Pension Fund on Property Investment Decisions: An Evidence from Zanzibar Social Security Fund in Tanzania

The aim of this study was to look at the impact of firm specific determinants of non-pension fund on property investment decisions, a case study of Zanzibar Social Security Fund (ZSSF) in Tanzania. The unit root test, co-integration, and vector error correction model (VECM) were used for estimation in the linear econometric model equation, which looked at the impact of three firm specific determinants of non-pension fund on property investment decisions: urbanization (URB), inflation rate (INF) and interest rate (IR). The estimated result showed that, there was presence of long-run relationship at equilibrium between property investment decisions (PID) in ZSSF and all tested determinants of property investment decisions. The results revealed that urbanization (URB) had positive significant long run relationship with property investment decisions in ZSSF. But it was further revealed that the inflation rate (INF) and interest rate (IR) had negative relationship with PID at ZSSF, though they were statistically significant. The results also revealed unidirectional causality relationship whereby PID causes IR. Furthermore, the results revealed unidirectional causal relationship from URB to PID at 5% level of significant. However, the result revealed that PID and INF were not granger cause each other in a short run. The study then recommends among others, that management of ZSSF has to consider these determinants when they make property investment decisions, this including, the need for management of Zanzibar Social Security Fund to work together with financial institutions like banks to develop a working formula on how they can facilitate mortgage facility at reasonable rate for residential and commercial properties, this will help to increase demand for real estate to society.

Does Market Power Affect Banking Dividend Policy? Evidence from Nepal

We attempt to explain how market power impacts bank dividend payment behaviors in Nepal by taking the sample from the commercial banking sector employing a panel data regression model. Using the Lerner Index (LI), a non-structural measure of market power or lack of competition, we found that market power inversely but statistically insignificantly affect dividend payment. This finding leads us to conclude that market power-a proxy of more or less competition is not an important and influencing factor to the dividend decisions in commercial banking sectors signifying that competition does not seem helpful in mitigating agency conflicts. It is also concluded that banking dividend payouts are not the result of the punitive influence of product market antagonism. Further, among other firm-specific determinants, bank size and leverage significantly positively whereas asset growth significantly negatively affect the dividend decision. However, profitability is found insignificant determinant of dividend payment. The paper enriches and contributes to the literature on banking dividend payout and helps to identify the key factors that affect banking dividend decision-making. Keywords : Banks, Market competition, Market power, Lerner Index, Nepal

Drivers of corporate voluntary disclosure: a systematic review

PurposeThe purpose of this paper is to provide a systematic and comprehensive review of the existing literature on the determinants of firms reporting practices.Design/methodology/approachFollowing a systematic method, the sample literature of 135 studies was collected from the Scopus database. These studies were evaluated in terms of the theoretical lenses applied in the literature, yearly trend, regional distribution, research settings and prior studies finding to provide some recommendations for further research.FindingsThe investigation revealed that the literature was more interested in the agency theory in investigating the drivers of voluntary reporting such as company size, age, leverage, liquidity, profitability, corporate governance and ownership structure. Although firm-specific determinants were the most examined in the previous studies, however, the result is still inconclusive. Also, limited work was found on the country-related factors, while internal audit impact has yet to be explored.Originality/valueBeing the first of its kind, this research provides a comprehensive review of the current research landscape on the drivers of environmental or social disclosure and highlights several interesting opportunities for future research.

Financial Preferences of Listed SMEs in India: An Empirical Study

Small and Medium-sized Enterprises (SMEs) play a very significant role in boosting sustainable economic growth and development of any country. The present study examines various firm-specific determinants that have an impact on the financing choice of the listed Indian SMEs. It also studied the financing practices of the listed SMEs in India and tried to find out if their financing pattern follows the established theories of Corporate Finance. The study selected 113 SMEs listed on the NSE Emerge Exchange for the period between 2014 and 2018. To examine the problem, empirical analysis is done with the help of panel data regression. The study finds that for meeting financial requirements of listed SMEs, they prefer current liabilities first, then total reserves, thereafter short-term borrowings and lastly the long-term borrowings. Among the independent variables chosen based on an extensive literature survey, most of them are statistically significant but are depicting lower explanatory power. Hence, it leads to the possibility of some other firm-specific factors or macroeconomic factors being more relevant in deciding the listed firm’s financing choices. The study concludes that no single theory like Pecking Order Theory (POT) or Trade-Off Theory (TOT) can explain the financing behaviour of listed SMEs completely. It contributes to the extant literature on listed SMEs by attempting to examine the impact of listing on the financing patterns of the SMEs.

Influence of Firm-Specific Determinants on the Profitability of Companies in Agri-Food Sector in Bosnia and Herzegovina: Research Project

The main objective of the undertaken study is to examine the influence of firm-specific determinants on the profitability of companies in the agri-food sector (agricultural production and food processing) in Bosnia and Herzegovina (B&H). For this purpose, we examine the impact of factors that are considered as determinants of firm profitability such as size, age, liquidity, leverage, and growth. The impact of the specific characteristics of the companies is tested on profitability measured by return on assets (ROA) in the agricultural and food processing sector in B&H. The analysis is based on the collection of quantitative data published in the food financial annual reports of the listed agricultural and processing companies in B&H over a period of five years (2015-2019). A research model with crucial variables with five independent variables (size, age, liquidity, leverage, and growth rate) and one dependent variable (profitability) was developed based on the literature review. The study outcomes will give an insight into the firm-specific factors that are important in examining the profitability of companies in the agri-food sector in B&H. Furthermore, the results of this research will serve as a basis for further studies in which the number of variables observed will be extended. Moreover, the results are expected to be useful for the management of the company to direct business decisions towards improving the company’s profitability.

Innovation and productivity in Turkish manufacturing firms

ABSTRACT This paper presents a CDM model to investigate the relationship between innovation and productivity for Turkey as a developing country. The results suggest that innovation expenditure increases the probability of innovation, and that innovation affects productivity positively, when other relevant variables are controlled for. As well as the industry-specific concentration ratio, we also investigated the role of firm-specific determinants of innovation such as human capital, exporting, and market share in the innovation – productivity link.

Determinants of the Financial Constraint and Its Effects on the SME Growth in Central Asia?

This study investigates the firm- and country-specific factors that affect SMEs’ access to finance and the relationship between financial constraint and firm growth in emerging economies of Central Asia. To address the research questions, a two-stage empirical analysis including ordered probit, probit, and feasible generalized least squares (FGLS) specifications were conducted. Firm-level data used in the analysis is obtained from the fifth round of the Business Environment and Enterprise Survey (BEEPS V) and country-level data acquired from national and international datasets. The study's findings implied that in the Central Asian economies, country-specific factors are more likely to affect access to external finance of SMEs than firm-specific determinants. Among firm-specific factors, only foreign ownership is significantly related to financing constraint perception of SMEs; where, the interest rate is positively, and domestic credit market, inflation, and log of GDP per capita are negatively related to financing constraint level. In Central Asia, an insignificant relationship between growth and financing constraints was found. The determinants of financing constraints and access to finance–growth relations, which address the issue of great significance for SME growth in the selected countries, were interpreted with region-specific factors.

Firm specific determinants of open innovation in European SMEs

To manage the changing innovation landscape a key strategic decision for owner-managers of SMEs is the extent to which they adopt open innovation. Extant research however has tended to study open innovation processes in terms of a binary distinction- either open or closed. The purpose of this paper is to move beyond this dichotomous framing and identify the extent of openness in the innovation processes of SMEs in Europe. Furthermore, the study explores the association between internal firm-specific factors related to the capabilities and strategies of the firm and open innovation in SMEs. This study explores if (a) innovation objectives, (b) innovation activities, and (c) innovation expenditures, influence the extent of openness in the innovation process in SMEs. Drawing on data from the 6th Community Innovation Survey (CIS) of 9,949 SMEs from nine European countries, hypotheses are tested using hierarchical multiple regression analysis. The study contributes to the literature by showing that the extent of openness in the innovation process is low for European SMEs. SMEs are more likely to be characterised by higher levels of openness in their innovation if they prioritise product/process innovation objectives, conduct internal R&D, purchase/license external knowledge, and commitment more financial resources to innovation.

Firms’ Specific Determinants of Capital Structure: An Analysis into Construction Firms in Malaysia and Singapore

The study aims to examine the firm-specific factors such as firm size, profitability and asset tangibility in the capital structure decisions (leverage) on a sample of twenty construction firms in Malaysia and Singapore from 2009 to 2018, with 200 observations. The sample firms are chosen based on convenience sampling technique and the availability of the data. Prior studies documented inconclusive findings on the determinants of capital structure and different industries tend to reveal different patterns of relationship. In addition, the empirical evidence on comparative analysis between construction firms in Malaysia and Singapore is lacking. Hence, the objective of this study is to extend the prior work by investigating the impact of the determinants on capital structure on the construction firms in Malaysia and Singapore. The study uses panel data analysis to test the effectivity of trade-off, pecking order and agency cost theories of capital structure. The empirical findings reveal positive and significant association between firm size and capital structure for Singapore firms. Meanwhile, profitability and asset tangibility correlate negatively with capital structure. As for Malaysian firms, the three determinants exhibit insignificant association with the capital structure. The study only examines 10 construction firms in Malaysia and 10 construction firms in Singapore, therefore, the small sample size becomes the limitation of the study. Nevertheless, the findings of this study may contribute to the body of knowledge on the importance of some firm-specific determinants such as profitability, tangible assets, and firm size in order to determine the optimal level of capital structure for firms in these countries.

The impact of COVID-19 pandemic on abnormal returns of insurance firms: a cross-country evidence

ABSTRACT This research investigates the abnormal returns of 958 insurance companies from Australia, Canada, Germany, USA, UK, Brazil, India, and Indonesia under the COVID-19 scenario. This study deploys the event study methodology to analyse the effects of COVID-19 on stock returns both in the short and long terms. Results reveal that, overall, COVID-19 negatively affected the stock returns, particularly in the case of insurance firms operating in developing countries. This research also explores firm-specific determinants distinguishing the most affected insurance firms. It is found that firm size, systematic risk, price-earnings ratio, profitability, and dividend yield affect the intensity of abnormal returns in response to COVID-19 but in different event windows. The investors and policymakers should consider these factors in connection with the risk mitigating strategies.

Firm Size, Corporate Debt, R&D Activity, and Agency Costs: Exploring Dynamic and Non-Linear Effects

This paper empirically investigates firm-specific determinants of agency costs, a relatively new and unexplored area in corporate finance. We estimate dynamic agency costs models, linking debt, firm size, and R&D activity to agency costs for a panel of U.S. information and communication technology (ICT) firms over 1990-2013. We adopt the Blundell and Bond (1998) two-step system GMM technique, which explicitly accounts for persistence, endogeneity, and unobservable firm heterogeneity. We provide the first evidence that our inverse proxy for agency costs, namely asset turnover (Ang, et al., 2000), exhibits an inverted U-shaped relationship with debt and a U-shaped relationship with firm size and R&D activity. These findings imply that agency costs experience a minimum value (in case of debt) and a maximum value (in case of firm size and R&D activity) and, therefore, that agency costs are higher at both low and high levels of debt, and lower at both low and high levels of firm size and R&D activity. We find that the level of debt of the average firm in the sample falls below the level that minimizes agency costs. We also document that, consistent with the agency literature, short-term debt provides an additional effective monitoring mechanism to alleviate agency costs. Our findings reveal that agency costs are dynamic in nature, mean-reverting, and persistent over time. This notion confirms the Florackis and Ozkan (2009) conjecture that managers behave as though an optimal level of agency costs exist that they pursue. Finally, we find a positive association between firm profitability and agency costs and a negative association between agency costs and firm growth. Extensive additional analysis confirms the robustness of our results.

Target Leverage and Leverage Deviation in Corporate Spin-Offs

This paper examines the role of target leverage and deviation from target leverage in corporate spin-offs. Using the setting of corporate spin-offs as large disinvestment projects, I examine if managers of firms follow target capital structures. I show that the changes in target leverage of spin-off parents triggered by the spin-off are not addressed by corresponding changes in actual leverage. In contrast, firms that are spun off (subsidiaries) address changes in target leverage in the years after completion through corresponding capital structure adjustments. Furthermore, I investigate which firm-specific determinants explain the leverage deviation of parents and subsidiaries at the first fiscal year end (FYE) after completion, extending the pre-vious literature by distinguishing between overleveraged and underleveraged firms. For par-ents, profitability has a positive impact on the leverage deviation. For subsidiaries, growth opportunities have a negative impact on the (absolute) leverage deviation. I also examine the impact of the parent's (subsidiaries') leverage deviation immediately before the spin-off announcement (immediately after spin-off completion) and find that firms with high (absolute) leverage deviation reduce their leverage deviation in the following years. This effect is most pronounced for overleveraged subsidiaries. Finally, I investigate the impact of the leverage deviation on announcement returns. The announcement of overleveraged parents conducting an unrelated spin-off leads to negative capital market reactions. In contrast, positive reactions are observed for parents with a high (absolute) leverage deviation when they announce the spin-off of a subsidiary which operates in an industry with high growth opportunities.

Firm-Specific Determinants on Corporate Performance: Evidence from Listed Plantations Companies in Sri Lanka

Firm-Specific Determinants on Corporate Performance: Evidence from Listed Plantations Companies in Sri Lanka

Target Capital Structure of Egyptian Listed Firms: Importance of Growth and Risk Factors

This paper investigates the determinants and adjustment speed to the target capital structure of the Egyptian Listed firms over the period of 2009 – 2018. We use panel regression analysis to examine role of growth factors as well as risk factors in explaining the dynamics of target leverage. The main findings of the growth factors model (GFM) reveal that political risk, profitability and stock market return are negatively affect the target leverage of Egyptian firms. In contrast, investment opportunities, non-debt tax shield, firm size have significant positive effect on the target leverage. On the other hand, the results of risk factors model (RFM) indicate that political risk, size and profitability lose their significant effects for the account of firm risk, stock return, investment and asset tangibility. The business risk captures the effect of political risk on the target leverage. Interestingly, both the investment opportunities and the non-debt tax shield preserve their positive effects and thereby they are considered as the most important firm-specific determinants of the target leverage. We find no significant effects of the economic growth, macroeconomic risk and stock market volatility on the target leverage in Egypt. Regarding the adjustment speed and in the presence of growth (risk) factors, the Egyptian firms take 2.7 (4.4) years to adjust their current leverage toward the target leverage.

Firms’ Specific Determinants of Capital Structure: An Analysis into Construction Firms in Malaysia and Singapore

The study aims to examine the firm-specific factors such as firm size, profitability and asset tangibility in the capital structure decisions (leverage) on a sample of twenty construction firms in Malaysia and Singapore from 2009 to 2018, with 200 observations. The sample firms are chosen based on convenience sampling technique and the availability of the data. Prior studies documented inconclusive findings on the determinants of capital structure and different industries tend to reveal different patterns of relationship. In addition, the empirical evidence on comparative analysis between construction firms in Malaysia and Singapore is lacking. Hence, the objective of this study is to extend the prior work by investigating the impact of the determinants on capital structure on the construction firms in Malaysia and Singapore. The study uses panel data analysis to test the effectivity of trade-off, pecking order and agency cost theories of capital structure. The empirical findings reveal positive and significant association between firm size and capital structure for Singapore firms. Meanwhile, profitability and asset tangibility correlate negatively with capital structure. As for Malaysian firms, the three determinants exhibit insignificant association with the capital structure. The study only examines 10 construction firms in Malaysia and 10 construction firms in Singapore, therefore, the small sample size becomes the limitation of the study. Nevertheless, the findings of this study may contribute to the body of knowledge on the importance of some firm-specific determinants such as profitability, tangible assets, and firm size in order to determine the optimal level of capital structure for firms in these countries.

Modelling sustainability efficiency in banking

AbstractWe significantly contribute to the empirical literature by investigating sustainability efficiency in the banking industry and decompose it into internal sustainability and external sustainability in an explicit manner. We fill in the gap of the literature by considering internal sustainability from two perspectives which are banking stability and economic performance. We also extend the current studies by including both banks' social contributions (contributions to the society and the company development) and environmental responsibility to the estimation of external sustainability. Finally, we fill in the gap of the literature by estimating the determinants of bank sustainability efficiency. The findings from the output distance function and the panel vector autoregressive model show that the sustainability efficiency level in the Chinese banking industry (2007–2017) ranges from 0.45 to 0.75 (maximum sustainability efficiency score is 1 and minimum sustainability efficiency score is 0). There is a larger difference in terms of external sustainability efficiency in the sample, while stability is still one of the most serious issues, as reflected by the low stability efficiency score compared to other efficiency concepts. The results also show that internal sustainability efficiency is significantly affected by the firm specific determinants, business environment determinants and economic environment determinants.

Firm specific determinants of profitability: A study on Indian Iron and Steel Industry

Firm specific determinants of profitability: A study on Indian Iron and Steel Industry