Firm-specific Determinants Research Articles

The determinants of corporate profitability: an investigation of Indian manufacturing firms

PurposeThe purpose of this paper is to examine the firm-specific and macroeconomic determinants of profitability of Indian manufacturing firms. It assesses the main determinants of firm’s profitability in the pre-crisis and post-crisis period from 2000 to 2015.Design/methodology/approachThis methodology splits the factors that influence firm profitability in two groups: firm-specific (internal) factors and macroeconomic indicators. It further aims to look at the consistency of the factors in the pre-crisis and post-crisis period. The return on assets and the net profit margin are considered as proxy for corporate profits. The panel generalized least square and panel vector auto-regression model have been employed, and it is observed that the exchange rate seems to have played a major role in the crisis period by explaining the earning quotient for Indian firms.FindingsThis paper concludes that the firm-specific variables and exchange rate channels are quite relevant in explaining the profitability of Indian manufacturing firms. It accepts the hypotheses that size and liquidity enhances whereas leverage discourages the profitability. Few exceptions have been observed during the crisis period. The study also concludes that in the short run, the changes in exchange rate are not increasing profitability, but in the long run, it increases profitability as the volatility of nominal exchange rate is positively impacting profitability. Moreover, the study finds that the nominal exchange rate index is more informative and explains that profitability is better than real exchange rate index in the case of Indian manufacturing firms over the study period.Research limitations/implicationsThe managers and the policy makers should give utmost importance to the firm-specific determinants, especially after the crisis period, and consider the appropriate exchange rate to evaluate firm performance for making any change in the policy to make any business profitable.Originality/valueThis study has been conducted over a longer time by using advanced panel data analysis techniques on the recent data. The study period properly captures the crisis time and the research includes different selection of profitability that highlights corporate earnings pattern. Moreover, validation of the exchange rate sensitivity of profitability over nominal and real exchange rate increases the robustness of the study. Moreover, on Indian manufacturing firms, the study is very significant and unique.

A Study on Determinants of the Number of Banking Relationships in Korea: Firm-specific Determinants and Effects of Business Cycle

A Study on Determinants of the Number of Banking Relationships in Korea: Firm-specific Determinants and Effects of Business Cycle

The influence of internal corporate governance mechanisms on capital structure decisions of Chinese listed firms

PurposeThe purpose of this paper is to examine the effects of internal corporate governance mechanisms on the capital structure decisions of Chinese-listed firms.Design/methodology/approachUsing a large and more recent data set consisting of 2,386 Chinese-listed firms over the period from 1998 to 2012, the authors use different statistical methods (OLS, fixed effects and system GMM) to analyse the effects of firm-specific and corporate governance influences on capital structure.FindingsThe authors find that the proportion of independent directors and ownership concentration exert significant influence on the level of Chinese long-term debt ratios after controlling for firm-specific determinants and split share reforms. Further analysis separating the sample of this paper into state-owned enterprises (SOEs) and privately owned enterprises (POEs) suggests that ownership concentration in the hands of the state leads to decrease in debt ratios.Research limitations/implicationsThe finding implies that concentrated ownership in the hands of the state appears more efficient compared to their private counterparts in their monitoring role.Originality/valueThis paper extends prior literature, which has concentrated disproportionately on firm-specific influences on capital structure, to the effects of within-firm governance mechanisms on capital structure decisions. The paper contributes to the agency theory–capital structure discourse in an emerging country context where corporate governance system appears weak.

The Influence of Firm Specific Determinants on Financial Performance in the Power Industry

This study concentrates on the impact of firm specific determinants on financial performance in the power industry. The firm specific determinants used in this study as independent variables were capital structure, firm size and liquidity whilst ROA, ROI and profitability were used as proxies of financial performance. Modigliani and Miller (1958) argue that capital structure has no impact on financial performance whilst the Trade-off theory suggests that the ideal capital structure that helps firm remain financially healthy is the trade-off between cost of leverage and the advantages of debt. Beyond that trade-off point, a firm will start making losses. The target population included 60 employees from all the 5 subsidiaries of the Holding company and researchers used 40 respondents as sample size to enhance reliability. A relationship was established between firm specific determinants and financial performance as measured by ROA, ROI and profitability. The results showed a negative but significant relationship between capital structure and financial performance and they support the pecking order theory which suggests that capital structure is a significant determinant of financial performance. Firm size and financial performance were also negatively related. However, a significant positive relationship was established between liquidity and financial performance. From the findings the researchers concluded that firm specific factors have a significant impact on financial performance. Researchers therefore recommend that ZESA holdings should use its internal funds such as retained earnings and more equity than debt when financing its activities so as to reduce leverage costs which lead to poor performance.

The Influence of Firm Specific Determinants on Financial Performance in the Power Industry

This study concentrates on the impact of firm specific determinants on financial performance in the power industry. The firm specific determinants used in this study as independent variables were capital structure, firm size and liquidity whilst ROA, ROI and profitability were used as proxies of financial performance. Modigliani and Miller (1958) argue that capital structure has no impact on financial performance whilst the Trade-off theory suggests that the ideal capital structure that helps firm remain financially healthy is the trade-off between cost of leverage and the advantages of debt. Beyond that trade-off point, a firm will start making losses. The target population included 60 employees from all the 5 subsidiaries of the Holding company and researchers used 40 respondents as sample size to enhance reliability. A relationship was established between firm specific determinants and financial performance as measured by ROA, ROI and profitability. The results showed a negative but significant relationship between capital structure and financial performance and they support the pecking order theory which suggests that capital structure is a significant determinant of financial performance. Firm size and financial performance were also negatively related. However, a significant positive relationship was established between liquidity and financial performance. From the findings the researchers concluded that firm specific factors have a significant impact on financial performance. Researchers therefore recommend that ZESA holdings should use its internal funds such as retained earnings and more equity than debt when financing its activities so as to reduce leverage costs which lead to poor performance.

Firm Specific and Macro-Economic Determinants of Corporate Capital Structure: A Case of Nepalese Commercial Banks

This study examines the firm specific and macroeconomics determinants of capital structure in Nepalese commercial banks. The ratio of total debt to total assets, ratio of long term debt to total assets, and ratio of short term debt to total assets are the dependent variables. Bank size, assets growth, liquidity, profitability, and net worth are the independent variables. Bank specific data are collected from the Banking and Financial Statistics and Bank Supervision Report published by Nepal Rastra Bank and annual reports of the selected banks and macroeconomic data are collected from Economic Survey published by Ministry of Finance. The survey is based on 140 observations from 20 commercial banks in Nepal during the period of 2008 to 2014. The multiple regression models are estimated to test the significance and importance of capital structure in Nepalese commercial banks. The results show that there is positive relationship of bank size and gross domestic product with total debt to total assets ratio. The result also shows negative relationship of liquidity ratio, profitability and net worth with total debt to total assets ratio. This indicates that increase in liquidity, profitability and net worth leads to decrease in total debt to total assets ratio. The study revealed that bank size, profitability, net worth, gross domestic product and inflation have negative impact on long term debt to total assets. However, assets growth and liquidity ratio have positive impact on long term debt to total assets. The study also shows that there is positive impact of bank size, profitability, net worth, gross domestic product and inflation on short term debt to total assets ratio.

Does top managers’ experience affect firms’ capital structure?

Recently, the importance of traditional firm-specific determinants of capital structure has been challenged. The paper uses the trade-off theory to investigate the managerial experience of top managers as a determinant of capital structure. The paper applies system-generalized method of moments (GMM) which corrects endogeneity problem. Our results reveal that top managers’ experience is positively related to book value measures of capital structure. As top managers’ (CEOs) experience increases, both the book total debt and long-term debt ratios increase. Our results are robust using both the market total debt and long-term debt ratios. Based on the findings, the results suggest that top managers’ experience is a potential determinant of firms’ capital structure. The findings also suggest that experienced top managers maximize the benefits of debt interest tax-shield; top managers can increase firm value.

The Effects of Monetary Policy on Financial Position of Firms in the Slovak Republic

The European Central Bank started to stimulate the European economies in 2009 since the countries of the European Union have been facing the low growth and low inflation after both the global financial and sovereign debt crisis The aim of the paper is to evaluate the effects of very low and negative interest rates on financial position of manufacturing firms in the Slovak Republic with the use of balance sheet channel. The results confirm that firm-specific determinants affect the capital structure of firms. When assessing the impact of monetary policy on financial structure in the environment of low interest rates, our findings support the existence of balance sheet channel in the Slovak Republic, that is apparent in short-term structure.

Managerial Ability, Investment Efficiency and Stock Price Crash Risk

This paper examines empirically the effect of managerial ability on firm-level investment efficiency, and the joint effect of managerial ability and financial reporting quality on stock price crash risk conditional on level of investment. Using a managerial ability measure developed by Demerjian et al. (2012), the paper documents consistent evidence that the more able managers over-invest compared to their not-so-able counterparts, even after controlling for the effects of financial reporting quality and other firm specific determinants of investment efficiency. This evidence is robust to alternative proxies for investment efficiency and financial reporting quality. The empirical evidence also suggests that crash risk increases for firms with talented managers, primarily because of an adverse effect of managerial talent on financial reporting quality (both accruals and real earnings management) and this effect is more pronounced for firms that over-invest. Overall, the study contributes to a better understanding of the influence of managerial ability on investment decisions and financial reporting quality in the context of diverging opinions regarding manager-specific effects on organizational outcomes.

Managerial ability, investment efficiency and stock price crash risk

We examine empirically the effect of managerial ability on firm-level investment efficiency and how this affects future stock price crash risk. Using a managerial ability measure developed by Demerjian et al. (2012), the paper documents consistent evidence that the more able managers over-invest compared to their not-so-able counterparts, even after controlling for the effects of financial reporting quality and other firm specific determinants of investment efficiency. This evidence is robust to alternative proxies for investment efficiency. The empirical evidence also suggests that crash risk increases for firms with more able managers, primarily through the investment inefficiency channel. Overall, the study contributes to a better understanding of the influence of managerial ability on investment decisions in the context of diverging opinions regarding manager-specific effects on organizational outcomes.

FINANCIAL CONSTRAINTS AND CORPORATE CASH HOLDINGS: AN EMPIRICAL ANALYSIS USING FIRM LEVEL DATA

This paper empirically investigates whether the sensitivity of cash to its firm-specific determinants differs across financially constrained and unconstrained firms. We sort out firm-year observations as financially constrained and unconstrained based on the median value of three alternative measures: the firm size, dividend payout ratio, and Whited and Wu (WW) index. In order to mitigate the problem of endogeneity and to take into account the dynamic nature of the panel dataset, we apply the robust two-step system-GMM estimator on unbalanced annual panel dataset covering the period 2001–2013. The results suggest that financially constrained firms (FCFs) decrease their cash holdings with size, leverage, and the payout ratio, while they increase their cash amounts with both the market-to-book value and the cash flow volatility. On the other hand, for financially unconstrained firms (FUCFs), we show that there is a positive relationship between cash holdings and firm size, the payout ratio, and the market-to-book value, while both the cash flow volatility and leverage are negatively related to cash holdings. These asymmetries in the sensitivity of cash to its determinants are robust across all the three measures of financial constraints used in the study.

La sopravvivenza immediata delle start-up italiane del settore manifatturiero sanitario: un'analisi multilevel

The purpose of this contribution is to provide novel evidence about the main determinants of the short-run survival of pharmaceutical and medical device manufacturing start-up firms in Italy. In order to assess both the firm-specific determinants and the observed and unobserved regional and contextual characteristics, we model the three-year firm survival probability by means of a multilevel logistic framework.Methods and ResultsThe empirical analysis focuses on an internationally comparable database of the population of firms built up and managed by the Italian National Institute of Statistics (ISTAT), in accordance with the procedures suggested by OECD and EUROSTAT, which guarantee that data are not affected by the typical inconsistencies of the National Business Registers and hence provide the true information about firm entries and exits. The size of this dataset and the high number of regional random effects, however, makes the standard estimation techniques of the multilevel logistic model computationally unfeasible. The estimation is then performed by means of the cross-entropy method for noisy optimization (Bee et al., 2015). ConclusionThe estimates show that the main determinants of short-run survival probability of pharmaceutical and medical device manufacturing start-up firms are the labour productivity and the labour costs, whilst the legal form of the firm, the number of employees and the GDP growth rate are not statistically significant.

Firm-specific determinants of stock prices in an emerging capital market: Evidence from Ghana Stock Exchange

AbstractThis study seeks to examine the influence of firm-specific determinants of stock prices in an emerging market with particular reference to firms listed on the Ghana Stock Exchange. The study employs a data-set from all listed firms on the Ghana Stock Exchange from 2008 to 2014. The study used panel regression analysis to analyse the data. In general, the study found that accounting information, specifically earning per share, return on equity, book value and market capitalization of the firms, is relevant in explaining stock prices after the adoption of International Financial Reporting Standards (IFRS) in Ghana. This study contributes to the ongoing debate on the firm-specific factors influencing share price in an emerging market with particular reference to Ghana Stock Exchange. It is recommended that the Directors of the firms listed on the Ghana Stock Exchange introduce policies which would have a positive impact on their return on equity and earnings per share to significantly influence their...

The impact of ownership concentration and shareholder identity on dividend payout probabilities: New evidence from the German stock market

Numerous studies analyse the impact of ownership concentration and shareholder identity on dividend payout probabilities. In this paper, we seek to provide additional information about the importance different ownership proxies have for dividend payments. Because the importance of those proxies varies with the classification techniques applied, we use both traditional and machine learning techniques. We examine the dividend payout behaviour of German issuers, which is considered rather flexible in terms of its distribution frequencies and dividend yields compared to international practice. Our sample period covers the years 2007 to 2014. Despite considerable differences in the classification techniques applied, we find that previous years’ dividend payments, corporate profitability and firm size are consistently the most important firm-specific determinants of dividend payout probabilities. Only the largest shareholders with equity stakes that are either between 25% and 50% or above 50% rank among the most important variables. The impact is nonlinear. When controlling for shareholders’ identities, we find that both financial institutional and managerial ownership are especially important. Taking the location of institutional investors into account, only foreign financial investors influence payout probabilities.

Firm-specific Determinants of an Sme’s Decision to Withdraw from Export Activity

Firm-specific Determinants of an Sme’s Decision to Withdraw from Export Activity

Robustness of firm-specific and macroeconomic determinants of exploration investments

PurposeThe uncertainty that surrounds oil and gas exploration environments call for an examination at different angles. In terms of robustness, the purpose of this paper is to focus on three performance measurements: the amount of exploration investments, the growth rate of exploration investments, and the value at risk (VaR) of exploration investments.Design/methodology/approachThe study utilizes the properties of discriminant analysis for deriving Z-score models that can be used for monitoring firms’ performance. A cointegration analysis is utilized as well in order to examine the level of cointegration between predictors of each performance measure. The sample includes annual data for 41 firms (local and multinational) working in the oil and gas industry in Egypt for the period 2009-2014.FindingsThe results show that amount and growth of exploration investment are quite robust performance measures in the oil and gas industry; VaR of exploration investment is sporadic as it firm-specific; and GDP, capital expenditure and operating expenditure are quite relevant for managing and monitoring growth of exploration investments.Originality/valueThe study offers robust evidence that amount and growth of exploration investment are quiet relevant for measuring firm performance in the oil and gas industry.

The Effects of Corporate Social Responsibility on a Firm’s Cost of Capital

We concentrate on the relationship between corporate social responsibility (CSR) and the cost of capital, because prior researches often focus on firm performance and research on cost of capital is scarce, despite equity and debt being a primary source of external capital. More specifically, this paper examines the effect of CSR on the cost of equity, cost of debt and weighted average cost of capital (WACC). For this empirical research, we take a comprehensive approach that examines various dimensions related to CSR, namely, environment, society and governance as well as sub-dimensions of society (i.e., employees, related companies, consumers and the community). For a sample of 2,400 Korean firm-year observations from 2011 to 2014, we find that firms with a better CSR score exhibit lower cost of capital (cost of equity, cost of debt and WACC) after controlling for other firm specific determinants. These findings support arguments in the literature that firms with socially responsible practices have higher valuation and lower risk.

Macroeconomics, Firm-Specific Factors and Stock Liquidity: An Empirical Evidence from Jordan

The aim of this study is to identify the macroeconomics and firm-specific determinants of stock liquidity in the context of Jordan over the period (2007-2014). As a sample, all industrial firms listed in the Amman Stock Exchange are taken for analysis. Unbalanced panel data (cross-sectional and time series) is used to obtain the results. The results show that the stock liquidity is positively affected by earnings per share, interest rate, gross domestic product, leverage, and the size of the firm while negatively affected by the ratio of the market value per share to the book value per share, inflation rate, and the return on assets.

Voluntary disclosure in Italy

Purpose– The purpose of this paper is to assess the level of voluntary disclosure in the companies listed on the Italian Stock Exchange. Voluntary disclosure refers to the discretionary release of financial and non-financial information which companies are not obliged to disclose by a standard-setting accounting body. In particular, this paper analyses the effect that certain determinants (leverage, firm size, sector auditor, performance and ownership concentration) could have on voluntary information disclosed by Italian listed companies. In order to do this, 203 annual reports of Italian listed companies for the year 2012 were analysed.Design/methodology/approach– To assess the extent of voluntary disclosure, an index is created and used as a dependent variable in an OLS model to understand the relationship between the above-mentioned determinants. The disclosure score is composed mainly of 38 items per firm (a total of 7,714 items were collected and analysed) regarding firm performance, general information, forward-looking information, human capital, research and development projects, stock market information, segment reporting information and other information. In order to differentiate the information presented in annual reports, a score was assigned to each item on the index (2 points if an item was reported in qualitative and quantitative terms, 1 point if the item was reported in qualitative terms, 0 points if the item was absent). The score is not weighted because all items are equally important for the research purpose. Repeated information is considered only once.Findings– According to the research findings, human resource information is the voluntary disclosure item reported with the highest frequency, and both firm size and auditors positively affect the total amount of voluntary information disclosed by Italian listed companies. Financial firms provide a lower level of voluntary disclosure than do industrial firms.Originality/value– The paper contributes in improving knowledge about Italian firms’ voluntary disclosure of firm-specific determinants, analysing a wide number of items provided in 2012 annual reports.

FIRM LEVEL DETERMINANTS OF FOREIGN PORTFOLIO INVESTMENTS IN TURKEY: A DYNAMIC PANEL REGRESSION ANALYSIS APPROACH

The main aim of this study is to identify the investment preferences of foreign portfolio investors in Turkey. In this study, which comprises 151 non-financial firms listed in Borsa Istanbul between the years 2005-2014 and 1510 firm-year observations, dynamic panel regression methods are used to account for the consistent structure of the foreign investors’ preferences over years. The findings of the study indicate that the market size is the most important determinant of the foreign investment decisions. In addition to the market size, foreign investors prefer firms with low level of liquidity. We do not observe any consistent and significant relationship between foreign investment ratio and other firm specific determinants. The findings of this study is consistent with the other similar studies in the literature. It is believed that due to asymmetric information problem between the local and foreign investors, foreign investors tend to invest in firms that they have more information about.