Foreign Sales Ratio Research Articles

Voluntary Carbon Disclosure (VCD) Strategy under the Korean ETS: With the Interaction among Carbon Performance, Foreign Sales Ratio and Media Visibility.

While there has been a sufficient amount of research and empirical evidence on the factors that influence a company’s decisions to voluntarily disclose carbon information, little research has been done on the carbon disclosure practices of ETS-affected companies, in Asian countries, in particular. Considering this, it is essential to shed light on more diverse linkages between carbon performance and voluntary carbon disclosure (VCD) under ETSs taking into account the specific context of each individual country. Drawing on the Korean ETS-affected companies with a contents analysis of their sustainable reports from 2015 to 2019, the present research seeks to address the existing knowledge gaps in the current literature on carbon disclosure. In doing so, hierarchical ordinary least square (OLS) regression analysis is used to infer causality and assess the findings. The findings empirically prove a positive relationship between carbon performance and VCD, which means that the affected companies under the Korean ETS are likely to disclose more when they have favorable carbon reduction performance. Furthermore, this link tends to be amplified for companies with a high percentage of foreign sales, while the role of media visibility interacts differently with carbon performance in influencing VCD.

Multinational Companies’ Hedging Effectiveness of Foreign Exchange Risk: A Quantitative Comparison Study

To investigate hedging effectiveness of multinational companies in respect of using currency derivatives, the author adapts an innovative and multi layers GJR-GARCH-based model. This model broke down the currency risk faced by MNCs in each business area and added six control variables other than foreign sales ratio, all these variables have been proved to be related to MNCs’ currency risk exposure but was not included into previous models. Moreover, this model absorbs advantages of several models built in previous studies and combines them into a whole, intact model. This paper also employed a wide research scope, using a sample of 48 non-financial and 28 financial firms headquartered in USA. Also, comparison between financial and non-financial firms is an innovation of our research. According to the result, hedging of non-financial companies in respect of currency risk is ineffective, and financial companies are more likely using currency derivatives to speculate.

The Exposure of Firms to European Integration and the Role of National Policy Positions

This paper uses information from political parties’ election programs to demonstrate how attitudes toward European integration affect domestic firms’ stock performance as indicated by abnormal returns surrounding 91 parliamentary elections in 20 EU countries. Interaction effects between political parties’ policy positions and firm-specific characteristics significantly affect the heterogeneity of stock price responses. Firms’ share of foreign sales and exposure to the tradable sector have a positive, and capital intensity a negative effect on the market response if the elected parties are in favor of European integration. Conversely, if political support of European integration is weak, firm size has a positive effect, whereas the foreign sales ratio is negatively associated with the market response. Controlling for parties’ positions on a set of single-issue categories provides a more nuanced view of the different policy risks than does the broad right-left measure employed in existing studies.

Home Exposure of European Firms: The Role of Multinational Corporations

This paper analyzes the exposure towards the home-specific factor (home exposure) of 4,153 firms from fifteen European countries. Especially, we investigate whether multinational (MNC) differ from national companies (NC). Therefore, we sort the firms that exist during the time period from January 2001 to December 2017 into MNCs and NCs based on their foreign sales ratio. We find that MNCs yield, on average, a higher home exposure than NC firms. Moreover, the home-specific factor has a higher relative importance for MNCs’ returns than for NCs. Hence, the returns of MNCs are closer linked to the home-specific factor than the returns of the NC firms. However, the relation between the firms’ home exposure and the foreign sales ratio is not linear. In addition, we analyze the difference in risk between MNCs and NCs and find a somewhat higher average total risk for MNCs within their home countries. However, the differences seem to be driven by unlike sector compositions of the groups of MNCs and NCs within the countries. Based on excess returns as well as on fourfactor alphas, MNCs outperform, on average, NC firms.

Does Big N matter for audit quality? Evidence from Japan

PurposeThere has been growing concern worldwide regarding audit quality in Japan after the Kanebo and Olympus accounting scandals. The purpose of this paper is to examine the Japanese audit market from 2001 to 2011 to determine whether audit quality differs between Big N and Non-Big N audit firms and whether this difference, if existed, changed during 2007 when the number of big audit firms declined from four to three and the requirements of audit quality became more rigorous.Design/methodology/approachThis study employs a sample of Japanese listed firms from fiscal year 2001 to 2011. Five proxy variables for audit quality are used and the data are analyzed using the propensity score matching method.FindingsThe authors show that irrespective of their size, all audit firms in Japan provide the same quality of service, when controlling for client characteristics including keiretsu, foreign sales ratio and bankruptcy risk measured in Japan. Additionally, the results suggest that although only three major audit firms remain in the Japanese audit market after the dissolution of PricewaterhouseCooper’s Chuo-Aoyama firm in 2007, the audit quality difference between Big N and Non-Big N remained unchanged before and after 2007.Originality/valueThe study contributes to the lack of existing empirical evidence on audit quality in Japan, a country characterized with low audit litigation risk and more emphasis on auditor reputation, given the influence of the notable change in Japanese audit market competition from Big 4 to Big 3. The study’s research design contributes to the extant literature by using multiple proxies of audit quality.

Relationship between IFRS Voluntary Adoption and Goodwill

This paper analyses the role goodwill plays as Japanese firms make decisions of IFRS voluntary adoption. Considering that IFRS do not require regular amortization of goodwill as Japanese GAAP do, it assumes (1) firms with a larger amount of goodwill are more likely to adopt IFRS, and (2) those who adopted IFRS proactively conduct M&As resulting in the increase in goodwill. It first determines the factors promoting IFRS voluntary adoption using logit model. Then, based on the model, it constructs propensity score-matched sample of IFRS adopters and non-adopters and tests the difference in difference of the amount of goodwill. The analyses prove first the amount of goodwill, as well as R&D expenses ratio, foreign sales ratio and firm age, affects the propensity of IFRS voluntary adoption. They also prove IFRS voluntary adopters increase the amount of goodwill in parallel with the decision making of voluntary adoption.

International Involvement and Production Efficiency among Startup Firms

The economic theory of small firms often requires a reasoning process distinct from those typically used for large multinational enterprises (MNEs), since small firms typically do not possess the resources MNEs commonly employ to outperform similar domestic firms. In the current analysis, we argue that new small firms with international sales can better predict their revenue stream than can comparably aged firms with only domestic sales, and, as a result, international selling firms have higher levels of technical productive efficiency. We employ 7829 firm-year observations from the 2007 to 2011 years of the Kauffman Firm Survey microdata sample in our analysis. A stochastic frontier model empirically supports the result that technical productive efficiency is positively related to the foreign sales ratio. These results hold after controlling for multiple relevant owner and firm characteristics, as well as accounting for potential endogeneity concerns.

Multinational Firms and Cash Holdings: Evidence from China

This paper is the first to study the determinants of cash holdings of multinational firms in China from 2000 to 2013. Using different cutoffs of foreign sales ratio, we show that Chinese multinational firms do not hold significantly more cash relative to non-multinationals, except for the cutoff of 50% foreign sales ratio. This insignificance is dominant in non-SOE subsample. We also find that Chinese MNCs invest more but are less profitable, especially in non-SOE subsample. Overall, we conclude that the need of liquidity of multinational corporations in China is different from those in America.

The impact of multinationality on firm value: A comparative analysis of machine learning techniques

In this study, the impact of multinationality (as measured by foreign sales ratio) and fourteen other financial indicators on firm value (characterized by market capitalization and market-to-book ratio) for the period of 1997–2011 was investigated using two popular machine learning techniques: decision trees and artificial neural networks. We divided the time period of 1997–2011 into two periods; 1997–2004 and 2005–2011 to investigate the robustness of results pre- and post-IFRS implementation. To determine the relative importance of factors as the predictors of firm value, first, a number of classification models are developed; then, the information fusion based sensitivity analysis is applied to these classification models to identify the ranked order of the independent variables. Among the independent variables, multinationality was found to determine firm value only moderately. In addition to multinationality, other financial characteristics such as firm size (as measured by natural logarithm of assets), leverage, liquidity, and profitability were consistently found to be affecting firm value.

Exchange Rate Exposure of Real Sector Firms in an Emerging Economy

Firms in emerging economies face a potentially higher degree of transaction and economic exposure compared to those in advanced economies. This is due to fact that most of hedging instruments available in advanced financial markets are not available for firms of emerging markets. Another peculiarity of the exposure of firms in emerging economies derive from the fact that these firms are usually price-takers in international trade and have little power to pass through the changes in exchange rates to foreign buyers. This study is one of the few attempts to directly estimate the exposure of real sector firms from an emerging economy. The paper focus on the determinants of exposure as revealed by the estimates from the two-factor CAPM model. Five main determinants of exposure that are thought to be the most relevant in the particular case of Turkey. These are the level of foreign sales, industry competition, net foreign non-financial liabilities, net foreign currency debt and finally domestic risk free assets. The estimates based on a sample of Turkish manufacturing firms reveal a positive but lagged exposure to real exchange rate changes. A result from the estimations of the two-factor model is the insignificant coefficients on the current exchange rate under all categories. This is a strong evidence against the Efficient Market Hypothesis (EMH) and an evidence for mispricing or a form of market inefficiency. The foreign sales ratio is found to be the most important positive determinant of exposure. However, foreign debt and other foreign non-financial liabilities make negative contribution to exposure. This indicates that measurable exposures are not easily hedged because of the missing derivative markets. Finally, competition is found to make a marginal contribution to the exposure.

SMEs' internationalisation patterns: descriptives, dynamics and determinants

PurposeThe purpose of this paper is to identify the internationalisation patterns of small‐ and medium‐sized enterprises (SMEs) quantitatively, to describe SMEs as they follow different patterns over time and to discuss the determinants of these patterns through empirical study.Design/methodology/approachThe authors conducted a questionnaire survey among mature German SMEs (n=674). To identify internationalisation patterns, a latent class clustering approach was applied. Because of the large sample, a multinomial logistic regression analysis could be used to analyse the factors influencing these patterns.FindingsThe authors empirically find three internationalisation patterns: traditionals, born globals and born‐again globals. Comparing modern SMEs with the same SMEs from ten years ago, it was found that firms may change their patterns. Moreover, the patterns are determined by international orientation, growth orientation, communication capability, intelligence generation capability and marketing‐mix standardisation.Research limitations/implicationsCombining elements of the Uppsala model (countries and operation modes) and born global research (time lag and foreign sales ratio), three internationalisation patterns of established international SMEs from traditional sectors were identified empirically. Because of the multidimensional nature of internationalisation, the patterns may change over time. Different firm‐level factors determine the internationalisation patterns.Originality/valueInstead of applying “arbitrary” thresholds, the paper provides a quantitative approach to identifying internationalisation patterns. These patterns confirm the three main internationalisation pathways discussed in the international marketing literature. The paper further advances the field by describing the patterns, showing evidence that the patterns may cross over time and providing information on the factors that influence the patterns.

The determinants of foreign giving: An exploratory empirical investigation of US manufacturing firms

To date, there is ample evidence on the determinants of domestic charitable contributions made by US firms. However, to the best of our knowledge, no one has investigated the determinants of foreign charitable contributions made by US firms. Using the Socrates KLD database and the US M&A data for the 2004–2010 period, we find evidence that foreign giving by US manufacturing firms is linked to certain key variables. Specifically, we find evidence that variables found significant in the domestic giving literature (pre entry return on assets, size, debt to asset ratio, market to book ratio, and research and development expense as a function of sales) are also found significant for foreign giving. However, and notably, cultural distance and foreign sales percentage have been found to be important discriminators between manufacturing firms who give abroad and those who do not. It appears that high international business experience (proxied by the foreign sales ratio) and operations in culturally distant countries motivate foreign giving. Finally, subsample analysis involving developed and developing countries suggests that cultural distance matters for developing countries, but does not for the developed country subsample. Firm level profitability matters for developed countries, but not for developing countries. Future research may be expanded to include the dollar amounts of giving and a bigger sample size. Differences in foreign giving patterns between manufacturing and non-manufacturing firms, and by firms in countries other than the US, may also be explored.

Internationalization and exposure to foreign currency risk: An examination of lodging firms

Corporate internationalization has often been linked with exposure to risk arising from foreign currency valuation. The theory of economic exposure, however, postulates that when demand and activities are sensitive to purchasing power parities, the value of domestic firms can also be influenced by exchange rates. Suspecting that domestic lodging firms are subject to foreign currency risk, the current study applied a cash-flow model in order to quantify the operating exposure of US lodging firms against currencies that significantly account for visitors to the U.S. Heckman's two-step estimation was subsequently used to examine the effect of internationalization on estimated exposure coefficients. The results indicated that domestic firms are more likely to sustain foreign currency risk, as multinationals may be capable of diversifying away the risk. The higher foreign sales ratio of lodging firms led to greater foreign currency risk, while the increased degree of operational hedging and franchising mitigated the foreign currency risk of multinational lodging firms.

Corporate Internationalization and Systematic Risk

This study aims at characterizing the benefits of corporate international diversification on stock values by introducing the notion of psychic distance in the analysis. In order to capture this crucial dimension, we construct a new internationalization index, which outperforms the traditional measures, such as the foreign sales ratio, for homogenous populations of multinational companies. A Hybrid Capital Asset Pricing Model is employed to engage in measuring the relationship between international index and systematic risk by using the sample of top 100 companies listed in Taiwan Stock Exchange during 2000-2005. The results show that the sample companies generally reduce their international exposure by taking into account psychically distant markets. Alternatively, it also demonstrates that the international systematic risk exposure is often dominated by the domestic market risk exposure.

The Determinants of the Decision To Use Financial Derivatives in the Lodging Industry

This study investigates the determinants of the decision to hedge in a sample of lodging firms over a 5-year period from 2000 to 2004. Using a probit model, the results show that underinvestment costs, financial distress costs, managerial risk aversion, information asymmetry, cash-flow volatility, proportion of floating-rate debt, foreign sales ratio, and firm size are significant determinants of the decision to hedge. The findings also document that lodging firms predominantly use interest rate swaps and options to manage interest rate risk. These findings are generally consistent with the theory of hedging as well as with prior research findings on the decision to hedge.

The interest rate exposure of lodging firms

The purpose of this study is to investigate the interest rate exposure of lodging firms and to determine whether the use of interest rate derivatives reduces this exposure. Using a sample of 47 lodging firms from the period from 2000 to2004, the first stage regression results show that most lodging firms face exposure to interest rates. The key finding of this study is a significant decline in exposure even after controlling for interest and foreign exchange risk. Additional findings show firm size, floating rate debt, interest coverage ratio, and foreign sales ratio to be important determinants of interest rate exposure.

Firm Internationalization and Systematic Risk: A Multidimensional Approach

This paper analyzes the impact of corporate international diversification (CID) on domestic and world betas through the notion of psychic distance between countries. Using a large European sample of 598 firms, our findings indicate that this dimension significantly influences corporate risk exposure. By isolating three additive components of the Foreign Sales Ratio (FSR), we obtain the most significant results by geographically partitioning the sample, provided that firms are further classified by sector. Our framework sheds new light on how the CID of firms belonging to Sweden and the United Kingdom, as well as the Consumer Cyclical, Consumer Non-Cyclical and Information Technology sectors, sometimes can reduce and sometimes increase firm betas.

Corporate international diversification and the cost of equity: European evidence

This paper analyzes the impact of corporate international diversification (CID) on domestic and world betas through the notion of psychic distance between countries. Using a large European sample of 598 firms, our findings indicate that this dimension significantly influences corporate risk exposure. By isolating three additive components of the Foreign Sales Ratio (FSR), we obtain the most significant results by geographically partitioning the sample, provided that firms are further classified by sector. Our framework sheds new light on how the CID of firms belonging to Sweden and the United Kingdom, as well as the Consumer Cyclical, Consumer Non-Cyclical and Information Technology sectors, sometimes can reduce and sometimes increase firm betas.

A Firm‐Specific Analysis of the Exchange‐Rate Exposure of Dutch Firms

AbstractWe examine the relationship between exchange‐rate changes and stock returns for a sample of Dutch firms over 1994–1998. We find that over 50 per cent of the firms are significantly exposed to exchange‐rate risk. Furthermore, all firms with significant exchange‐rate exposure benefit from a depreciation of the Dutch guilder relative to a trade‐weighted currency index. This result confirms that firms in open economies, such as the Netherlands, exhibit significant exchange‐rate exposure. We collect unique information on the most relevant individual currencies for each firm with respect to their influence on firm value. Our results indicate that the use of a trade‐weighted currency index and the use of individual exchange rates are complements. We also measure the determinants of exchange‐rate exposure. As expected, we find that firm size and the foreign sales ratio are significantly and positively related to exchange‐rate exposure. In contrast with our hypothesis, off‐balance hedging using derivatives has no significant effects. Finally, in line with theory, we find that exposure is significantly reduced through on‐balance sheet hedging, i.e., through foreign loans and by producing in factories abroad.