German Firms Research Articles

Improving Innovation Performance by Means of Open Innovation: The Role of Entrepreneurial Orientation and Information Technology Capability

Prior studies indicate that firms yield varying results while adapting to open innovation (OI). They suggest an optimum OI level using the concepts of external search breadth and depth, whose antecedents’ relationships with innovation performance (IP) have been inadequately examined. This study explores how information technology capability (ITC) and entrepreneurial orientation (EO) influence a firm’s external search strategies and impact its IP. A survey of listed German firms ([Formula: see text]) found no support for a curvilinear relationship between open external search strategies and IP. Moreover, the assumption that ITC positively affects the relationship between external search strategy openness and IP was unsupported, proposing a negative moderating impact of ITC. The study observes that EO has differential moderating and direct effects on external search strategy effectiveness and its collective impact on IP.

System Relevance and Firm Performance Due to COVID-19

Abstract We study the impact of COVID-19 on firm performance. Using financial accounts of a large number of German firms, we document that industry affiliation is an important economic dimension of the crisis. Motivated by this fact, we analyze an important industry-specific regulation, system relevance, which allows businesses to remain open in times of lockdown and other restrictions. A difference-in-differences estimation strategy shows that relative revenues of system-relevant firms increase by 6–9 percent and profits by 17–25 percent due to COVID. Controlling for channels that are arguably not driven by the system-relevance regulation, the impact on revenues decreases but remains significant. Overall, results indicate that regulations affecting the ability to operate as well as industry-level shocks play important roles for firm performance during a pandemic-induced crisis.

Committing to Grow: Privatizations and Firm Dynamics in East Germany

This paper investigates a unique policy designed to maintain employment during the privatization of East German firms after the fall of the Iron Curtain. The policy required new owners of the firms to commit to employment targets, with penalties for non-compliance. Using a dynamic model, we highlight three channels through which employment targets impact firms: distorted employment decisions, increased productivity, and higher exit rates. Our empirical analysis, using a novel dataset and instrumental variable approach, confirms these findings. We estimate a 22% points higher annual employment growth rate, a 14% points higher annual productivity growth, and a 3.6% points higher probability of exit for firms with binding employment targets. Our calibrated model further demonstrates that without these targets, aggregate employment would have been 15% lower after 10 years. Additionally, an alternative policy of productivity investment subsidies proved costly and less effective in the short term.

Employees’ perceptions of co-workers’ internal promotion penalties: the role of gender, parenthood and part-time

ABSTRACT Much research has focused on penalties by gender, parenthood and part-time work for hiring processes or wages, but their role for promotions is less clear. This study analyzes perceived chances for internal promotion, using a factorial survey design. Employees in 540 larger German (>100 employees) firms were asked to rate the likelihood of internal promotion for vignettes describing fictitious co-workers who varied in terms of gender, parenthood, working hours as well as age, earnings, qualification, tenure and job performance. Results show that promotion chances are perceived as significantly lower for co-workers who are women (gender penalty), mothers (motherhood penalty) and part-time workers (part-time penalty). Fathers and childless men (co-workers) are not evaluated differently (no fatherhood premium or penalty), and neither does part-time employment seem to be perceived as a double penalty for male co-workers. All three perceived promotion penalties are more pronounced among female employees, mothers and part-time employees. These findings show that employees perceive differential promotion chances for co-workers which indicate actual differences due to discrimination, selective applications or structural dead-ends. Either way, perceived promotion penalties are likely consequential in guiding employee’s application behavior and hence can contribute to the persistence of vertical gender segregation in the labor market.

Do capital incentive policies support today’s digitization needs?

Public support schemes are typically targeted towards capital investments. However, the targeting of digitization investments might not only be a missed opportunity to increase the usage of state-of-the-art digital services in the economy, but might even lower the uptake thereof. This paper exploits variation in the eligibility and the size of potential investment subsidies of German firms in order to analyse the relationship with the firms’ propensity to adopt cloud services. Our empirical results are in line with the hypothesis that capital investment schemes lower the use of cloud services by firms: the higher the potential subsidy for investments, the lower the incentive for firms to adopt cloud services. We consider this finding an unintended policy effect which is highly relevant for policy makers, as the adoption of cloud services has been linked to various benefits on the firm as well as on the aggregate economy level.

Social and Environmental Responsibility Manager on the Example of Companies from Poland and Germany

Here, the role of business managers in Poland and Germany in creating responsible business was analyzed. The authors examined CSR strategies, challenges in balancing interests and integrating CSR principles with business practices. They emphasize the importance of education and the active involvement of managers in CSR strategies for the company’s long-term benefits. The article uses three key research methods. The first is a review of the Polish and foreign literature, allowing for an understanding of the global context of CSR. The second method is the analysis of CSR reports from Poland and Germany, giving insight into practices and standards in these countries. The third method is research based on a questionnaire survey conducted in Poland and Germany, enabling a direct understanding of the attitudes and practices of managers. Polish companies lean towards sustainable purchasing and training more than their German counterparts, pointing to a nuanced approach to CSR in Poland. Meanwhile, German firms appear more invested in community and environmental programs, highlighting their particular emphasis on certain social and environmental dimensions of business. There is a clear commitment to CSR in both countries, but the varied nature of the initiatives suggests differing cultural or regulatory influences. Enhancing CSR awareness, particularly around sustainability education and emission reductions, emerges as a priority for both nations. The data indicate that managers are crucial in steering CSR practices, with their active involvement often leading to positive outcomes. The study provides an analysis of current CSR landscapes in Poland and Germany.

FDI and onshore task composition: evidence from German firms with affiliates in the Czech Republic

How does a firm’s foreign direct investment (FDI) in a low-wage country change its onshore task demand in a high-wage country? Is the shift more intensive for jobs that the literature has designated offshorable? We address these questions using a matched difference-in-differences (DiD) approach with data on German firms that have similar propensities to conduct FDI in the Czech Republic. Our novel matching procedure draws on post-lasso logit estimates and shows that high task intensities of managing, administration, and labor legislation play a major role in firms’ engagement in international expansion. The outcomes of the DiD estimation show that after acquiring a foreign affiliate, multinational enterprises (MNEs) increase the intensities of their activities typical of headquarters such as managing, analyzing, and negotiating relative to the corresponding task intensities among non-MNEs. We also find sector-specific decreases, such as a reduction in typical production tasks (monitoring, producing, measuring) in manufacturing MNEs or typical service tasks (informing, medical, repairing) in service MNEs.

Coping with the heterogeneity of external knowledge sources: Corresponding openness strategies and innovation performance

Previous studies on open innovation and strategic management have emphasized the positive impact of external knowledge on firms' innovation performance. However, given that external knowledge is widely distributed across a myriad of heterogeneous sources, it presents challenges for both the openness strategy and knowledge accessibility. When designing a firm's openness strategy, the heterogeneity of these external sources must be considered, choosing a form of openness that aligns with the attributes of the targeted sources. The question remains, which form of openness aligns best with which knowledge source and leads to improved innovation performance? Our regression analysis, based on a sample of 3294 German firms from the Mannheim Innovation Panel (MIP) in 2013 and 2017, reveals that utilizing a search strategy toward market sources of knowledge influences innovation performance more positively than a collaboration strategy. Conversely, only collaboration with science-based sources of knowledge has a significant positive impact on innovation performance. We further delve into the implications of these observed results and describe the practical implications for innovation managers.

Audit quality and classification shifting: evidence from UK and Germany

PurposeThe authors examine the impact of audit quality (AQ) on classification shifting (CS) among non-financial firms operating in the UK and Germany.Design/methodology/approachThis paper used various audit committee variables (size, meetings, gender diversity and financial expertise) to measure AQ and its impact on CS. The authors used a total of 2,110 firm-year observations from 2010 to 2019.FindingsThe authors found that the presence of female members on the audit committee and audit committee financial expertise deter the UK and German managers from shifting core expenses and revenue items into special items to inflate core earnings. However, audit committee size is positively related to CS among German firms but has no impact on UK firms. The authors also document evidence that audit committee meetings restrain UK managers from engaging in CS. However, the authors found no impact on CS among German firms. The study results hold even after employing several tests.Research limitations/implicationsOverall, the study findings provide broad support in an international setting for the board to improve its auditing practices and offer essential information to investors to assess how AQ affects the financial reporting process.Originality/valueMost CS studies used market-oriented economies such as the USA and UK and ignored bank-based economies such as Germany, France and Japan. The authors provide a comparison among bank and market-oriented economies on whether the AQ has a similar impact on CS or not among them.

Is exposure to the family firm always good for the next CEO? How successor pre-succession firm experience affects post-succession performance in family firms

The benefits of pre-succession family firm experience have frequently been emphasized. However, empirical research on the impact of such experience on firm performance is dichotomy-driven and offers contradictory results. Further, there are also unresolved theoretical fault-lines. While psychology-inspired managerial decision-making literature highlights negative aspects of such experience, stewardship-inspired arguments highlight positive effects. In this study, we integrated arguments from both perspectives to investigate how pre-succession firm experience affects firm performance. Based on a sample of 405 German firms, our regression analyses show that although the main performance impact of pre-succession family firm experience is negative, this effect has important boundary conditions. In particular, our results show that this relationship takes an inverse u-shaped form for non-family successors. Further, our study reveals that the main negative relationship is stronger when the successors do not have academic education or if the innovation impetus of the firm and industry is high.

Conceptual conformity of deferred tax accruals: evidence from Germany and the United Kingdom

ABSTRACT This article argues that it is more appropriate to model the relation between deferred tax accruals and subsequent tax payments using a first-difference model rather than the levels model employed in the extant literature. We then use the difference model to assess the conceptual conformity of deferred tax accruals by testing if changes therein predict changes in tax payments. Using a combined sample of British and German firms we report conceptual conformity for deferred tax liabilities but not for deferred tax assets. By allowing UK and German firms to have different relations between deferred tax accruals and tax payments, we investigate the impact of country-specific factors, including the taxation system, on this predictive ability. We find conceptual conformity for deferred tax liabilities in both countries but report conceptual conformity for deferred tax assets only for German firms. Finally, we find that the introduction of the Accounting Law Modernization Act (Bilanzrechtsmodernisierungsgesetz (BilMoG)) in Germany in 2010 has brought the relation between changes in deferred tax accruals and changes in future tax payments of German and UK firms much closer together. Currently, the only notable difference between UK and German firms related to deferred tax liabilities pertains to the lag between changes in deferred tax liabilities and changes in tax payments that we attribute to differences in the tax depreciation rates of each country.

COVID-19 as a Jump Start for Industry 4.0? Motivations and Core Areas of Pandemic-Related Investments in Digital Technologies at German Firms

Academic studies prior to the pandemic rather emphasized that the progression towards Industry 4.0 happened in an incremental manner. However, the extraordinary circumstances of the pandemic have led to considerable investments that were widely interpreted as a (generalized) digitalization push. However, little is known about the character of such investments and their effects. The goal of this contribution is to provide an empirically based overview of recent investment in digital technologies in six economic sectors of the German economy: mechanical engineering, chemicals, automotives, logistics, healthcare, and financial services. Based on 36 case studies and a survey at 540 companies, we investigate the following questions: 1. How much did the COVID-19 pandemic reduce existing obstacles for investments in digitalization measures? 2. Is there a universal digitalization push due to the COVID-19 pandemic that differs from the trajectory before the pandemic? The results show that the pandemic affected investment in an unequal manner. It was driven by the immediate need to sustain business operations through the virtualization of communication among employees and with external partners. However, there was less dynamism in shop-floor-related digitalization, as it was less related to epidemiological concerns and is more long-term in nature.

German Firms in International Trade: Evidence from Recent Microdata

Abstract In this paper, we zoom in on the firm level of German merchandise foreign trade, using a novel data base with information on the export and import value by firm, country, product and year for the period 2011–2019. Problems arising from the consolidated reporting of taxable entities and the reporting thresholds present in intra-EU trade have been largely eliminated through redistributions conducted by DESTATIS. Using the data, we examine how global German firms are by looking at the joint distribution of the number of products they trade and the number of countries they trade with. Moreover, we examine the importance of firms mainly engaged in trade intermediation, as opposed to production. Most importantly, we provide a rich description of heterogeneity among German firms by decomposing their trade relationships into intensive margins (value of trade) and extensive margins (number of firms, products and countries). We describe the distributions for each margin, distinguishing intra-EU and extra-EU trade as well as different firm types (producers, wholesalers, retailers). Finally, we reveal strong positive correlations between and within importing and exporting margins, supporting the presence of firm-level complementarities implied by recent theory.

Family firm performance in times of crisis—new evidence from Germany

AbstractLiterature shows that founding-family control tends to positively impact firm performance and valuation. However, it is questioned whether this positive impact also persists in times of crisis or might even be reverted, as in such periods families could be focused on the survival of the firm even at the expense of long-term cash flows. By studying a large sample of listed German firms over the period 1998–2018, we document a significant outperformance of family firms in terms of ROA and (to a lesser extent) Tobin’s Q during the crisis years 2008–2010 relative to their non-family counterparts. Moreover, this crisis resilience is more pronounced the stronger the family influence in terms of equity ownership. Outside the crisis period, there is only weak evidence for any outperformance. Digging deeper into this crisis effect, we find family firms to significantly reduce their leverage during the crisis. This, however, is not done at the expense of future cash flows, as we find weak evidence that family firms increase their capital expenditures as well as their employment relative to their non-family counterparts. Given that these results also hold in a dynamic panel system GMM approach and withstand a battery of robustness tests, we hope to add new evidence on the drivers of family firm performance.

Use of Digital Technologies for HR Management in Germany: Survey Evidence

Abstract Using a survey with 57 German firms, we evaluate the level of digitalization of the human resource management (HRM) function and document perceived benefits and barriers of technology adoption from organizational and individual users’ perspectives. The results give reason for optimism. Most of the companies report that the core HR processes are digitized. We do not observe adverse effects of the digital HRM tools on users’ job satisfaction and work stress. Still, more than half of companies do not yet use digital tools for strategic HRM decisions. Respondents appreciate the increased speed and cost-efficiency of digital HR processes and associate them with a competitive advantage in talent acquisition. The most prominent barriers to adoption are lack of qualified professionals, high costs, and uncertainty regarding the legal framework. Additionally, we test whether small- and medium-sized enterprises differ systematically from larger organizations in how they use digital HRM tools.

Ecological community logics, identifiable business ownership, and green innovation as a company response

We investigate which companies are more inclined to respond with green innovation to ecological community logics. We propose that the noneconomic utility of doing so – in the form of personal reputation gains for business owners – is greater when owner identifiability is higher, and that owner identifiability therefore intensifies the effect of normative ecological community pressures on firm-level green innovation. Our hypotheses are tested on a sample of over 2800 German firms using instrumental variable regression analyses and we find empirical support for our ideas. This study advances the institutional sustainability literature by explaining how community- and firm-level attributes interact to account for heterogeneity in firms' green innovation activities.

Do high local customer and supply densities foster firm growth?

We analyze the effect of local supplier and customer densities on employment growth, using a sample of 19,275 German firms. We suggest a new approach to estimating firm-specific customer and supply densities through combining input-output data from the German Federal Statistical Office and firm-level data from the Orbis database. Existing empirical analyses are primarily conducted on a regional level, so that findings may depend on the regarded regional level and only provide limited insights into the existence and effects of agglomeration on growth at the firm-level. We use kernel density estimation to avoid the arbitrariness of spatial boundaries and scales, and find that the regional agglomeration patterns vary considerably between different sectors. Our econometric analysis reveals that input supplier and customer densities have a statistically significant effect on firm growth and that the firms’ age plays a crucial role in analyzing agglomeration economies.

Improving sewage sludge treatment and utilisation in China: a German perspective on barriers to and measures for the dissemination of innovative technologies

Abstract In China, there is enormous development potential for resource recovery from sewage sludge. Government plans indicate that there will be greater investment in sewage sludge treatment, recycling and associated new technologies. Expert interviews and an expert workshop with representatives of German firms and institutions were held in order to identify barriers to and possible measures for the dissemination of technologies geared towards the utilisation of sewage sludge, such as anaerobic digestion, thermal hydrolysis and hydrothermal carbonisation. The following measures were identified as crucial: influence and support for the development of suitable regulations for sewage sludge in China, improvement in the processes and practices within specialised authorities, improved knowledge transfer, the development of appropriate business or operator models and persuasion of decision-makers within public authorities. German companies cannot implement most of these measures easily.

Artificial intelligence and firm-level productivity

Artificial Intelligence (AI) is often regarded as the next general-purpose technology with a rapid, penetrating, and far-reaching use over a broad number of industrial sectors. The main feature of new general-purpose technology is to enable new ways of production that may increase productivity. However, to date, only a few studies have investigated the likely productivity effects of AI at the firm-level, presumably due to limited data availability. We exploit unique survey data on firms’ adoption of AI technology and estimate its productivity effects with a sample of German firms. We employ both a cross-sectional dataset and a panel database. To address the potential endogeneity of AI adoption, we also implement IV estimators. We find positive and significant associations between the use of AI and firm productivity. This finding holds for different measures of AI usage, i.e., an indicator variable of AI adoption, and the intensity with which firms use AI methods in their business processes.

The digital layer: alternative data for regional and innovation studies

ABSTRACT The lack of large-scale data revealing the interactions among firms has constrained empirical studies. Utilizing relational web data has remained unexplored as a remedy for this data problem. We constructed a Digital Layer by scraping the inter-firm hyperlinks of 600,000 German firms and linked the Digital Layer with several traditional indicators. We showcase the use of this developed dataset by testing whether the Digital Layer data can replicate several theoretically motivated and empirically supported stylized facts. The results show that the intensity and quality of firms’ hyperlinks are strongly associated with the innovation capabilities of firms and, to a lesser extent, with hyperlink relations to geographically distant and cognitively close firms. Finally, we discuss the implications of the Digital Layer approach for an evidence-based assessment of sectoral and place-based innovation policies.