Importance Of Firm Characteristics Research Articles

Factors affecting the quality of financial statements from an audit point of view: A machine learning approach

This study examines the influence and importance of firm characteristics on the quality of financial statements of listed companies in Vietnam’s stock market from the audit point of view. We use regression models and machine learning algorithms to investigate data from 2225 observations of listed companies in the period 2014–2020. We find that business profitability, business size, and the size of the Board of Directors positively correlate with the quality of financial statements. In contrast, dividend policy, state ownership, and enterprise listing time have a negative relationship. Results show that the most critical factors affecting financial statement quality include profitability, profit after tax on total assets, state ownership, and enterprise size. This finding has practical implications for market participants and policymakers in improving financial reporting transparency and quality.

Firm characteristic determinants of Vietnamese textile and garment enterprise participation in production networks

This paper provides an empirical analysis of Vietnamese textile and garment enterprise participation in global production networks. Based on the overview of Vietnamese textile and garment industry and general information of Vietnamese textile and garment enterprises, it proposed a model and implemented an empirical investigation to identify firm characteristic determinants of Vietnamese textile and garment enterprise participation in production networks. It is the results of combination between some firm characteristic determinants of previous studies and specific features of Vietnamese textile and garment firms. The results suggest that firm size, productivity, foreign ownership, and human capital are the important firm characteristics that determine Vietnamese textile and garment enterprise participation in production networks.

An Investigation of Firm Heterogeneity in the Constraints to Development and Growth in Pakistan

This study considers the importance of firm characteristics in explaining the degree of business constraints facing Pakistani firms in the Investment Climate Survey. We quantify how firms with differing characteristics experience particular problems. After controlling for other factors, the largest differences in responses to business constraints occur among firms that vary by manufacturing industry, and among firms operating under different ownership structures or selling in different markets. In some cases, firm size and firm location also play an important role. The age of the firm generally does not lead to significant differences. These results account for the heterogeneity of firms better than others, and may be important for policy-makers to develop more specific approaches to fostering the investment climate.

Financing Irish high-tech SMEs: The analysis of capital structure

This paper analyses the capital structure of high-tech SMEs based in Ireland examining the determinants which influence the financing options. The main contribution of this paper is to provide analysis on the capital structure financing choices of the high-tech sector, and provide a new insight into the financing of high-tech SMEs through primary data.Regarding the primary data utilised in this paper, an original questionnaire was completed by high-tech SMEs in Ireland, which provides data that is novel and focused. The importance of internal sources particularly retained earnings is found amongst older firms. A change from equity finance to debt occurs within high-tech SMEs over time, while the relationship between the banking sector and high-tech firms has not improved over the past few years. Regression analysis finds a negative relationship between the use of incubators and accelerators with profitability. While a positive relationship between intangible assets and internal finance exists, while firms with previous start-up experience have a positive affiliation with equity finance. Additionally, the descriptive findings provide a thorough overview of the issues of financing and the paper presents data on intangible assets and human capital perspectives not often found in secondary databases. This combined with regression analysis, provides original novel insights into the capital structure of high-tech SMEs and the importance of firm characteristics.

Analysts’ reactions to firms’ real activities management

PurposeFirms’ real activities management (RAM) can have a more detrimental effect on firms’ future performance than accrual earnings management. This paper aims to examine whether analysts, who play an important role as information intermediaries, understand the negative effect of RAM on firms’ future performance and respond to it accordingly.Design/methodology/approachThe authors investigate whether analysts lower their earnings forecasts and stock recommendations of the firms with RAM. The authors measure RAM by examining firms’ abnormal decreases in discretionary expenses, abnormal increases in production and abnormal decreases in cash flow from operations following prior literature.FindingsThe authors find that after controlling for earnings surprises and other important firm characteristics, analysts lower their forecasts of future annual earnings and stock recommendations of the firms that show signs of RAM.Research limitations/implicationsFirst, as in other RAM studies, the results in this study are subject to measurement errors inherent in the estimation of RAM (i.e. abnormal production costs, abnormal CFO and abnormal discretionary expenditures). Second, we include only firm-year observations that barely make positive income in our samples following the previous study. This sample selection criterion helps increase the power of the test by examining the “suspect firms group,” which are more likely to engage in earnings management. However, one can challenge that our findings on the association between RAM and analysts’ reactions could be only case-specific and cannot be generalized.Practical implicationsThis study contributes to the literature on earnings management and especially on RAM. Specifically, none of the previous studies clearly examines whether analysts understand the negative impact of RAM on firms’ future performance and respond accordingly, although there are studies showing the negative association between RAM and firms’ future operating performance and studies showing the negative association between analysts following and RAM. Thus, filling the gap, this study provides a specific reason for the negative association between the analyst following and real earnings management presented in previous studies.Social implicationsThe findings will be of interest to regulators, who are concerned about the potential negative consequences in which tighter accounting standards can result. For example, Ewert and Wagenhofer (2005) theoretically demonstrate that tighter accounting standards can prompt more RAM instead of accounting earnings management. The study provides important evidence supporting that such suboptimal operating activities are closely watched by analysts and are potentially penalized by the market. If the market is able to detect RAM and allocate fewer resources to the firms that engage in it, then the concerns associated with the substitution effect between accrual-based earnings management and RAM can be diminished.Originality/valuePrior research suggests that tighter accounting regulations (e.g. the Sarbanes-Oxley Act) prompt more RAM than accounting earnings management. The study provides evidence supporting that such suboptimal operating activities are closely watched by analysts and are potentially penalized by the market.

Firm Performance and Managing Downside Business Risk

This research focuses on the ultimate impact of hedging effectiveness on firm performance. Successful risk management in firms should lead to a lesser occurrence of lower business outcomes than higher outcomes (e.g., positive skewness in quarterly earnings per share). We empirically estimate the hedging profile of 5,586 non-financial firms (spanning 25 industries) from their quarterly earnings per shares (EPS) and relate it to Tobin’s Q, excess stock returns, ROE and ROA. The estimation controls for important firm characteristics (e.g., median EPS, firm size, leverage, market risk, earnings management, firm-industry fixed effects) and endogeneity. The resulting coefficient for EPS skewness – after controlling for median EPS and other firm characteristics – identifies the impact of the firm's hedging profile on firm performance. We find a strong positive relation between firm performance and the hedging profile as Tobin’s Q, ROE and ROA rise by 0.035, 2.6% and 1.4%, respectively, when EPS skewness rises by one (14% of firms). Study results provide further support for shareholder maximization and signaling theories of hedging.

Dual-class firms’ choice of performance measures in CEO stock compensation contracts

PurposeThe purpose of this paper is to provide new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs.Design/methodology/approachThis paper uses coarsened exact matching and propensity score matching to match the dual-class firm sample with a control group of single-class firms. This study uses matching estimators to provide an analysis of how a dual-class structure affects the design of performance measures in performance-based stock awards. In addition, regression models are used to investigate the effect of a dual-class structure on performance measure choices.FindingsThis paper finds that market-based metrics are less likely to be used by dual-class firms relative to single-class firms. In addition, peer-based measures are much less common for dual-class than single-class firms. This study also finds that the length of the CEO’s performance evaluation period does not differ between dual-class and single-class firms.Research limitations/implicationsThis paper attempts to investigate the choice of performance measures to find out the extent to which the board of directors focuses CEO efforts on firms’ long-term versus short-term objectives.Practical implicationsThe findings reveal the relationships between the dual-class stock structure and the contractual features of CEO performance-based stock awards, provide empirical evidence for the company’s compensation committee and provide implications for the evolving practices of performance measures regarding CEO stock compensation. The findings are also useful to regulators, compensation consultants and firms pursuing efficient design of executive compensation.Originality/valueThis paper is among the first to study the determinants of compensation contracts. Second, prior literature seldom controls for CEO stock ownership, but this study matches dual-class firms to a control group of single-class firms that are similar in terms of CEO stock ownership and other important firm characteristics. Finally, these findings suggest that dual-class firms shield their executives from short-term market pressures and design stock compensation contracts that deemphasize volatile stock prices.

Test of Five-factor Asset Pricing Model in India

In this article, we examine whether stock returns are related with important firm characteristics and fundamentals such as size, value, profitability and investment. We also evaluate whether the existing asset pricing models of Fama–French three-factor (FFTF) model and Fama–French five-factor model can capture the average returns on portfolios constructed based on the above characteristics and fundamentals. We find from the results that average return pattern clearly shows that Indian stock market is strongly influenced by the factors mentioned above. Asset pricing results also shed light that FFTF model clings on to its efficiency at capturing the average returns on portfolios, while Fama–French five-factor model does a plausible job.

The effects of human capital, R&D and firm’s innovation on patents: a panel study on Dutch food firms

This paper analyzes the determinants of a firm’s patent output using data for 2000–2008 which enables us to take into account the role of workers’ skills, other firm’s innovation (process, product, organization) as well as other important firm characteristics including unobserved firm-level heterogeneity. The main results, robust across specifications, suggest a positive and significant effect of process innovation and workers’ skills on patent counts while product innovation becomes an important determinant in explaining forward citations. The inclusion of unobserved heterogeneity is essential in the analysis and seems to affect our results.

Adverse selection and the presence of informed trading

Abstract We combine two concepts of informed trading – contrarian trades and stealth trading – to develop proxies for the probability of informed trading. These proxies are used to test the link between informed trading and adverse selection as measured by bid–ask spreads and stock illiquidity. The estimation results show that these proxies, which are based on the probability of contrarian trading (PC) and progressively refined thereon, are all highly significantly positive in various empirical specifications of the cross-sectional determinants of spreads and illiquidity across stocks, and after controlling for important firm characteristics and trading factors. The robustness of our PC-based proxies for informed trading in these analyses, especially for the further refined measures, suggests that they successfully capture the adverse selection component of bid–ask spreads and illiquidity due to information asymmetry.

The Impact of Arab Spring on Hiring and Separation Rates in the Tunisian Labour Market

This paper analyses the hiring and separation rates in Tunisia before and after the Arab Spring of 2011. Several models are specified to study employment decisions based on quarterly administrative firm level data over the period of 2007 to 2012. The data provides information about important firm characteristics such as industry sector, number of hiring and separation, total employment effects and composition of labour force by gender, managerial level and age cohorts. Six models are estimated to investigate hiring, separation, hiring rate, separation rate, mobility, and net-employment. The results indicate presence of continued risk factors in Tunisia's labour market resulting from the global financial crisis in 2008 and the Arab Spring in 2011. Hiring was little changed during this time period, and the results suggest that factors that impact separation decisions remained present in Tunisia's labour market. In addition, the paper looks at various social issues such as youth unemployment and infer on how more efficient policy actions that will further engage the private sector could result in more sustainable positive net-employment and increased labour mobility.

Is Business Group Structure Inefficient? A Long‐Term Perspective

AbstractThis paper investigates the long‐term value implication of business group affiliation. In order to secure comparability between business‐group‐affiliated firms and independent firms we employ the matching estimator technique, which selects firms with business characteristics most similar to chaebol firms to create a control group of firms. We find that the long‐term performance of chaebol‐affiliated firms is superior to that of control firms although the two groups are very similar at the beginning of the sample period. The differential performance between the two groups has been caused by changes in firm characteristics over time. Difference‐in‐difference estimators on important firm characteristics indicate that, over time, chaebol‐affiliated firms become larger and more profitable, grow faster with more investments, have higher debt, and have more foreign ownership, which leads to a larger firm size. Chaebol firms also seem to benefit from tax shield and monitoring effects due to a higher level of debt, and avoid the entrenchment of owner–managers with a higher foreign ownership. However, regressions using difference variables indicate that business group affiliation by itself is not a value‐increasing event.

Global convergence of financing policies: Evidence for emerging-market firms

As globalization spreads, one of the key challenges that emerging-market firms face is how to finance their growth opportunities. Using data from close to 10,000 firms from more than 30 emerging markets, this paper investigates how, over time, leverage is determined by firms’ business models, and also by the overall country environment. I find significant changes over the last two decades. In the early 1990s, country characteristics dominated firm characteristics, and it was difficult for firms to overcome the limitations of their domestic environment. As emerging markets became better integrated with the world economy, the importance of firm characteristics has increased. At the end of the sample period, emerging-market capital structure determinants resemble those of developed markets, and country characteristics have become less important in explaining financing structures. I also show how, over the last two decades, the maturity structure of debt has changed, and that in recent years firms with more tangible assets are able to attract more debt financing. Overall, I conclude that financing choices in emerging markets are now being made in the same way as in developed markets. This means that emerging-market firms now rely much more on their own strengths when obtaining debt than on country characteristics.

Exports and Firm Characteristics in Germany: A Survey of Empirical Studies (1991 to 2011)

Reliable information on the characteristics of exporting and non-exporting firms is important for providing theorists and policy-makers with evidence-based guidance. This holds true especially for Germany, a leading actor on the world markets for goods and services. This paper provides a synopsis and a critical assessment of 51 empirical studies on exports and firm characteristics based on data for German firms (establishments or enterprises) that were published over the last 20 years. I argue that this literature is not suited to provide the stylized facts needed. Reasons include the widespread use of non-representative small cross-section samples, the use of data for establishments (local production units) instead of enterprise-level data, the lack of information on important firm characteristics (including physical capital intensity and information related to innovation activities), the application of econometric methods that are not appropriate to model the share of exports in total sales and the missing control for unobserved firm heterogeneity. JEL Classification: F14

The Use of Balanced Scorecard Measures in Executive Incentives and Firm Performance

This study investigates the use of balanced scorecard (BSC) measures in executive compensation plans, particularly its performance consequences, and the fit between the use of BSC and firm characteristics. Using a matched-pair design of 330 firms, data from multiple public sources, and multiple measures for key variables, it reveals a strong association between BSC use and firm performance. Evidence also supports the role of strategy, industry, size, quality, structure, culture, and ownership as contingent variables affecting firm performance. Furthermore, firm performance is a function of increased fit between BSC use and firm characteristics. The findings underscore the importance of firm characteristics in the design and use of performance measurement and reward systems.

PARTICIPATION IN WORKPLACE EMPLOYER-SPONSORED TRAINING IN CANADA: ROLE OF FIRM CHARACTERISTICS AND WORKER ATTRIBUTES

I. INTRODUCTION To be successful in the highly innovative and internationally competitive knowledge-based global economy, Canada must produce, attract, retain, and upgrade the well-educated labor force. In addition to producing new graduates and attracting skilled immigrants, renewing and upgrading skills of the existing labor force remain one of the most challenging and important tasks. Employer-sponsored training is one important vehicle for skills upgrading. On the one hand, employer-sponsored training in Canada has been falling short of international standards (Government of Canada 2002a, p. 59) but is increasingly demanded across industries (Government of Canada 2002b, p. 41). This is of particular importance considering the Canadian aging population and smaller future cohorts of new workers who would enter the labor force in the years and decades to come. On the other hand, as illustrated in this work, international evidence indicates that increased market competition, organizational changes, research and development, and technological innovation have raised the demand for job-related training in the United States. But the empirical evidence for Canada is quite limited. Many existing studies on employer-sponsored training are primarily based on household-based surveys (such as the Adult Education and Training Survey [AETS] for Canada) where the information on firm characteristics is not as rich as that in firm-based surveys (such as the Workplace and Employee Survey [WES] for Canada). Lin and Tremblay (2003) note that many existing Canadian studies have examined employer-sponsored training in programs and courses from the perspective of households but few studies have examined directly workplace job-related classroom and on-the-job training from the perspective of firms. Many studies have examined the relationship between worker attributes and participation in employer-sponsored training based on surveys that contain limited information on firm characteristics (e.g., firm size, industry, and union status) but few studies have examined the role of other critical firm characteristics such as market competition, research and development, technological innovation, and management practices. The WES data link these firm characteristics to their workers' attributes and record workplace classroom and on-the-job training. Therefore, the WES data enable us to better understand workplace training. This work adds to the literature in the following ways. First, we attempt to evaluate the role of firms' training provision in workers' participation. We find that when firms provide more training, their workers tend to participate more in workplace training. This finding has an important implication to firms and their training decisions. Second, we try to examine how workers' participation is correlated with changes in market competition, organizational changes, and technological innovation. The new evidence from the WES data indicates that changes in market competition, organizational changes, and technological innovation affect workers' participation in workplace training. This finding explains in part why workers in some firms participate more in workplace training than those in other firms. These new findings suggest that there is a strong and direct relationship between those important firm characteristics and workplace training. The remainder of the work proceeds as follows. In Section II, we review the existing literature and state our key hypotheses about workplace training participation. In Section III, we describe the WES data and highlight some observations based on the statistical analysis of workplace training participation with reference to all of the firm characteristics and worker attributes. In Section IV, we use the econometric models to analyze workplace training participation by taking into consideration all firm characteristics and worker attributes so that we can identify and interpret the net marginal impact of each of these determinants on workplace training participation. …

Choice between Alternative Routes to Go Public: Backdoor Listing versus IPO

This paper examines the decision of private firms to go public through two alternative routes – IPO vs. backdoor listing (BDL). The latter involves a sequence of structured inter-company events by which a private firm achieves a listing status by undertaking a reverse takeover of a publicly-listed firm and using the corporate shell of the listed entity as a vehicle to go public. By pooling samples of BDL and matched IPO firms together in a logit regression framework, this paper presents and tests a choice model based on the importance of firm characteristics and deal-level variables as differentiating factors in the choice between alternative routes. Results indicate that BDL firms are more heavily concentrated in the high-tech sectors and are less liquid, less profitable and more at a development stage than their IPO counterparts. Contrary to common belief, BDL transactions generally take a longer duration to complete than IPOs. In addition, BDL transactions are associated with more cashing-out activity and lower retained ownership by private firm owners (i.e., more sell down). BDL firms also raised smaller proceeds than their IPO counterparts at the consummation of the deal and are less likely to engage the service of an underwriter. Nevertheless, no significant difference in the degree of underpricing (first-day return) between the matched BDL and IPO sample can be established.