Large European Firms Research Articles

Sustainability and management control. Exploring and theorizing control patterns in large European firms

A growing body of literature argues that management control is essential in supporting an organization to become more sustainable. Nevertheless, skepticism has been raised about the existence of management controls in the context of sustainability in corporate practice and especially about their role in promoting sustainability within the organizations. Based on the management control framework of Malmi and Brown (2008), this paper explores empirically the extent to which large companies have developed a package of formal and informal management control mechanisms and theorizes on the observed sustainability control patterns. The results show that all researched companies deploy sustainability management controls. The paper identifies two distinct approaches in management control for sustainability: a focus on either formal or informal approaches. The insights and recommendations provided in this paper help organizations in translating their aspirations into their organization. The results also highlight the need for research to better understand the situations in which formal and informal management control for sustainability are or could be developed.

Do cross-border and domestic bidding firms perform differently? New evidence from continental Europe and the UK

In this paper we investigate the main features of the domestic and cross-border corporate acquisitions involving 38 European countries in the period 2003–2010. The analysis is based on characteristics of takeover transactions such as type of transaction, payment method, legal status of the target firm, activity relatedness, amongst other factors. In addition, we investigate the short-term wealth effects of 2821 European mergers and acquisitions initiated by large and medium-sized European firms. We find that, upon announcement, domestic acquiring firms earn higher abnormal returns than cross-border bidders. Domestic bidders’ outperformance holds even when controlling for different bid and firm characteristics such as method of payment, type of transaction, public status of the target firm, and activity relatedness of the target and the bidder. We find larger short-term wealth effect of foreign firms bidding on Continental European targets than those of foreign firms acquiring companies in the UK/Ireland. Our analysis shows that cross-border bidding firms tend to experience lower announcement returns when targets are located in countries with stronger investor protection mechanisms, suggesting that acquirers must compensate target firm shareholders (that is, pay higher premiums) if the quality of the corporate governance is reduced.

Do Cross-Border and Domestic Bidding Firms Perform Differently? New Evidence from Continental Europe and the UK

Abstract In this paper we investigate the main features of the domestic and cross-border corporate acquisitions involving 38 European countries in the period 2003–2010. The analysis is based on characteristics of takeover transactions such as type of transaction, payment method, legal status of the target firm, activity relatedness, amongst other factors. In addition, we investigate the short-term wealth effects of 2821 European mergers and acquisitions initiated by large and medium-sized European firms. We find that, upon announcement, domestic acquiring firms earn higher abnormal returns than cross-border bidders. Domestic bidders’ outperformance holds even when controlling for different bid and firm characteristics such as method of payment, type of transaction, public status of the target firm, and activity relatedness of the target and the bidder. We find larger short-term wealth effect of foreign firms bidding on Continental European targets than those of foreign firms acquiring companies in the UK/Ireland. Our analysis shows that cross-border bidding firms tend to experience lower announcement returns when targets are located in countries with stronger investor protection mechanisms, suggesting that acquirers must compensate target firm shareholders (that is, pay higher premiums) if the quality of the corporate governance is reduced.

Foreign executive appointments: A multilevel examination

As multinational enterprises (MNE) expand, their attachment to the country of origin is challenged by the need to adapt to an increasingly diverse geographical posture. We examine how these countervailing forces affect top management team (TMT) composition and test a model that associates foreign executive appointments with individual- and firm-level antecedents. Using multilevel data comprising 1446 TMT appointments at 360 large European firms between 2001 and 2005, we show that individual experiential characteristics, the type of TMT function, prior performance of the MNE, and the MNE's overall degree of internationalization are associated with foreign TMT appointments. We discuss how our findings contribute to the international business literature and complement recent research on the internationalization of TMTs.

The Effects of Women on Corporate Boards on Firm Value, Financial Performance, and Ethical and Social Compliance

The European Commission has recently proposed the introduction of legally binding quotas for women on corporate boards of European companies. This proposal has put the spotlight on the question of whether increasing female representation on the board brings economic benefits to the firm. In order to shed light on the issue, this study investigates the direct and indirect effects of women on the board on firm value. We use a simultaneous equation model to estimate the effects of women on the board on firm value, financial performance, and compliance with ethical and social principles adopted by the firm. We find no evidence that a higher female representation on the board directly affects firm’s value. However, we find indirect effects. Women on the board are positively related with financial performance (measured in terms of return on assets and return on sales) and with ethical and social compliance, which in turn are positively related with firm value. The findings in this study suggest that greater female representation on corporate boards of large European firms can increase firm value indirectly. Further, part of the indirect effect comes from stronger compliance with ethical principles, something that is not captured by accounting-based financial performance.

The Role of Institutional and Economic Factors in the Strategic Use of Non-GAAP Disclosures to Beat Earnings Benchmarks

We use hand-collected data for a sample of large European firms to investigate the influence of countries’ institutional and economic factors on managers’ non-generally accepted accounting principles (GAAP) disclosures. We find that managers are more likely to use non-GAAP measures to meet or beat earnings benchmarks that GAAP earnings would miss in countries with efficient law and enforcement, strong investor protection, developed financial markets, and good communication and dissemination of information. We also find that managers in countries with developed institutional and economic conditions are more likely to adjust non-GAAP earnings for recurring expenses such as R&D, depreciation, and stock-based compensation expenses. Our findings suggest that in environments in which there is more pressure to achieve earnings benchmarks and less opportunity to manipulate GAAP earnings, managers use more non-GAAP earnings disclosures to meet the benchmarks.

Better the Devil you Know: Executive Hiring Modes and the Emergence of Top Management Team Diveristy

Recent research shows that internally promoted executives are systematically different in demographic characteristics than their externally hired counterparts. We extend this notion by proposing that the hiring origin of new executives affects the emergence of top management team (TMT) diversity. Drawing on opposing theoretical streams on the evolution of diversity in teams, we postulate that there is a substitution effect between external hiring and dissimilarity of newly appointed executives. Firms overcome their homogeneity inclinations by selecting dissimilar executives from the internal rather than external labor market, yet firm complexity and environmental uncertainty moderate this propensity. Data from 567 non-CEO executive appointments at 167 large European firms between 2005 and 2009 provide support for the hypothesized negative relationship between external hiring and dissimilarity of newly appointed executives. It also shows that the observed substitution effect is weaker under conditions of organizational complexity, and stronger if environmental uncertainty is high. Implications of these findings for the emergence and consequences of TMT diversity are discussed together with directions for further research.

Macro-Competitive Context and Diversification: The Impact of Macroeconomic Growth and Foreign Competition

This longitudinal study of large European firms (1993–2007) offers a conceptual model that explains how two key aspects of the macro-competitive environment, macroeconomic growth and foreign competition, shape product and international diversification. The results indicate that greater foreign competition reduces product diversification but fosters international diversification, while macroeconomic growth has a positive impact on product diversification and a negative one on international diversification. These findings suggest that managers have to set economy-wide, macro-competitive conditions alongside firm and industry-level considerations when making diversification strategy choices.

Defining value-based objectives for ERP systems planning

The planning and subsequent implementation of Enterprise Resource Planning (ERP) systems still present a significant challenge for most organizations. Although consulting firms and customer enterprises have been aquiring more experience and expertise in the field, the level of sophistication of these systems and their wide organizational and social impact frequently leads to failed ERP implementations. In an attempt to minimize these failure rates, this paper defines a set of value-based objectives that could be used to enrich the ERP systems planning process. ERP systems planning objectives grounded by stakeholder values can be used as a conceptual guide for enhancing the decision making processes involved in ERP projects. Using Keeney's value-focused thinking approach, a set of means and fundamental objectives was identified using data collected via in-depth interviews in three large European firms. The relationships and interdependancies among these objectives are also presented and provide a starting point for further research.

Regional integration and the international strategies of large European firms

From the perspective of regional economic integration we decompose international strategy into regional integration strategy and three types of global strategy (global sales, global production, and pure global integration). Using 1100 firm-year observations we find that 60% of the largest European firms pursue a regional integration strategy. We also find that global strategies vary. We examine the firm specific factors that affect global strategies. In general, RD fax: +1 905 378 5716. E-mail addresses: coh@brocku.ca (C.H. Oh), a.rugman@henley.reading.ac.uk (A.M. Rugman). 1 Tel.: +44 (0)1491 418 801.

Competitive Context & Diversification: The Impact of Opportunities & Selection Pressures on Strategy

This longitudinal study of large European firms (1993-2007) complements firm- and industry-level explanations of product and international diversification by focusing on the impact of the wider com...

Book Reviews

Book Reviews

Doing Well and Doing Good: A Multidimensional Puzzle

Socially responsible firms are expected by European regulators to create shared value for their shareholders, their stakeholders and society. Yet how to generate profits while providing public good is still academically debated. This paper argues that corporate social responsibility encompasses many diversified policies with variant effects on profitability. Which policy most matters economically? As theoretical guidance lacks, this multidimensional puzzle typically encounters model uncertainty. To account for it, model averaging is presented and applied to a unique database matching the economic and social performances of large European firms. Resultssupport that socially responsible corporate policies do not equally matter to do well and do good. In particular, good business behaviors with customers and suppliers appear core. Strong support is also brought to the co-existence of policies monotonically related to profitability (human resources) and policies with an optimal level (environmental policies). Consequences for business and policy makers are discussed.

The Role of Institutional and Economic Forces in the Strategic Use of Non-GAAP Disclosures to Beat Earnings Benchmarks

We use hand-collected data for a sample of large European firms to investigate the influence of countries’ institutional and economic factors on managers’ non-GAAP disclosures. We find that managers are more likely to use non-GAAP measures to meet or beat earnings benchmarks that GAAP earnings would miss in countries with efficient law and enforcement, strong investor protection, developed financial markets, and good communication and dissemination of information. We also find that managers in countries with developed institutional and economic conditions are more likely to adjust non-GAAP earnings for recurring expenses such as R&D, depreciation, and stock-based compensation expenses. Our findings suggest that in environments in which there is more pressure to achieve earnings benchmarks and less opportunity to manipulate GAAP earnings, managers use more non-GAAP earnings disclosures to meet the benchmarks.

Greenhouse Gas Emissions Mitigation and Firm Value: A Study of Large North-American and European Firms

There is strong public pressure globally to mitigate GHG emissions even though regulatory requirements for GHG mitigation vary greatly among countries. However, research on the influence of GHG emissions mitigation on firm value has been inconclusive. This paper contributes by examining the impact of GHG emissions on firm value for a sample of over 600 large firms from the US, Canada, and Europe. We find that GHG emissions have a negative influence on firm value. However, we cannot document that GHG emission mitigation actions add to firm value. The value maximizing nature of such actions seems to be moderated by the nature and quality of corporate governance in a firm perhaps especially as absent any industry-wide regulatory requirements there is no direct link between such GHG mitigating actions and shareholder wealth maximization.

Regional integration and the international strategies of large European firms

From the perspective of regional economic integration we decompose international strategy into regional integration strategy and three types of global strategy (global sales, global production, and pure global integration). Using 1100 firm-year observations we find that 60% of the largest European firms pursue a regional integration strategy. We also find that global strategies vary. We examine the firm specific factors that affect global strategies. In general, R&D capability determines a global production strategy, whereas firm size and managerial capability determine both a global sales strategy and a pure global integration strategy.

Corporate Governance and the Value of Excess Cash Holdings of Large European Firms

AbstractWe examine the relation between the quality of corporate governance and the value of excess cash for large publicly listed European firms from common‐law and civil‐law countries. Besides different law origins, we distinguish different dimensions of corporate governance by using ratings for the quality of Shareholder rights, Takeover defences, Disclosure and Board structure. We find that the value of excess cash is positively related to the Takeover defences score only. This finding is mainly driven by firms from common‐law countries. If we focus on changes in the level of excess cash, we do find significant effects for civil‐law country firms, where the marginal value of €1 of excess cash in a poorly governed firm is only €0.78 while the value is €1.10 for a good governed firm. We furthermore show that the spending of excess cash by poorly governed firms has a negative impact on their operating performance.

THE IMPLICATIONS OF MAGNITUDE, TIMING, & REALIZATION OF WORKFORCE DOWNSIZING ON FIRM PROFITABILITY.

Few empirical studies have focused on the internal characteristics of the downsizing process that influence the relationship between workforce downsizing and organizational performance. Our study addresses this gap by analyzing the effects of magnitude, timing, & realization of workforce downsizing on downsizing firms' subsequent financial performance. Based on an analysis of the workforce downsizing actions by the largest European firms (Eurostoxx 50/Stoxx50) between 1996 to 2006, we find that the relationship between the magnitude of workforce downsizing and subsequent firm profitability is non-linear.

Financial determinants of firm dynamics: Evidence from a European panel

I use a panel of large European firms for the period 1999–2007 to study scale dependence in firm dynamics. I find that scale dependence is much more pronounced when focusing on within-firm rather than between-firm variation and that scale dependence is a decreasing function of financial development.

Transcending borders with international top management teams: A study of European financial multinational corporations

Summary This paper investigates how changes in firm degree of internationalization are associated with the configuration of top management teams (TMT) based on a dataset of 41 large European firms in the banking and insurance industry, including detailed career profiles of the 264 executives that were serving on the TMTs of these firms at year-end 2002. Our findings suggest firms tend to match top executive profiles to their strategies. Entry into new foreign markets and new cultural zones was found to be associated with higher levels of international capacity at TMT level, whereas changes in international posture per se are not related to TMT international capacity. We discuss the interplay between firm strategies and internal structures in the context of firm internationalization and suggest directions for future research on TMTs.