Low-growth Companies Research Articles

Competitive Position of Enterprises, Corporate Growth and Audit Fees: Based on Empirical Evidence from Chinese A-Share Listed Companies

The competitive position of an enterprise usually changes dynamically with the continuous growth and development of the enterprise. In this process, the business risks of the enterprise also change. According to the audit demand insurance theory, companies often use auditing to avoid and reduce risks, and auditors usually consider the corresponding risk premium in order to protect their own interests. This article uses the non-financial companies in China’s A-share market from 2011 to 2016 as a sample to study the impact of enterprises’ competitive position and growth on its audit fees. The research results show that: the competitive position of the company has a negative impact on audit fees; the growth of the company has a positive impact on audit fees; Further research shows that the impact of enterprises’ competitive position on audit fees is no longer significant in high-growth companies and still significant in low-growth companies, so corporate growth has a weakening effect on this relationship. This research enriches the content of the research on influencing factors of audit fees, and also has certain significance for the audit fees of accounting firms in practice.

Leverage and investment: a view of prominent role of state ownership

The study investigates the relationship between leverage and investment in the presence of state ownership in an emerging market. The paper finds that leverage is negatively correlated to corporate investment. This negative relationship is different among firms with different growth opportunities in which the negative relation is significantly larger for low growth companies than high growth ones. Furthermore, when the role of state ownership at both bank and firm levels is taken into account, we find that state ownership tends to attenuate the negative relationship between leverage and investment. The results imply a biased and less-constrained lending policy of a banking system wherein state-owned banks dominate. This bias, in turn, causes over-and-inefficient investments in state-owned firms.

A GENERAL FREE CASH FLOW THEORY OF CAPITAL STRUCTURE

This paper provides general framework for handling time-varying cost of capital, leverage, tax rates, and capital values in a dynamic free cash flow theory of capital structure. That enables efficient analysis of the recent competing theories of capital structure. After including the costs of financial distress and risk premium of debt in the cash flow model, this paper provides a new look at cost of tax shield from the point of view of risk-return relationship. Cost of tax shield is not constant, but depends on leverage and is mostly between cost of assets and cost of debt. Moreover the simulation of firm value and capital structure in presence of taxes, risk, and growth shows that unique optimal leverages exist for each combination of the above factors. The risk-enhanced cash flow theory can explain both the observations, which support pecking order theory, free cash flow theory and tradeoff theory of capital structure. Moreover it fits some evidence, which resists these theories: highly leveraged low growth companies and moderately leveraged large profitable companies.

Strategies for sustainable growth in JSE-listed companies

Achieving high growth that is sustainable is an elusive goal for all but a few great companies. Despite the relative importance of this topic, limited research has been performed to explain this phenomenon, especially in a South African context. This paper adopts an exploratory approach to investigate some of the variables that influence company growth, as well as their choice of strategy. A mixed method incorporating descriptive statistics, regression analysis and qualitative evaluation, was used to test the research questions. A sample of 202 JSE companies indicated 28% were high growth entities, 39% medium growth and 33% achieved growth of less than 10%. A further survey of 30 Chief Executive Officers (CEO) indicated that they believed the top five growth drivers were acquisitions, managerial talent, operational efficiency, an entrepreneurial flair (low growth companies excluded) and the development of networks and partnerships. The respondents, however, ranked the number and importance of these growth drivers very differently with high growth companies citing a broader range of growth drivers than the other respondents. Quite surprisingly, the respondents appear to have underestimated the importance of industry and economy effects. Furthermore, high growth companies appeared to develop a broader spectrum of strategies that were more likely to be linked to their choice of growth driver. Interestingly, high growth companies were the only respondents to develop formal partnership and incentive strategies. In conclusion, the results re-enforce the impression that successful organizations develop a multiplicity of strategies that are always underpinned by operational efficiency.

MANAJEMEN LABA PADA PERUSAHAAN DENGAN PERMASALAHAN FREE CASH FLOW DAN PERAN MODERASI DARI MONITORING EKSTERNAL

This study examines whether low-growth companies with free cash flow (HFLG) will use income-increasing discretionary accruals to offset the low or negative earnings that inevitably accompany investment with negative net presents values (NPVs). Using 413 manufacturing company year observations over the period 2001-2005, the results show that there is a significantly association between HFLG and increasing discretionary accruals. This study also examines the role o f monitoring by auditors, creditors, and independent commissioners in mitigating the relation o f HFLG and income-increasing discretionary accruals. The results show that (1) monitoring by high-quality auditors and high-proportion o f independent commisioners are effective in mitigating the association o f HFLG and income- increasing discretionary accruals, which suggest that both their monitoring are more pronounced fo r HFLG firm s and (2) monitoring by high-debt creditors are effective in reducing income-increasing discretionary accruals, but their monitoring are not found to be more pronounced in HFLG firm. This result suggests that the vigilance o f creditors are more likely to increase when debt increase.

The effect of the Sarbanes-Oxley act on non-US companies cross-listed in the US

This paper uses a natural experiment to measure market response to the adoption of the Sarbanes–Oxley Act (ʽʽSOX"). Because SOX applies to all US public companies, US-based studies have difficulty separating the effects of contemporaneous events. However, controlled analysis is available: SOX applies to some cross-listed firms (those listed on level 2 or 3), but not to others (listed on level 1 or 4). By comparing reactions of SOX-exposed foreign firms to reactions of otherwise similar SOX-unexposed foreign firms, we can test investor beliefs about the costs and benefits of SOX in a way that is not cleanly available for US-based studies. We find that stock prices of foreign firms subject to SOX declined (increased) significantly, compared to cross-listed firms not subject to SOX and to non-cross-listed firms, during key announcements indicating that SOX would (would not) fully apply to cross-listed issuers. In cross-sectional tests, high-disclosing firms and firms from high-disclosing countries experienced the strongest declines, while faster-growing companies experienced weaker declines. This evidence is consistent with the view that investors expected the Sarbanes–Oxley Act to have a net negative effect on cross-listed foreign companies, with high-disclosing and low-growth companies suffering larger net costs, and faster-growing companies suffering smaller costs, particularly when they are located in poorly governed countries.

Earnings management, surplus free cash flow, and external monitoring

Managers engage in earnings management for various reasons. We argue that low-growth companies with high free cash flow (SFCF) will use income-increasing discretionary accruals (DAC) to offset the low or negative earnings that inevitably accompany investments with negative net present values (NPVs). Our results, using 22,576 company year observations over the period 1984–1996, confirm our hypothesis. We also examine the role of high-quality auditors and institutional shareholders in mitigating the SFCF–DAC relation. Our results show that Big 6 auditors and institutional investors with substantial shareholdings moderate the SFCF–DAC relation, which suggests that external monitoring by these two outside stakeholders is effective in deterring managers' opportunistic earnings management.

Characteristics distinguishing high-growth ventures

The purpose of this study is to define characteristics that distinguish high-growth from low-growth companies. In this examination, particular emphasis is focused on characteristics that lend themselves to objective evalnation. In previous studies, great emphasis has been placed upon characteristics related to the personal capabilities of entrepreneurs. Although such characteristics are widely accepted as being of great importance, they are subjective and evaluated only with great difficulty. Two pools of companies were examined in the course of this study. Each company responded to a comprehensive questionnaire and provided longitudinal data related to a wide variety of operating characteristics. The first pool of companies—the “Reynolds data base”—consisted of relatively young, small companies. The second pool—Price Waterhouse clients—included companies that were generally larger and more mature than those in the Reynolds data base. The distinction between the samples permitted us to consider how the set of growth characteristics varies at different stages in a company's development. Discriminant analysis of both samples yielded the following insights. 1. In both pools, it was important that management have substantial industry experience. No other characteristic related to the experience or capability of the entrepreneur or entrepreneurial team was identified as distinguishing between high- and low-growth. 2. An interesting strategic profile became apparent based upon the examination of the two groups. In the Reynolds sample, the high-growth companies were more focused than their low-growth counterparts, with more revenue being generated by a single product. Conversely, in the Price Waterhouse sample, the high-growth companies displayed a greater propensity for market and product diversification than did the slow-growth companies in that pool. These results seem logical in that smaller companies have fewer resources and therefore may perform better by focusing their effort. Conversely, more mature companies need to expand growth prospects and hedge against overreliance on any particular opportunity. 3. Growth companies in the Reynolds data base ran leaner than the low-growth companies in that sample, with fewer managers, slimmer payrolls (as a percentage of sales), and more productive uses of assets. Growth companies in the Price Waterhouse sample were more likely to have balanced management teams than the Price Waterhouse slow-growers. Leanness was not a discriminating variable in this group. As one might expect, more mature companies would require a broader array of talents and would be better able to afford balanced teams. 4. Rapid market growth and the ability to develop close customer contacts were identified as discriminating characteristics in the Price Waterhouse sample. Neither were identified in the Reynolds data base. Companies in the Reynolds data base were not asked to report on market growth and were probably too young to have established much in the way of customer relationships. These companies did, however, report a greater utilization of advanced technology.

The Effect of Cum- to Ex-Dividend Changes on UK Share Prices

Abstract The price behaviour of a share at the time of its going ex-dividend presents an intriguing observable. Previous authors have argued that the statistic is indicative of ‘shareholder rationality’. This is to say, if shareholders ‘rationally' capitalise their dividends received on an after personal tax basis, the change in the price of a share on its going ex-dividend should be a well-defined function of shareholders’ assessment of their own personal tax brackets. In turn this would substantiate the ‘clientele effect’ hypothesis whereby shareholders with high income/low capital gain tax brackets hold shares with high growth companies, and shareholders with low income/high capital gain tax brackets hold shares with low-growth companies. Our statistical analysis provides evidence of the clientele effect in the UK stock market.