Non-financial Firms Research Articles

Effect of Current Asset Structure on Financial Performance of Non-Financial Firms Listed at Nairobi Securities Exchange

The effect of current asset structure on the financial performance on organizations cannot be underrated. This study focused on non-financial firms listed at the Nairobi Securities Exchange in Kenya. The study used a census survey which involved the consideration of the entire population of the study. The research study was anchored on trade-off theory, agency theory and pecking order theory. The research study generally followed a longitudinal research design. The positivism research philosophy was adopted in the study. The unit of analysis comprised the non-financial firms listed at the Kenyan NSE between years 2011 to 2020 with a focus on 30 non-financial listed companies. The study applied both descriptive statistics and multiple regression methods in analysing the data collected. The study established that current asset structure was significantly influencing the financial performance of listed nonfinancial firms in Kenya.

Economic Policy Uncertainty and Firm Performance in Pakistan

The aim of this study is to examine the impact of economic policy uncertainty (EPU) on firm performance in Pakistan. Net profit margin (NPM) and ROE are taken as proxies for firm performance. Purposive sampling is used to collect quarterly data of 236 non-financial firms listed on Pakistan Stock Exchange (PSX) from Thomson Reuters Eikon database, as well as quarterly data on EPU and other economic indicators from World Bank database, to test the effect of EPU on firm performance in Pakistan. Using the random effects regression, we observe that economic policy uncertainty has a significant negative impact on the performance of firms in Pakistan. The results are robust in both the models with NPM and ROE as the proxies for firm performance. The findings are crucial for the firms as they need to find ways to deal with high levels of economic policy uncertainty, as well as for the policy makers that they can try to reduce the uncertainty to give a more stable economic environment to the firms operating in Pakistan.

The impact of economic uncertainty on corporate trade credit policy: insights from the COVID-19 pandemic

ABSTRACT During the COVID-19 pandemic, firms exposed to the crisis faced simultaneous shocks to product demand and supply chains. As a result, they faced changing dynamics and greater uncertainty for trade credit for both suppliers and customers. Using regression analyses on quarterly data around the pandemic outbreak, we find that US non-financial firms demanded quicker payments from customers and faced shorter payment periods themselves during the pandemic. We also document that reduced trade credit was more pronounced for financially constrained firms and those with lower operating flexibility. Interestingly, government supplier firms’ trade credit remains unaffected by their COVID-19 exposure. These findings support the precautionary motives guiding firms’ trade credit policies in the face of economic uncertainty.

CEO Compensation Contracts in Family Versus Nonfamily Firms: The Use of Nonfinancial Performance Measures

ABSTRACTResearch Question/IssueThis study examines the association between ownership type—family versus nonfamily firms—and CEO family status—family CEO versus professional CEO—and the use of nonfinancial performance measures (NFPMs) in CEO compensation contracts.Research Findings/InsightsUsing a sample of 3143 firm‐year observations of S&P 500 nonfinancial firms from 2010 to 2018, we find that family firms place a significantly lower weight on NFPMs in CEO compensation contracts than nonfamily firms. Within family firms, we find that a significantly lower weight is placed on NFPMs in compensation contracts for family CEOs relative to those for professional CEOs. Furthermore, additional tests indicate that the negative association between family ownership and the weight placed on NFPMs is stronger (weaker) in firms with low (high) stakeholder visibility.Theoretical ImplicationsWe advance the academic literature on the selection of performance measures in compensation contracts by providing insight into the implications of family ownership and of a CEO's family ties for the use of NFPMs. The results suggest that because family firms have a good ability and a strong incentive to directly monitor and control their CEO's actions, NFPMs are less needed in CEO compensation contracts as a means to align goals. Furthermore, the effects we document are even stronger when the CEOs of family firms are family members.Practitioner/Policy ImplicationsThe results imply that while family firms may not need a high weight on NFPMs in CEO compensation contracts to monitor their CEOs' actions, goal alignment, and internal communication of nonfinancial targets, they may still need them for communication and signaling purposes when exposed to external stakeholder monitoring.

Firm performance, ownership, and securitization: evidence from non-financial firms in China

Firm performance, ownership, and securitization: evidence from non-financial firms in China

Corporate Governance On Financial Report Timeliness Among Quoted Non-Financial Firms In Nigeria

The study seeks to examine the effect of corporate governance on financial report timeliness among quoted non-financial firms in Nigeria between the periods of 2013-2022. Specifically, there are twenty one (21) consumer goods firms and thirteen (13) industrial goods firms listed in the Nigerian Exchange Group as at 31st December, 2023 respectively. The study purposively selected ten (10) consumer goods firms and seven (7) industrial goods firms within the reviewed periods. The variables used to measure corporate governance are: board size (BBS), board composition (BOC), board expertise (BOP) and Board Gender Diversity (BGD) while regressed, and financial report timeliness (FRT). The Hausman test evidenced that, the random effect model is the most appropriate model for the study. The study reported that board size has a negative significant effect on financial report timeliness while has a positive insignificant effect on financial report timeliness (FRT). Both board gender diversity and board expertise have positive effect on financial report timeliness (FRT).

Book-Tax Differences during the Crisis: Does Corporate Social Responsibility Matter?

This study investigates the intricate relationship between corporate financial strategies, encapsulated by book-tax differences (BTDs), and firms’ engagement in corporate social responsibility (CSR) programs during economic crises. Using an unbalanced panel dataset drawn from financial, annual, and sustainability reports of over 97 Indonesian non-financial firms from 2017 to 2022, this study reveals that economic crises and CSR activities positively influence total BTD and permanent differences. Notably, firms strategically leverage CSR initiatives amidst crises to enhance their corporate image and manage internal challenges like aggressive tax planning. The robustness of these findings was validated through endogeneity analysis and by examining sub-samples from industries most impacted by the pandemic. In the industries least affected by the pandemic, the direct impact of CSR on BTD was found to be negative, indicating that in the general context, the CSR programs held by these industries are largely driven by normative motives. However, when specified in the crisis context, CSR serves as a strategic buffer for these industries, which reaffirms the prevalence of CSR strategic motives during Indonesia’s pandemic challenges. The findings suggest policy implications for shareholders, regulators, and policymakers to ensure CSR transparency aligns with long-term corporate values and societal impact, incentivizing genuine CSR practices amidst economic uncertainty. Despite its contributions, the study recommends future research explore different domains of CSR and validate findings across diverse contexts to enrich the understanding of CSR’s role in corporate resilience strategies.

The influence of cost of debt, cost of equity and weighted average cost of capital on dividend policy decision: evidence from non-financial companies listed on the Frankfurt Stock Exchange

Non-financial companies listed on the Frankfurt Stock Exchange face considerable difficulties due to expensive funding and the need to make complex decisions about their capital structure. These problems impact their judgments about dividend policy, resulting in ambiguity and possible inefficiency. This study draws on the bird-in-hand theory to investigate the influence of the cost of capital on dividend policy decisions among non-financial firms listed on the Frankfurt Stock Exchange, focusing on 227 companies from 2005 to 2022. The data for this study were sourced from Thomson Reuters Datastream. Employing the common shock autoregressive distributed lag (CS-ARDL) and two-step generalized method of moments (GMM) estimations, findings reveal that the cost of debt consistently negatively impacts dividend payouts and coverage ratios. In contrast, the cost of equity has an insignificant effect. Conversely, the weighted average cost of capital positively influences dividend payouts and coverage ratios but negatively influences dividend yield. All the findings supported the bird-in-hand theory except for the negative impact of WACC on dividend yield. These insights highlight the importance of considering the cost of capital and market share dynamics in dividend policy formulation. Firms should prioritize efficient debt management to sustain dividend distributions, and aligning dividend policies with overall capital structure management is crucial in this regard, providing a sense of reassurance and confidence to the firms and their stakeholders. This study provides valuable guidance for financial decision-makers navigating dividend-related strategies within corporate environments.

Determinants of Capital Structure: A Case of Nepalese Non-Financial Firms

This study examines the determinants of capital structure in the context of Nepalese non-financial firms. Short term debt ratio and long term debt ratio are selected as the dependent variables. The selected independent variables are assets tangibility, liquidity, non-debt tax shields, firm size, profitability, Tobin’s q and firm’s age. The study is based on secondary data with 105 observations from 7 hydro power firms, 3 hotel industries and 4 manufacturing firms listed in Nepal Stock Exchange (NEPSE). The data were collected from annual reports of the selected non-financial firms. The correlation coefficients and regression models are estimated to test the significance and importance of determinants of capital structure in the context of Nepalese non-financial firms. The study showed that assets tangibility has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that higher the assets tangibility, higher would be the long-term debt ratio and short-term debt ratio. Similarly, liquidity has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that increase in liquidity leads to increase in long-term debt ratio and short-term debt ratio. Likewise, non-debt tax shields has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that increase in non-debt tax shields leads to increase in long-term debt ratio and short-term debt ratio. Further, firm size has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that increase in firm size leads to increase in long-term debt ratio and short-term debt ratio. In addition, profitability has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that increase in profitability leads to increase in long-term debt ratio and short-term debt ratio. Likewise, Tobin’s q has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that higher the Tobin’s q, higher would be the long-term debt ratio and short-term debt ratio. Moreover, firm’s age has a negative impact on long-term debt ratio and short-term debt ratio. It indicates that higher the firm’s age, higher would be the long-term debt ratio and short-term debt ratio.

The Simultaneity of Strategic Financial Decisions: Evidence from PSX listed Firms

This study investigates the interrelationships among financing, dividends, and the investment choices of non-financial firms listed on PSX. Unlike previous research, which primarily focused on developed nations with well-developed financial markets and investor protection laws, this study examines businesses in a developing economy characterized by fragile corporate governance, precarious investor protection laws, and political instability. The aim of this study is to shed light on the unique decision-making processes of managers operating in such contexts. This study employs a framework of simultaneous equations considering the flow of funds identity and utilizes the 3SLS estimation technique, which addresses the limitations of single-equation estimation methods. The findings reveal significant interdependencies among corporate financing, dividends, and investment decisions. Financing decisions positively influence dividend decisions and vice versa. Similarly, financing decisions positively impact investment decisions and vice versa. Moreover, dividends and corporate investments have been shown to be competing uses of funds. The results highlight the sensitivity of all three financial decisions to internal cash flows. Additionally, leverage and internally generated cash flows are identified as alternative sources of funds, while investment and dividend decisions are constrained by both internal funds and external debt. These findings align with the flow of funds approach and provide valuable insights for corporate managers and investors to understand the dynamics of financial choices in non-financial firms. This study contributes to the literature by filling a gap in knowledge regarding the interactions among financing, dividends, and investment decisions in emerging markets.

The Relationship between Retained Earnings and Financial Performance of Listed Non-Financial Firms: An Econometrics Examination

Internal funding sources such as retained earnings provide minimize information asymmetry in addition to being cheap and convenient for ailing firms such as listed non-financial firms trading at the Nairobi Securities Exchange (NSE). Research has however failed to do document precisely how the potential inherent in retained earnings can be exploited to improve financial performance of such firms in the long run. Therefore, this research conducted among 42 non-financial firms listed on the exchange explores the relationship between retained earnings and financial performance from an econometrics perspective. The study is anchored on the Pecking Order Theory, and employs the panel data research design founded in the positivist research paradigm, with data covering the time interval 2016 to 2022 inclusive. Data is sourced purposively from the annual reports of the non-financial sector, including agricultural firms, automobiles and accessories, commercial & services, construction & allied, energy & petroleum, insurance, investment, investment services, manufacturing & allied, telecommunication, and real estate investment trust. The research uses the fixed effects model under panel regression to show a positive and significant relationship between retained earnings and financial performance, and particularly the ultimate direct influence that retained earnings have on financial performance of listed nonfinancial firms. Therefore nonfinancial sector stakeholders should seek to leverage retained earnings to enhance financial performance and achieve resilience in the volatile market conditions, while scholars should seek to enhance external validity of these findings by replicating them in other study contexts. Keywords: Information asymmetry, retained earnings, financial performance, nonfinancial firms, Securities exchange, Econometrics, Panel data.

Financial investment by non-financial firms: does it affect audit quality?

AbstractIn the context of the global trend of increasing financial investment by non-financial firms, this study investigates how this process affects the audit quality of these firms. Employing data of Chinese listed non-financial firms from 2011 to 2020, we first examine whether the increasing proportion of financial assets in the total assets has an adverse impact on the audit quality of these firms. We then analyze the mediation effect of operational volatility on such impact by adopting the mediation test of the modified Sobel’s z and the bootstrap test. We find that a higher proportion of financial assets to total assets lowers the audit quality, confirming that the financialization of non-financial firms deteriorates their audit quality. Furthermore, the mediation tests show that operational volatility is an important channel for this negative effect.

Do FX interventions lead to higher FX debt? Evidence from firm-level data

Central banks often buy or sell reserves—so called FX interventions (FXIs)—to dampen sharp exchange rate movements caused by volatile capital flows. At the same time, these interventions may entail unintended side effects. In this paper, we investigate whether FXIs incentivize firms to take on more unhedged FX debt, thereby increasing medium-term corporate vulnerabilities. Using a novel dataset with close to 5,000 nonfinancial firms across 19 emerging markets covering 2002–2017, we find that the firm-level share of FX debt rises following intensive use of FXIs, particularly for non-exporting firms in shallow financial markets with no FX debt to begin with. The magnitude of this effect is economically significant, with one standard deviation increase in the intensity of FXI leading to an average 2 percentage points increase in the FX debt share. For reference, the median share of FX debt in the sample is zero.

The effects of managerial gender and education on firm performance

The role of women has been increasingly affirmed as gender equality has become the norm, particularly when it comes to how firms should be managed. In addition, education instills knowledge that could change managerial perspectives, thus affecting the ways they manage firms. This study uses a dataset covering 617 non-financial firms listed on the Vietnamese stock market from 2010 to 2021 to examine the impact of managerial gender and education on firm performance, measured in accounting- and market-based values. The System Generalized Method of Moments was employed to address endogeneity and other defects normally associated with panel data. The results reveal that having female chief executive officers (CEOs) positively affects firms. Additionally, a CEO’s educational background positively affects both accounting- and market-based measures. The study provides new evidence of the positive effects of female CEOs and highly educated CEOs on firm performance compared with some extant studies in Vietnam. Based on the research findings, relevant suggestions are proposed regarding the welcoming features of CEOs in managing firms in Vietnam.

Does FinTech credit affect firms’ cost of capital and capital structure?

This paper explores the effect of FinTech credit on firms’ cost of capital and capital structure. Based on a sample of 3,491 non-financial firms operating in 38 OECD countries during the period 2015–2021, we estimate that the economic effect of FinTech credit is approximately 17% on the cost of debt, and 9.5% on the cost of equity. In terms of cost of capital and capital structure, we observe a smaller yet economically significant reduction by around 5.5% and 3%, respectively. We also find that FinTech credit affects especially firms with stakeholders’ oriented corporate governance practices, which operate in countries with higher bank market power and in more innovative industries. Finally, using a Difference-in-Difference model built around the COVID-19 outbreak, our evidence suggests that these effects are robust and hold also in time of crisis when the cost of capital generally increases due to the greater economic uncertainty.

Beyond Compliance: How ESG Reporting Influences the Cost of Capital in UK Firms

This research examines the effect of ESG disclosure on the cost of capital for non-financial firms in the UK, indexed by the FTSE All-Share Index, during the period from 2014 to 2018. Using multivariate analysis with ordinary least squares (OLS), fixed effects, robust regression, and Tobit models, this research assesses the effect of ESG reporting, governance, and the cost of capital, including robustness checks using an alternative ESG indicator, the environmental pillar score. Contrary to expectations, ESG reporting is positively associated with the cost of capital. However, corporate governance moderates this relationship, weakening the positive correlation and reversing it to a negative association for firms with strong governance practices, consistent with the hypotheses. This research also finds that firm size, liquidity, profitability, and leverage, positively affect the cost of capital, while board size, independent board composition, audit committee independence, and auditor type do not significantly influence it. Notably, non-executive directors on the audit committee have a significant negative effect on the cost of capital. These findings are valuable for investors, companies, regulators, auditors, policymakers, and the academic and research community. Specifically, for investors, this study provides insights into how ESG disclosures can influence investment risks and returns, highlighting the importance of robust corporate governance. Companies can leverage these insights to enhance their governance practices and optimize their capital costs. Regulators and policymakers can use the findings to develop guidelines that encourage transparent ESG reporting and strong governance frameworks, thereby improving market stability and investor confidence. Auditors can utilize the results to better understand the effect of non-financial reporting on financial metrics, helping to provide more accurate audits and assessments. These findings inform investors, companies, regulators, auditors, and academia, in fostering a more sustainable and transparent financial environment.

Exploring the nexus between CEO characteristics and the value of excess cash holdings through the lens of the resource-based view theory

Purpose This study aims to examine the relationship between CEO characteristics and the value of excess cash holdings from the perspective of resource-based view (RBV) theory in the context of Malaysia. Design/methodology/approach The analyses were made using ordinary least squares across 173 non-financial firms listed in Bursa Malaysia over the period of 2015–2021. The authors address potential endogeneity through the generalized method of moments. The results are also robust to alternative measures of excess cash holdings. Findings The results showed that female CEOs and CEOs’ educational level are significantly positively related to the value of excess cash holdings. In contrast, CEO tenure and CEO age negatively affect a firm’s excess cash valuation. The results are robust to measurement error and endogeneity issues. Practical implications The empirical results have useful policy implications. For practitioners, firms are recommended to prioritize the selection of female CEOs and CEOs with high education levels within their top management, as this initiative can result in improved value associated with excess cash holdings. In addition, policymakers are recommended to guide programs that attempt to improve educational attainment and gender diversity in business leadership. This study also provides investors with insightful information about the possible relationship between CEO traits and company performance, especially with regard to measures for managing surplus capital. Originality/value To the best of the authors’ knowledge, this study is the first to explore the role of CEO characteristics in the value of excess cash holdings based on the RBV theory.

Manager sentiment, policy uncertainty, ESG disclosure and firm performance: a large language model in corporate landscape

Purpose This study aims to examine the impact of manager sentiment on the firm performance (FP) of Indian-listed nonfinancial firms. Further, it endeavors to investigate the moderating role of economic policy uncertainty (EPU) and environment, social and governance (ESG) transparency in this relationship. Design/methodology/approach A noble manager sentiment is introduced using FinBERT, a bidirectional encoder representation from a transformers (BERT)-type large language model. Using this deep learning-based natural language processing approach implemented through a Python-generated algorithm, this study constructs a manager sentiment for each firm and year based on the management discussions and analysis (MD&A) report. This research uses the system GMM to examine how manager sentiment affects FP. Findings The empirical results suggest that managers’ optimistic outlook in MD&A corporate disclosure sections tends to present higher performance. This positive association remains consistent after several robustness checks – using propensity score matching and instrumental variable approach to address further endogeneity, using alternative proxies of manager sentiment and FP and conducting subsample analysis based on financial constraints. Furthermore, the authors observe that the relationship is more pronounced for ESG-disclosed firms and during the low EPU. Practical implications The results demonstrate that the manager sentiment strongly predicts FP. Thus, this study may provide valuable insight for academics, practitioners, investors, corporates and policymakers. Originality/value To the best of the authors’ knowledge, this is the first study to predict FP by using FinBERT-based managerial sentiment, particularly in an emerging market context.

Women on board, institutional ownership and emissions disclosure practices as tools for attaining sustainable development goals in Nigeria

PurposeThis study aims to examine how women on board influence quality and quantity disclosure of emissions discharge by the listed non-financial firms for the period of six years (2016–2021), with institutional ownership as a moderator.Design/methodology/approachThe study obtained data from a sample of 83 listed non-financial firms. A content analysis technique was employed to compute emissions disclosure indexes using Global Reporting Initiatives standards from the sampled firms. Random and fixed effect regression analyses were run for both direct and moderation models. Based on the results of the Hausman tests, random results were adopted and used in examining the relationship.FindingsThe result reveals that women on board are significantly related to emission disclosure. The study also documented that institutional owners have not influenced the relationship between women directors and emissions disclosure.Practical implicationsThe study's findings have practical implications for emerging economies, corporations and other business organizations seeking to actively involve the emissions control and reduction issues toward sustainable development goals 5, 7 and 13 in their business models and successfully communicate these efforts to stakeholders.Social implicationsListed firms in emerging economies would gain sincerity through the women directors’ knowledge, skills, demographics and ethnicity in the society. Therefore, corporate bodies in emerging economies can successfully contribute toward improving the social welfare of various segments of society by controlling current and future climate issues. Additionally, society will surely benefit when firms control the pollution discharges within the community.Originality/valueThis is the first study, to the best of the authors’ knowledge, that provides empirical evidence on the effect of the presence of women on board on emissions disclosure using institutional ownership as a moderator in Nigeria.

Ownership structure and financial distress: is the tale from Sub-Saharan Africa different?

PurposeThe paper investigates the effect of ownership structure on the financial distress of firms listed in sub-Saharan Africa.Design/methodology/approachUsing secondary data from 106 non-financial firms listed in 9 selected SSA countries from 2016 to 2021, the research using paired t-tests and conditional logistic regression model analysed a sample of 174 distressed observations matched with 174 non-distressed observations.FindingsT-tests determined significant differences between distressed and non-distressed groups concerning institutional, foreign, and local ownership. Conditional logistic results established that institutional, foreign, and state ownership significantly reduce distress. However, managerial ownership does not influence financial distress while a significant positive relationship is observed between local ownership and financial distress.Originality/valueThis is the first study to investigate the influence of ownership structure, including local ownership, on financial distress in SSA, employing a unique methodology of matched design and conditional logistic regression analysis. Furthermore, the paper presents cross-country evidence from emerging frontier markets, highlighting the importance of governance frameworks in firms’ stability.