Small Number Of Firms Research Articles

Integrated reports, external assurance and financial performance

PurposeThe purpose of this paper is to examine the relationship between integrated reports, external assurance and financial performance for North American firms between 2011 and 2016.Design/methodology/approachCorporate websites were examined for disclosures which included both financial and non-financial information. Compustat North America and Global Reporting Initiative (GRI) websites provided additional data for the analysis.FindingsUsing a panel data analysis, the results provide evidence that there is a significant positive association between integrated reports and multiple measures of financial performance. Moreover, this positive effect is enhanced when integrated reports are assured by accounting firms.Research limitations/implicationsThere are relatively a small number of firms that do this kind of reporting. A major limitation of the study is the small sample size.Practical implicationsAs stakeholders find information in integrated reports relevant, there needs to be standardization on their content and level of assurance. Standard setters and regulators should be involved in setting these standards and assurance guidelines.Social implicationsAlthough it is clear that there is a cost to firms which produce integrated reports, the benefits to society may outweigh these costs. This may go beyond the benefits to shareholders as they make investment decisions.Originality/valueAccording to the knowledge of the authors, this is the first study that examines the impact of integrated reports and external assurance on financial performance for North American firms.

리쇼어링의 결정요인과 정책 효과성 연구 (Determinants of Reshoring and Effectiveness of Reshoring Policies)

Korean Abstract: 본 연구는 리쇼어링의 배경을 살펴본 후 리쇼어링 지원정책에 대한 효과성을 점검하고 이로부터 정책적 시사점을 도출하기 위해 여러 각도에서 리쇼어링을 연구하였다. 리쇼어링의 학술적 정의를 바탕으로 활용 가능한 통계를 이용해 국내 리쇼어링의 가능성을 예측하고 모형을 통해 리쇼어링 정책의 효과성을 검토하였다. 또한 한국을 비롯하여 미국, 유럽, 대만의 리쇼어링 현황과 정책을 비교 및 분석하였다. 본 연구의 분석 결과는 리쇼어링 현상 및 배경에 대한 이해의 폭을 넓히고, 리쇼어링 정책의 효율적인 설계를 위한 토대로 활용될 것으로 기대된다. English Abstract: Following the global financial crisis, some advanced countries recognized that the manufacturing sectors play an important role in mitigating the negative effects of the economic crisis. Also, as there has been some indication of firms bringing back manufacturing activities back to their home countries in recent years, reshoring has received broad attention by policy makers in advanced coutnries such as U.S. and Europe. Firms once offshored are relocating production back to the home country as production costs have significantly increased in emerging countries, and as they encounter a variety of difficulties such as low quality of products and low flexibility in production processes. The Korean government announced reshoring policies which provide reshoring firms with tax or subsidy incentives in December 2013. However, the policies appeared to be ineffective because only a very limited number of firms chose to reverse their previous offshoring decisions, leading to the concern that only a small number of firms are realizing the benefit of the reshoring policies. Therefore, this study aims to analyze the background of reshoring and effectiveness of reshoring policies from various angles. First of all, this study examines the definition of reshoring used in the literature and compares this with the concept of reshoring used in the media or policies. In addition, we infer the possibility of reshoring based on Korean firm data and develop a model to study the effectiveness of the reshoring policies. Lastly, we study reshoring trends and policies for Korea, U.S., Europe, and Taiwan to provide policy implications.

International trade in services: firm-level evidence for Portugal

This paper adds to the existing firm-level evidence on international trade in non-tourism services, using a new Portuguese database merged with balance-sheet data. In accordance with the literature, we find that a small number of firms that both export and import services (two-way traders) with diversified service and geographical portfolios account for a substantial share of trade flows. Compared with one-way traders, two-way traders are larger, older, more productive, more profitable and have a higher share of foreign equity. Considering all margins of firm-level trade and controlling for firms’ characteristics, the intensive margins of exports and imports of services are positively related to both productivity and profitability. Regarding the extensive margins, the number of services imported is also positively associated with firms’ performance.

Identifying and Understanding High Growth Firms in the Pakistani Textile and Apparel Sectors

In this article, we investigate the distinguishing features of fast growing firms in the Pakistani textile and apparel sectors. We find that the distribution of firm growth- both in terms of employment and sales - is very heavily skewed toward the right-tail, confirming earlier findings that firm growth is generated by a very small number of firms. We found that small and young companies grow faster and generate higher employment. We also used various indicators of a firm’s innovation behavior and found that more innovative firms grow faster. Our results suggest that it is not the possession of individual attributes, but rather a combination of particular firm attributes that defines fast growing firms. Specifically, we found that the blend of being small, young and innovative explains the fast growth in firms. on overall these companies also create more jobs.

Commercialization of a demand-enhancing innovation: The release of a new apple variety by a public university

The upsurge of patented fruit varieties developed by university plant-breeding programs motivated this re-examination of optimal commercialization strategies when an innovator cares about profits for both itself and the licensees. Our theoretical findings suggest that the optimal licensing arrangement that maximizes weighted joint profits depends on the innovation level size, number of firms, and the weights assigned to the innovator and licensee profits. We designed an experiment to test the case with a small number of firms and found that the joint profits are the greatest under an exclusive per-unit royalty scheme. However, when the number of firms is large, as may be the case for a varietal introduction into the U.S. apple industry, our model suggests that the joint profits will be the largest under a nonexclusive contract, either with a two-part tariff, if the innovation level is high, or a per-unit royalty if the innovation level is low.

Going Public Secretly: The SEC’s Unavailing Effort to Increase Initial Public Offerings Through Confidential Registration

In an effort to reverse the declining number of IPOs seen over the past two decades, newly-appointed SEC Chairman Jay Clayton announced in mid-2017 that any company seeking to go public could now initially file its registration statement confidentially rather than publicly. This announcement effectively extended a policy that had originally only applied to emerging growth companies—firms with less than $1.07 billion in revenue during their last fiscal year—to larger companies. Because there are advantages to confidentially filing a registration statement, this new policy was meant to encourage more large firms to go public and, as a result, increase the overall number of IPOs. This Note empirically examines the effect of this policy change over the course of its first year to analyze whether it has succeeded in effectuating more IPOs in the marketplace. The data suggest that this new policy has failed. And because it affects a relatively small number of firms, it will likely continue to fail to meaningfully increase the number of IPOs. This Note argues that in order to encourage more companies to go public, the SEC and Congress must stop focusing on changes to the process of going public and instead make being a public company more attractive to both smaller firms, which have the potential to increase the number of IPOs, and larger firms, which can drastically increase the amount of overall public capital raised—another necessary metric in evaluating the success of the IPO market. In recent years, benefits granted to private capital markets have enabled them to flourish as viable alternatives to the public markets. This has led to greater societal inequality since average investors are often shut out from private investments, such as venture capital and private equity. Therefore, this Note argues that in order to save the public markets, benefits awarded to private capital must be reduced. In addition, this Note presents new proposals to further mitigate the structural realities that incentivize companies to remain private and, instead, encourage them to go public: (1) award firms that go public temporary exemptions from burdensome regulations that apply to public companies, such as the Sarbanes-Oxley Act; and (2) offer tax credits to companies that conduct IPOs. Enacting such policies would help ensure more of today’s companies see the public markets as attractive sources of capital once again.

Basis Risk When Hedging a Global Credit Portfolio

We examine the efficiency of hedging a credit derivative portfolio with a contrary position in a credit index in the face of decreased correlations between single name CDSs and credit indices. The interest of such hedge comes from the fact that the calculation of the capital charge for CVA risk, as required by the Basel Committee on Banking Supervision, is usually rather unstable due to the volatility of CDS spreads. Since credit derivatives on single names are not very liquid, the implied adjustments in capital charges could be reduced by the mentioned hedging strategy, and we show that there is enough diversification of risk in a global credit portfolio to allow for a good hedge. Over the whole sample, the reduction in the variance of the portfolio’s profit and losses (P&L) is of 80% for a European portfolio, 60% for North American and Japanese portfolios, and around 70% for a global portfolio. Using a strategy that takes into account the quality of the credit counterpart improves the effectiveness of the hedge, although it requires using less liquid credit indices, with higher transaction costs. Standard conditional volatility models provide the same results as a least squares hedge. The efficiency of the hedge for a credit portfolio made up of the most idiosyncratic firms seems to require more than 50 firms, while the hedge for portfolios made up of the less idiosyncratic firms achieves high efficiency even for a small number of firms. The efficiency of the hedge is higher when portfolio volatility is high and also when short term interest rates or exchange rate volatility are high. Increases in VIX, in the 10-year swap rate or in liquidity risk tend to decrease hedging efficiency.

From “manager” to “strategist”

PurposeFew high-growth firms (HGFs) are able to maintain high-growth over time. The purpose of this paper is to find out why only a small number of firms become persistent HGFs, explicitly focusing on the role of the founding entrepreneur in this process.Design/methodology/approachInitially, 28 semi-structured interviews were performed with high-growth entrepreneurs to discover why so few founders could become persistent high-growth entrepreneurs. In a second phase, four case studies were conducted to uncover the factors that facilitate a swift evolution from the “managerial” role to the “strategic” role.FindingsHigh-growth entrepreneurs, who quickly make a transition from a managerial role into a strategic role are more likely to keep their firm on its high-growth trajectory. This transition is made possible by: the early development of strategic skills; the presence of a high quality human capital base; and an organizational structure with characteristics from Mintzberg’s “machine bureaucracy.”Practical implicationsThe results are vital for entrepreneurs of “one-shot” HGFs with the ambition to make their firm a “persistent” HGF. If high-growth rates are to be sustained, the three factors that emerged from the authors’ analysis should foster the delegation of managerial tasks, resulting in an easier transition toward a “strategic role.”Originality/valueInsights are valuable as both founders and governmental institutions can benefit from knowing which factors contribute to a successful phase transition from “manager” to “strategist.”

The Supply Side to Procurement in a Health Market: Competition and Innovation in Hip Implants

Most research on procurement of medical devices focuses on buyer behaviour e.g. in the UK, purchasing strategies by the NHS. This paper is a rare case study of the other side of the market. We investigate competition in the artificial hip implant market in England and Wales, using National Joint Registry data for 2005-18. The analysis is in three parts. We first proceed as would a competition agency, by assessing the nature and structure of the market. We find a highly concentrated duopolistic market structure, in which there has been no significant entry or exit, except a merger between the much smaller 3rd and 4th largest suppliers. Viewed through the eyes of a competition economist, such a structure might be indicative of weak competition. However, concentration is not necessarily synonymous with low competition: it might be that technology dictates that only a small number of firms can survive profitably in the market, but that there is still the cut and thrust of competition leading to forever changing identities of the leading firms. In the second part of the paper, we address these possibilities in two ways, using a novel exploration of market share dynamics and an international comparison. On dynamics, we find an important difference between the two sectors of the market: in traditional cemented prostheses, there is little evidence of any share mobility amongst firms. Indeed, the only discernible change is that Stryker, already the dominant firm, has steadily further increased its market share over time. On the other hand, the uncemented sector has exhibited much more share mobility. Interpreting the uncemented sector as a comparator, this suggests the need for further investigation of the cemented sector. This conclusion is also indirectly reinforced by an international comparison of market structure, from which the most striking feature is the much larger market share of Stryker than in any other European country. In the third part of the paper, we explore the performance of the firms concerned, using innovation as the measure. We find only limited evidence of the emergence of new brands of implants - the smaller suppliers have had little success in introducing new brands and the two main suppliers appear to have concentrated on updating their existing brands. There is also little evidence of competition from generic brands, (in contrast to the picture in many parts of the pharmaceutical sector). Looking to the future, our findings are not necessarily conclusive evidence of a weakly performing, anti-competitive market, but they are sufficient to justify further more micro-survey research to identify the preferences and practices of the main players: surgeons, hospital procurement and the suppliers themselves. The need for such research is heightened by the fact that contemporary policy advice increasingly advocates that cemented prostheses should be preferred, especially for older patients.

Tax Reform Made Me Do It!

This paper examines corporations’ actions, and statements about actions, following the tax law change known as the Tax Cuts and Jobs Act (TCJA). Specifically, we examine four different outcomes — bonuses (or other actions that benefit workers), announcements of new investments, share repurchases, and dividend announcements. We find that 4% of public firms in our sample announced in Q1 2018 they would pay some portion of their tax savings toward workers. In terms of investment, we find that 22% of the S&P 500 firms in our sample mentioned in earnings conference calls that they would increase investment because of the TCJA. We find a general increase in share repurchases following the passage of the TCJA, but the increase is extremely concentrated in a small number of firms. We find only nine firms that announced a new share repurchase plan explicitly attributed the new plan to the TCJA. In regression analysis, we find that both political and economic variables explain TCJA-linked announcements. The analysis suggests that firms with greater expected tax savings from the TCJA are those most likely to announce payments to workers and plans to increase investment. Firms with a Political Action Committee that donates more to Republican candidates are also more likely to announce benefits to employees.

Regulation, Entrepreneurship, and Firm Size

We investigate whether regulatory growth disproportionately burdens small businesses relative to large businesses. Using panel data from RegData 3.0 and exploiting variation across industries over time, we empirically estimate the relationship between regulatory growth and growth in the number of small and large firms. Controlling for other factors, we find that a 10 percent increase in regulatory restrictions on a particular industry is associated with a reduction in the total number of small firms within that industry by about 0.5 percent, while simultaneously having no statistically significant association with the number of large firms in that industry. We also find that these magnitudes are amplified when this regulatory growth follows previous years of high regulatory growth, implying that unrelenting regulatory increases harm small businesses at an escalating rate.

Exchange rate risk and international trade: The role of third country effect

Using the recently launched Exporter Dynamics Database of the World Bank, this paper empirically investigates the role of external exchange rate risk (third-country effect) on trade flows between countries. We find a strong positive influence of external exchange rate risk on exports to a specific destination. However, the effect is more observable in advanced destination countries, countries with low bilateral exchange rate volatility in comparison to external exchange rate volatility, and countries in which export is concentrated among a small number of firms.

Quiet Period Reit Returns

Executive SummaryExcess returns around the expiration of the IPO quiet period documented for industrial IPOs are minimal for REITs, supporting the argument that REITs are more transparent than other firms. The existence of analyst coverage impacts quiet period returns for REITs only during the pre-bubble period when coverage is less comprehensive. The frequency of analyst recommendations issued immediately after the quiet period for REITs is lower than for industrial IPOs, which again suggests greater REIT transparency since there is an implied lower need for coverage. Recommendations in number and in simple buy or sell categorization have a slight impact on returns. With marginal statistical significance, the small number of firms followed by four or more analysts posts excess returns while the very small number of firms with no buy recommendations posts negative excess returns.

Accounting Quality in Eastern Europe after Communism

ABSTRACTResearch Question/Issue: This study, in the taxonomy of Schiehll and Martins (2016), examines cross-national corporate governance, within their “legal” category. It rests on the understanding that to fully grasp corporate governance it is essential to understand the embedded institutions. The research question is: Does an increase in legal quality cause an associated increase in the quality of corporate governance in the form of financial reports to investors? If so, this supports the fundamental importance of legal systems to earnings quality. Reliable evidence on whether there is an association between legal quality and financial reporting quality would be an empirical association showing that where legal quality is higher, earnings quality is also higher, and conversely.Research Findings/Insights: The results show clearly that in 2005 and 2010, when adequate data are available for testing, earnings quality is poor: far more companies show small gains than small losses. A great deal of managerial discretion is exercised in arriving at accounting figures, since many amounts depend on forecasts of future events. A significant number of firms use that latitude to show positive earnings. As to patterns of earnings management among three clusters of countries, the small number of firms generally precludes strong statistically supported evidence of management within the clusters. Nevertheless, the whole is the sum of the parts, and the parts (clusters) indicate the clusters most responsible for the overall result. There is little evidence of small gains exceeding small losses in the Baltics, greater differences in the Visegrád countries, and big differences in southern Europe.Theoretical/Academic Implications: Based on both (a) the historical background of legal systems and (b) attitudes concerning legal quality measured at the same time as the earnings measures, the accounting results are consistent with the prediction of a strong legal culture driving effective corporate governance.Practitioner/Policy Implications: The results show that eastern firms, on aggregate, have yet to reach the level of their western counterparts. However, the differences do not seem highly significant, and indicate that convergence is close in this area. This, in turn, should guide and encourage legislators in their work.

Recent Trends in Like-Kind Exchanges

Like-kind exchanges enable taxpayers to defer capital gains taxes when certain types of property are exchanged rather than sold. The deferred gains from such exchanges have grown over the years, peaking at over $100 billion before the onset of the Great Recession. Equally noteworthy, the share of corporations of these exchanges has increased in recent years, with much of the corporate deferred gain concentrated in certain sectors and accounted for by a relatively small number of firms. Contrary to the conventional wisdom, exchanges are not typically dominated by real estate transactions and, in recent years, corporations have accounted for over half of deferred gains.

Blocked: Why Some Companies Restrict Data Access to Reduce Competition and How Open APIs Can Help

In some industries and markets, a small number of firms have exclusive access to particular datasets, and they exploit their market power to limit access to that data through both technical and administrative means without any legitimate business justification. In the real estate, financial services, and air travel industries, for example, established firms are using their exclusive control of information about property listings, customer financial transactions, and airline tickets, respectively, to limit competition by restricting access to the data by third-parties. This type of anti-competitive behavior limits innovation, reduces market transparency, and hurts consumers, and when these problematic practices occur, policymakers should intervene.

Spatial firm competition in two dimensions with linear transportation costs: simulations and analytical results

Models of spatial firm competition assume that customers are distributed in space and transportation costs are associated with their purchases of products from a small number of firms that are also placed at definite locations. It has been long known that the competition equilibrium is not guaranteed to exist if the most straightforward linear transportation costs are assumed. We show by simulations and also analytically that if periodic boundary conditions in two dimensions are assumed, the equilibrium exists for a pair of firms at any distance. When a larger number of firms is considered, we find that their total equilibrium profit is inversely proportional to the square root of the number of firms. We end with a numerical investigation of the system's behavior for a general transportation cost exponent.

Oil price effects over individual Portuguese stock returns

During the last decades, the world energy dependence increased significantly. Understanding how companies depend on oil prices is essential, especially for countries highly dependent or importers. The work intends to investigate the relationship between oil price changes and Portuguese listed companies’ returns. Using the generalized autoregressive conditional heteroskedasticity model, we conclude that nearly 20 % of the companies are significantly affected by oil prices, finding also evidence that these effects are asymmetric, depending on the company’s current situation in the market (result attributed to the lack of liquidity and the small number of firms included within the sample). There exists some differences among economic sectors in the way they are impacted by oil price changes, although not so much significant. The results show that the bigger the company, the higher the probability of being significantly affected by oil price changes. Results suggest that lagged oil price positive shocks increase Portuguese companies’ returns, by opposition to the current oil price change. Findings highlight the key role played by aggregate demand-side oil price shocks over the financial economic activity, showing sector and individual companies’ differences, thus inducing the possibility of results being highly dependent over the economic context faced by the country under analysis, that firms are more sensitive to oil prices when the equity market is busiest and that oil price increases affect companies returns in a negative way, but price decreases cause more positive than negative effects over company returns.

What can explain the Chinese patent explosion?

We analyse the ‘explosion’ of patent filings by Chinese residents both domestically and in the United States during the early 2000s, employing a unique dataset of 374,000 firms matching patent applications to manufacturing census data. Our analysis reveals that patenting is highly concentrated among a small number of firms, operating in the information and communication technology sector. Although increases in patent filings by these companies are partly driven by increased R&D intensity, our analysis suggests that the explosion of patent filings at the Chinese patent office is driven by factors other than underlying innovative behavior, including government subsidies that encourage patent filings directly.

Controlling Unintended Growth: An Exploratory Study of Coping with Unintended Growth in Small and Medium-sized Firms

IntroductionA significant number of studies on firm growth based on small and medium-sized enterprises (SMEs) have been published (Davidsson, Achtenhagen, and Naldi, 2010; Senderovitz, 2011). Similarly, much is known about the external and internal drivers of firm growth-and about the barriers that prevent firms from realizing desired growth (Storey, 2011; Davidsson and Wiklund, 2000; Goffee and Scase, 1995; Reynolds, Bygrave, and Autio, 2003). Studies show that growth intentions and organizational capabilities as well as favorable, external, contextual circumstances are among key drivers of growth. Conversely, lack of growth is mainly due to internal lack of resources and/or capabilities or unfavorable, external, contextual circumstances that hinder the (desired) growth of the small firm. The underlying belief is that SMEs and their owner-managers do, indeed, have a desire to grow their business if and when they have the means and opportunities to do so (Davidsson and Wiklund, 2000; O'Regan, Ghobadian, and Gallear, 2006; Storey, 2011). However, other studies reveal that it may be equally relevant to examine socio-cultural factors to determine why some SMEs stay small. Studies show that a large number of small firms remain small and that the owner-managers of a large share of these firms have no desire to grow (Penrose, 1959/95; Burns, 1989; Birley, 1996; Vickery, 1989). These firms deliberately avoid growth and thus stay small (Davidsson, 1989).In contrast to these well-documented situations, there is an additional growth situation that has not previously received much attention in the literature: the situation in which growth in SMEs occurs without explicit growth intentions and when growth is perceived as being problematic. Through an explorative, in-depth case study (Eisenhardt, 1989; Yin, 2003) this study shows how SMEs may tackle growth in situations in which their organization is growing organically despite lacking growth intentions, and in which the firm perceives growth as problematic and unwanted. In these situations, owner-managers employ different coping strategies in their efforts to control or constrain growth.Growth literature has demonstrated that small, growing firms face a wide range of organizational and managerial challenges (Greiner, 1972; Churchill and Lewis, 1983; Hofer and Charan, 1984). Moreover, despite numerous theoretical arguments in favor of firm growth, growth may not always be perceived as a positive development by the management of smaller firms (Davidsson, Steffens, and Fitzsimmons, 2009; Senderovitz, Klyver, and Steffens, 2015). This study supports the notion that there may be good and sound reasons why an SME/owner-manager may see growth as unwanted and problematic. However, it also shows how unintended and unwanted growth can be handled successfully or at least constrained so that the perceived obstacles and challenges associated with growth can be overcome.The results of the explorative case study show that more knowledge is needed about how growth-reluctant SMEs tackle firm growth they perceive as problematic and therefore endeavor to limit or even prevent it. Investigating this situation will allow researchers to explore on what grounds growth occurs. This need for more knowledge is also in line with recent research findings indicating that firms that grow successfully first secure profitability and only then embrace growth (Davidsson, Steffens, and Fitzsimmons, 2009). The authors agree with Davidsson and colleagues that caution is warranted whenever a universal and uncritical growth ideology is proposed, and that recent findings allow us to see the widespread reluctance of small-firm owner-managers in a different light (Davidsson, Achtenhagen, and Naldi, 2010). Not all types of growth are attractive. In line with Achtenhagen and colleagues (2010, p. 298), the authors of the present paper also see a need for broadening of the scholarly discussions that have so far taken place in the growth literature so that a closer link can be forged between how researchers conduct growth studies and how practitioners perceive business growth. …