Firm Performance Research Articles

Supply Chain Disruptions and Firm Performance: Proffering Feasible and Sustainable Solutions to Mitigating Futuristic Disruptions in the COVID-19 Pandemic Era

Recently, the two significant causes of supply chain disruptions globally are the Ukraine-Russia conflict and the COVID-19 pandemic. Concentrating on the Ukraine-Russia conflict, the crisis is said to substantially impact supply chains in five vital sectors: agriculture, chemicals, manufacturing, metals, and oil and gas. It is highly worrisome that there is a recorded significant reduction in the production rate for agriculture & chemicals and a correspondingly significant reduction in demand for metals, oil & gas. On the other hand, manufacturing has also witnessed a moderate decrease in production and demand. This research study is highly motivated by the historical record of extreme supply chain disruptions, which often translate to untold hardships for the government, firms, employees, and consumers. Furthermore, the current level of supply chain shortages has been termed worse off compared to historical levels during the Nixon administration in the early 70s. The broader objective of the research studies is to proffer feasible solutions to never-ending supply chain disruptions. The landscape is changing, negating the proponents and believers in certain pitfalls, especially unavailable data, few relevant talents and skills, and low adoption rate. The occurrence of significant events such as COVID-19, extreme weather-related events, other natural disasters, logistic failures, and tariff disputes have available and reliable data organizations can utilize in a range of analytical fact-finding projects.

The moderating role of efficacious board leadership in high tech startups

Firms not only need to access and mobilize external resources, but they also need to deploy them in a useful manner. Board leadership may enable such services from outside directors embedded in the wider entrepreneurial ecosystem. In the current study, we find that board interaction dynamics explain the lack of substantive relationships between outside directors and firm performance in past studies. Although we do not find a direct correlate from external directors on the effectiveness of venturing teams, we do find that efficacious board leadership interacting with external directors indeed impacts the performance of such teams.

STRATEGIES TO ACHIEVE TECHNOLOGY TRANSFER FROM FOREIGN COMPANIES TO LOCAL COMPANIES IN MEXICO TO INCREASE REAL INCOME AND EMPLOYMENT

This research examines strategies to enhance technology transfer from foreign companies to local businesses in Mexico to boost income and employment. Despite significant foreign direct investment (FDI), Mexico has seen limited improvements in wages and high-skill job opportunities. The study will find solutions to identified problems including the dominance of foreign firms, which contribute to these challenges. Using a combination of qualitative and quantitative methods, the research will collect data from 15 local and foreign companies, focusing on patent purchases, staff qualifications, and intellectual property charges. A Structural Equation Model (SEM) will be used to analyze the relationships between education, human capital, and firm performance in facilitating technology transfer. The findings will inform policy recommendations to improve local productivity, wages, and Mexico's competitiveness in the global economy.

Outside vs. Inside Succession: Environmental and Organizational Contexts, Strategic Decision, and Firm Performance

Outside vs. Inside Succession: Environmental and Organizational Contexts, Strategic Decision, and Firm Performance

‘E’ of ESG and firm performance: Evidence from China

Following the ESG rating divergence reported in the previous research studies, we develop a novel firm-level Green Commitment (GC) index by incorporating new dimensions of environmental management and governance. We construct GC scores for all A-share listed companies in China from 2015 to 2021 and analyze whether firms with greater environmental commitment exhibit improvements in their future performance. Our results show that firms with high GC scores achieve higher stock returns without incurring extra risk. Additionally, a strong environmental commitment can enhance operating performance by mitigating financial constraints. The evidence supports the view that environmental investing contributes to the creation of positive shareholder value. Our GC index can be applied more widely to resolve the mixed evidence on the value implications of corporate environmental commitments.

Artificial intelligence and corporate ESG performance

The rapid advancement of artificial intelligence (AI) and increasing emphasis on corporate sustainability have sparked interest in their potential relationship. However, the impact of AI adoption on Environmental, Social, and Governance (ESG) performance remains largely unexplored, particularly in emerging markets. This study examines the influence of AI adoption on ESG performance in Chinese firms and investigates the mediating role of absorptive capability. Our two-way fixed effects models and robustness checks reveal a significant positive relationship between AI adoption and ESG performance. Furthermore, we find that absorptive capability partially mediates this relationship, suggesting AI enhances ESG performance both directly and indirectly by improving firms’ ability to assimilate and apply new knowledge. Our results highlight the transformative potential of AI in driving corporate sustainability, offering valuable insights for managers and policymakers seeking to leverage technological advancements for ESG improvements. This study contributes to the growing literature on technology and sustainability, providing empirical evidence of AI’s role in enhancing corporate ESG performance in the context of an emerging economy.

How U.S. tariffs impact China’s domestic sourcing: Evidence from firm-to-firm transactions

This paper investigates how tariff shocks influence the domestic performance of Chinese firms, leveraging quarterly data on both international and domestic transactions from 2017 to 2018. Our analysis uncovers several key findings: (i) a one percent increase in export tariffs leads to a 0.235 percent increase in sales to domestic buyers, suggesting that higher export costs drive suppliers to prioritize domestic markets, primarily affecting the extensive margin; (ii) a similar increase in countervailing import tariffs results in a 0.995 percent decrease in domestic purchases, underscoring a complementary relationship between China’s imported intermediates and domestic products; (iii) larger firms exhibit smaller magnitudes of domestic sales and are more likely to reduce their domestic intermediate inputs in response to a negative external risk. These findings highlight that understanding the complementary relationship between imports and domestic inputs is crucial for developing strategies to mitigate the adverse effects of tariff policies on domestic production.

The masking effect of green innovation: A study based on carbon market shocks

Previous empirical evidence indicates that the carbon market exerts a positive influence on the performance of corporate green innovation. In light of the proposition that there are differences in the green innovation capabilities of firms, we propose a masking effect hypothesis which suggests that the carbon market does, in fact, improve firms' green innovation performance at the overall level. However, separately, this improvement effect is only observed for high-capability firms, and not for ordinary firms. We test the hypothesis and explore the potential mechanism. The results show that, firstly, the outstanding green innovation performance of high-capability firms leads to a masking effect, which is robust to different estimation methods and variable settings. Secondly, the high innovation capability increases the positive effect of the carbon market on green innovation, irrespective of whether the capability is brown or green, which means a weak version of the masking effect. Finally, the different propensities towards co-innovation lead to the masking effect.

The Heterogenous causality of repurchases: Analysis from the aspect of share collateralization

We explore the unique heterogeneity feature of the Chinese market to examine the relationship between firms' share collateralization by its largest shareholders and corporate repurchases. Furthermore, we analyze the divergent incentives resulting in different consequences for the performance of private firms and state-owned enterprises (SOEs). The policy effect of an amendment to the Company Law of the People's Republic of China is studied using the difference-in-differences method. The measure is changed to ensure the reliability and robustness of the causality results between collateralization and repurchases. The results show that higher collateralization increases the likelihood of firms' share repurchases. The repurchase incentive of firm performance diverges between private firms and SOEs. Some SOEs even attempt to support the policy and blindly herd to repurchase shares; however, when SOEs are assured of their operational efficiency, repurchases increase their profitability. Private firms use repurchases as a share price stabilizer to protect the interests of their large shareholders rather than to benefit minority and small shareholders. These results provide policy feedback and demonstrate the complexity of controlling for corporate incentives when market interests are highly mixed.

Corporate Social Responsibility and Country Governance: An International Comparative Study Amid the COVID-19 Pandemic

This paper assesses the association of ESG scores with stock returns and highlights the moderating role of the COVID-19 pandemic and the country’s governance. The study uses panel data regression models to assess the relationship between ESG factors and stock returns, focusing on the moderating role of country governance and the COVID-19 pandemic. The results reveal that governance quality significantly enhances the positive effects of ESG practices on returns, particularly during times of crisis. These suggest that higher overall ESG scores are related positively to financial performance, and this relation is enhanced during the COVID-19 pandemic. Specifically, the two dimensions of ESG that matter most are environmental and governance. Country-level governance is important because firms in well-governed countries amplify the benefits of high ESG scores. The opposite is true for the higher controversies scores, whose bad financial outcome is magnified during the pandemic. These results present an argument for the resilience of firm financial performance, dependent on strong ESG practices and governance frameworks. This holds great interest for investors and policymakers in associating good ESG considerations with the effective management of financial risks, leading to sustainable returns during periods of widespread economic uncertainty.

Is technological innovation good or bad? An empirical investigation of technology startups

Digitalization has brought several unpredictable changes in the field of technology and innovation management. Despite several studies on how digital innovation stands out in terms of a firm's performance, there is an evident research gap for empirical studies on technology startups from developing countries. Therefore, this research investigates the impact of digitalization in three categories (digital interconnectedness, digitalized value chains and big data analytics) on exploratory and exploitative innovations under the moderation of absorptive capacity in technology startups of three different sizes operating in Pakistan. The study used the binary probit model and the results reveal the impact of digitalization on exploratory and exploitative innovations is heterogenous in startups of different sizes along with a significant moderating effect of absorptive capacity. The findings suggest that technological innovation plays a different role among different sizes of startups under the moderation of absorptive capacity.

Systemic risk spillovers among global energy firms: Does geopolitical risk matter?

In recent years, the worsening global geopolitical conditions have led investors and policy makers to become increasingly concerned about systemic risk in the global energy market. However, the existing literature has little empirical evidence on this problem from a geopolitical perspective. Based on an Elastic-Net-VAR model for depicting high-dimensional left-tail interdependence, this paper measures time-varying systemic risk spillovers among 212 energy firms in 36 countries. Then, a panel data model is established to examine the impact of geopolitical risk (GPR) on risk spillovers. Our results indicate that the GPR of a country directly intensifies the risk spillovers of the country's energy firms, as well as spreads to other countries based on geographic proximity and energy trade flows and indirectly intensifies the risk spillovers of the energy firms in these countries. Specifically, the indirect effects of GPR are more pronounced than the direct effects for fossil fuel firms, in oil-consuming countries, and during stable periods in global geopolitics. Moreover, the potential firm-level mechanisms through which GPR intensifies risk spillovers are declines in asset turnover, deceleration in corporate investment, and negative market forecasts. These findings can help to mitigate the adverse effects of GPR on energy firm performance, national energy security, and stability in the global energy market.

Tourism-industrial atmosphere and executive change: How can they impact firms? - A mixed context analysis study

The current context-turnover paradigm offers a theoretical understanding related to the influence of executive turnover, emphasizing the significance of the internal and physical factors. However, there is a lack of well-theorized and empirical evidence regarding the role of industrial atmosphere. We argue that tourism firms can time executive turnover to optimize its influence by referring to event-atmosphere context. We propose a context analytic approach to comprehensively investigate the aforementioned impacts, shaping an industrial context-turnover theory. Tourism firm performance after executive turnover is significantly moderated by the competitive and seasonal context of the tourism industry. Involuntary executive turnovers are particularly affected, compared to voluntary ones. Tourism-industrial atmosphere contributes significantly to foresee the consequence, and event-driven context forecasting accurately estimates the outcome.

The Rise of AI Pricing: Trends, Driving Forces, and Implications for Firm Performance

We document key stylized facts about the time-series trends and cross-sectional distributions of AI pricing and study its implications for firm performance, both on average and conditional on monetary policy shocks. We use the universe of online job posting data from Lightcast to measure the adoption of AI pricing. We infer that a firm is adopting AI pricing if it posts a job opening that requires AI-related skills and contains the keyword “pricing.” At the aggregate level, the share of AI-pricing jobs in all pricing jobs has increased by more than tenfold since 2010. The increase in AI-pricing jobs has been broad-based, spreading to more industries than other types of AI jobs. At the firm level, larger and more productive firms are more likely to adopt AI pricing. Moreover, firms that adopted AI pricing experienced faster growth in sales, employment, assets, and markups, and their stock returns are also more sensitive to high-frequency monetary policy surprises than non-adopters. We show that these empirical observations can be rationalized by a simple model where a monopolist firm with incomplete information about the demand function invests in AI pricing to acquire information.

Every person has their price? Political corruption and CEO compensation

We provide evidence that local political corruption significantly and positively affects CEO compensation, and we demonstrate that this positive association is contingent on asset shielding mechanisms and corporate governance quality. Specifically, corruption appears to inflate CEO compensation to a greater extent in firms with higher cash holdings, paying out dividends, or absence of operating losses. Additionally, the positive correlation between corruption and CEO compensation is more pronounced in firms with less efficient monitoring. Further analysis reveals that, although higher compensation can enhance firm performance, this positive effect is significantly reduced in firms headquartered in more corrupt areas. These findings strongly support the rent extraction explanation of CEO compensation. Our results are robust across different measures of political corruption, variations in model specifications, and assessments of causality.

Long-Term Impact of Mergers and Acquisitions on Firm Performance: A Panel Data Study

Purpose - This study aims to examine the long-term impact of mergers and acquisitions (M&As) on firm performance, particularly within the pharmaceutical industry. Using a panel data regression model, the study assesses how key financial ratios such as Net Profit Margin, Return on Capital Employed (ROCE), Debt to Equity Ratio, and Enterprise Value influence postmerger firm performance over time. Design/methodology/approach - A panel data approach has been conducted using data from 10 pharmaceutical companies from their post-merger period, focusing on the effects of M&As on firm performance as measured by Net Profit Margin. Financial ratios related to profitability, liquidity, and valuation were used as independent variables. Findings - The study finds that M&As have a positive long-term impact on firm performance, particularly in companies with strong Earnings per Share (EPS), efficient capital management, and good liquidity. ROCE, Debt to Equity Ratio, and Current Ratio were significant predictors of improved Net Profit Margin, highlighting the importance of financial efficiency and debt management in the post-merger phase. Research limitations/implications - The focus on the pharmaceutical industry limits the generalizability of the findings to other sectors. Future studies should examine a broader range of industries to better understand the effects of M&As across different contexts

How Quasi-Internal Resources Enhance Firm Performance During Large-Scale Emergencies: The Role of Trade-Off Between CSR and Business Innovations

How Quasi-Internal Resources Enhance Firm Performance During Large-Scale Emergencies: The Role of Trade-Off Between CSR and Business Innovations

Sectoral Performance of ESG Enabled Stocks during COVID-19 Pandemic in the Indian Stock Market

Over past one decade, there is significant rise in Environment, Social and Governance (ESG) enabled investment practices across the globe and Indian economy is no exception to that. The ESG-enabled investment options provide better investment avenues for investment for retail and institutional investors by ensuring the long-term sustainability of the business. The present study tries to assess whether there is any impact of ESG scores on performance of stocks at the time of COVID-19 pandemic period. The study compares the performance of stocks with high ESG score vis-à-vis stocks with low ESG scores during COVID-19 period for different sectors of Indian stock market. The study considers the data of 312 sample firms listed on BSE 500 index. The event study methodology is used to assess the impact of COVID-19 on Indian stocks. The stocks were further divided into three categories high score (top 30% of firms), medium (middle 40% of firms) and low (bottom 30% of the firms). The results of the study suggest that the investors were more confident about the performance and revival of firms that carry high ESG scores than firms with low ESG scores. The investors are confident about the long-term prospects and sustainability of the firms, and they tend to hold their investment in the firms with high ESG scores.

CEO age and corporate environmental policies

This study examines the link between CEO age and firm environmental performance. Building on the upper echelons theory, we predict that a firm is more environmentally friendly if CEOs are younger. Using hand-collected data of a total 12,512 plant-year observations for 1,074 individual firms in the period from 2010 to 2022, we document evidence that younger CEOs release significantly less greenhouse gas emissions, consistent with our conjecture. Additionally, we note that younger CEOs outperform older CEOs in terms of greenhouse gas emissions by investing more in abatement initiatives, increasing manufacturing efficiency, and increasing their use of ecologically friendly fuel. Our evidence of CEO age offers relevant implications for directors, shareholders, and financial regulators.

Board diversity and firm performance in Chinese manufacturing firms: Moderating role of CEO duality

This study explores the relationship between board diversity and firm performance, with a focus on the moderating role of CEO duality in Chinese manufacturing firms. This study applies panel fixed-effect regression models for the period 2008–2022, and findings show that board diversity is positively associated with firm performance, and CEO duality negatively moderates the relationship. However, the findings also show that a highly diversified board can minimize the negative effect of CEO duality and increase the firm’s performance. Furthermore, the findings broaden the understanding of board attributes, showing that the education index is more evident among other board attributes for firm performance. This study verifies its results using the two-step system generalized method of moments approach and different board attributes in robust tests. The findings suggest that strategic efforts to promote board diversity may increase the board’s monitoring function and control managerial opportunism, ultimately improving firm performance in the Chinese business landscape. JEL CLASSIFICATIONS: G30; G34; L25