Proxy For Firm Research Articles

DIVIDEND POLICY AND VALUE OF LISTED NON-FINANCIAL COMPANIES IN NIGERIA: THE MODERATING EFFECT OF INVESTMENT OPPORTUNITY

The relationship between dividend policy (DP) and the value of firms (FV) has been investigated by several researchers in different jurisdictions. However, the findings of these researchers have been always inconsistent. This is due to the other factors that affect this relationship, which include the investment opportunity (IO). This paper is therefore aimed to empirically examine the impact of dividend policy on firms’ value with investment opportunity as moderator. The population of the study consists of 102 listed Non-financial companies. Based on the criterion set by the researcher, a judgmental technique of sampling was used in selecting 30 non-financial companies from the year 2011 to 2020. Tobin’s’ Q (TQ) and Market Price Per share (MPS) are the proxies for firms’ value, while Dividend per share (DPS) dividend payout ratio (DPR) and dividend yield (DY) are the proxies for dividend policy. Investment opportunity (IO) was measured as fixed asset growth. The study also used Firms’ size (FSIZE), Leverage (LEV) and Industry dummy (IND) as control variables. Descriptive statistics, correlation, and Feasible Generalized Least Squares (FGLS) analysis were used. It was found that DP, DPR, and DY are statistically significant to influence TQ. While MPS was only influenced by DP and DY. It was also found that IO did not moderate the relationship between dividend policy and firm value. It is recommended that the management of corporations should put measures in place that will increase revenue and decrease expenses so that regular dividend payments could be maintained.

Business strategy and the cost of equity: the mediating role of accounting information quality

PurposeThe study examines the mediating role of accounting information quality (AQ), a proxy for firms' information risk, in firms' business strategy and the cost of equity (COE) nexus to highlight how AQ provides a mechanism through which a company's business strategy affects its COE.Design/methodology/approachThe research study utilises data from 12,100 firm-year observations of United States (US) non-financial firms from 2001 to 2017, drawn from multiple databases, and employs the bootstrapping method of mediation analysis to test the indirect effect of AQ on the business strategy–COE relationship. The authors rely on Miles and Snow's two pure business strategy typologies, prospectors and defenders and use innate accrual quality and implied COE models to measure AQ and COE, respectively.FindingsThe results suggest that AQ partially mediates the relationship between business strategy and COE. The authors document that while innovative-oriented prospector firms have a lower AQ and a higher implied COE, efficiency-oriented defenders are associated with a higher AQ and lower COE. The higher (lower) COE of prospector (defender) firms is observed to be partly due to their lower (higher) AQ. The results indicate that while the idiosyncratic risk implied in firms' strategic orientation can directly influence their COE, the business strategy implications on firms' COE can be indirect through their AQ, a source of information risk.Research limitations/implicationsDue to data limitation, it was not possible to measure all possible methods of measuring implied COE.Practical implicationsThe paper highlights the role of firm's business strategy in pricing decisions by investors.Originality/valueThe paper contributes to the existing literature by providing evidence that AQ, a proxy for information risk, is a mechanism through which business strategy affects firms' COE. The authors thus complement extant literature to empirically test the information risk effect inherent in strategic orientation on security pricing.

The Effect of ECB Unconventional Monetary Policy on Firms’ Performance during the Global Financial Crisis

This study aims to analyse and investigate the most important factors affecting the performance of listed firms in the Athens Stock Exchange, emphasising capital structure, size and sovereign debt rate as a proxy for firms’ borrowing rate. Yet, the most remarkable factor taken into consideration to affect firms’ profitability is the delta of ECB assets as a proxy of the ECB’s strategy during the financial crisis. Indeed, the examination of the ECB’s delta is innovative for such analysis and differentiates this study from previous ones. The survey was conducted for the period 2005–2019, and the sample consisted of 49 firms from all sectors of the economic activity, except for the financial sector, as its companies’ capital structure is subject to supervisory restrictions. Thus, the financial sector’s inclusion in the sample would affect its homogeneity. The sample is divided into two sub periods, based on the statement of ECB’s president Mario Draghi “Whatever it takes,” in 2012, expressing the ECB’s strategy for backing and boosting the Eurozone economy. The empirical approach of our analysis is based on a panel data analysis, which allows the combination of both cross-section and time series data. In addition, we develop, test and analyse four specifications of our main model, each one with a different dependent variable as a proxy for profitability. These variables are EPS (earnings per share), ROE (return on equity), ROA (return on assets) and TOBIN’s Q. Our findings lead to some very interesting conclusions, which in most cases are consistent for the specification of all the examined models. More specifically, the results show a negative influence of debt-to-equity ratio and 10-year Greek yield bond on firms’ profitability regardless of the proxy used (EPS, ROE or TOBIN’s Q), while there is a positive impact of firms’ size and the delta of ECB’s total assets on firms’ profitability. However, the soundest outcome of this study shows that the expansion of the ECB’s balance sheet and the unconventional policy does contribute to the improvement of firms’ performance and economic stability. The findings become even more impressive, considering the turning of ECB’s strategy after the implementation of the unconventional policy in 2012. Our findings are useful for policymakers of international institutions and government authorities as we propose strategies favouring economic stability and economic activity but also for managers and stakeholders who can identify the factors which determine firms’ performance in order to apply the best policies for financing, investments and growth.

Heterogeneous Firms and Benefits of ESG Disclosure: Cost of Debt Financing in an Emerging Market

Current challenging environments pressure firms to improve their overall ESG performance. However, there is tension between the benefits of ESG disclosure and firm performance. We deepen the understanding of ESG disclosure’s contribution to firms’ cost of debt in an emerging economy context. This issue is critical in Latin America–a region with reduced financing, ample company heterogeneity, and scarce evidence associating ESG disclosure and firms’ debt financing. Using fixed effects models, for the 2015–2020 period, we study Chilean listed firms. We explore two association channels between ESG disclosure and the cost of debt financing. Through a direct channel, greater disclosure relates to a lower cost; however, through an indirect channel, disclosure interacts with growth opportunities–a proxy for firms’ prospective risk–and greater disclosure relates to a higher cost. Hence, evidence suggests that ESG disclosure affects the cost of financing in two opposite directions. Our results delve into how ESG disclosure encloses essential economic implications, particularly in countries that have recently adopted ESG practices: For regulators, on developing rules of ESG disclosure that consider their financial effects; for firms, on enhancing their ESG communications policies; and finally, for creditors, on the need to introduce ESG indicators in their financing decision-making.

Does Misery Impact Corporate Risk-Return Relationships?

The prior behavioral theory of the firm research documents that a firm’s external environment impacts the risk-return relationship, suggesting that drivers outside the firm are part of the risk-return puzzle. This study examines whether firms’ misery scores impact the return relationship. Using a sample of firm-year observations from 2002 to 2011, we investigate the relationship between the external environment related to misery and firms’ risk-return relationships by regressing five factors that proxy for firms’ external environments (e.g. misery levels) on risk and return. Our results suggest that both economic and non-economic external environmental factors impact firms’ risk-return relationship. Specifically, low unemployment rates and taxes are associated with higher levels of risk-taking, whereas greater access to leisure amenities decreases risk-taking. A firm’s return is negatively impacted by risk-taking associated with low unemployment and taxes and greater access to education and healthcare. However, a firm’s return is positively impacted by risk-taking associated with better air quality and lower property crime. The results suggest that a firm’s external environment impacts its performance. Therefore, future research may consider including location fixed effects to control for the unobservable external environmental factors that impact firm performance. Second, the results are of interest to practitioners as businesses can utilize the findings to develop internal programs that neutralize the external environment’s effects on firm performance.

Vulnerability to tax enforcement and spillovers of corruption: cross-industry evidence from China

Abstract The article investigates the cross-industry spillover effect of tax enforcement and corruption. I propose a two-sector optimal tax administration model by incorporating vulnerability to tax enforcement (VTE) and corruption into the Allingham–Sandmo framework. Based on two large surveys of Chinese firms, I test the model by using industrial capital-intensity as a proxy for firms’ VTE and exploiting turnover of prefectural secretaries of the Communist Party of China between 2000 and 2007 as a driving force of corruption. The findings suggest capital-intensive industries, which are vulnerable to tougher enforcement, pay higher effective tax rates, and, therefore, have stronger incentives to bribe in order to reduce their tax burden. The bribery produces negative spillovers that raise the effective tax rates of their labor-intensive counterparts. Further evidence confirms that older prefectural secretaries are prone to be corrupt and exhibit stronger tenure effects both on the effective tax rates and on firms’ corruption expenditure (JEL H21, H26, H32, D22, D73).

The effect of political connections on firms’ performance: The moderating role of leverage

This study seeks to examine the impact of political connections on firms’ performance and the moderating role of leverage on this causal relationship. As an emerging country, Indonesia offers an interesting research setting for this research. Our sample is 471 Indonesian publicly listed firms in 2014–2017, yielding 1,884 firm-year observations. This study uses two indicators as the proxies for firms’ performance: accounting (ROA) and market performance (Tobins’Q). We operationalize political connections with the number of politically connected officials in a firm. Leveraged is measured by dividing total liabilities by total assets at the end of the year. Based on the panel data regression test, our results demonstrate that political connections decrease firms’ market and accounting performance. Further, the results empirically show that leverage strengthens the effect of political connections on firms’ performance. This study contributes to the literature by adding empirical evidence on applying the agency theory to investigate the impact of political connections on firm performance in an emerging country like Indonesia. Furthermore, Indonesia’s multi-party political system offers a research context distinct from other countries.

Oil uncertainty and firms' risk-taking

Motivated by the limited evidence for a relationship between oil uncertainty and firms' risk-taking in China, we investigate how oil uncertainty (as proxied by the oil volatility risk premium) impacts firms' risk-taking and explain the mechanism. To highlight firms' expectations, growth opportunities, and ability to process new information, we use three proxies for firms' risk-taking (the implied cost of capital, the idiosyncratic volatility and the idiosyncratic skewness). Our empirical results show that oil uncertainty increases firms' risk-taking through the channel of risk compensation or real options related to firms' growth opportunities rather than risk-aversion. Oil uncertainty has a positive effect on firms' risk-taking proxied by the implied cost of capital and the idiosyncratic volatility but a negative effect on firms' risk-taking proxied by the idiosyncratic skewness related to contract options. Various variables involved in ownership, operating leverage and industrial conditions interact with oil uncertainty to affect firms' risk-taking through different channels. Our findings contribute to a greater understanding of the uncertainty in crude oil markets and firms' risk-taking behavior.

The Impact of Non-Current Assets on the Performance of Firms in Malaysian Construction Sector

Efficient asset management on non-current assets is particularly important for a business because it increases shareholders’ value. For this to happen, management must carefully analyse the options in deciding on the amount of investment needed on non-current assets in its business operations. This research study concerns the effects of non-current assets for construction firms listed in Bursa Malaysia and their relationship with firms’ performance. The efficiency of the firms’ non-current assets is measured by fixed assets turnover, asset tangibility, and total assets turnover mated with return on assets (ROA) and return on equity (ROE), both proxies for firms’ performance. The data collected and analysed in this research focused on the construction sector listed firms under Bursa Malaysia covering the period of 2011 to 2017. The methods employed in this research include descriptive analysis, correlation analysis, and fixed effects model to examine the research objectives. The quality of the data is tested by applying normality, multicollinearity, heteroscedasticity, and auto-correlation tests. The overall results show that the non-current asset turnover in the construction sector has a positive impact on the firms’ performance (ROA and ROE) and significant for this sector. This means that efficiently used non-current asset in the construction sector leads to an increased revenue and improve shareholders wealth. The results of the present study indicate that there is no impact of asset tangibility on both ROA and ROE. It implies that an increase or decrease in levels of asset tangibility does not lead to any changes in firms’ performance. Also, the outcome signifies that total assets turnover does not have an impact on ROA. It means if the construction firms increase in total assets, there will be no changes in ROA. However, total assets turnover has a significantly positive afflation with firms’ performance as measured by ROE. It shows that if the total assets turnover increases, the construction firms are utilising its assets efficiently in the firms’ operational activities resulting increase in revenue and improve firms’ performance. These findings are useful for governments, policymakers, and other stakeholders to develop effective policies, rules, or regulations in promoting economic productivity, growth, and best financing decision. Keywords: Construction, fixed assets turnover, asset tangibility, total assets turnover, firms’ performance

Political costs of disclosure

The purpose of this study is to investigate whether firm disclosures determine firms’ political costs. I proxy for firms’ political costs using a novel measure of firms’ regulatory burden that varies across 45,451 U.S. industry-years between 1969 and 2012. I identify variation in firm disclosures using the promulgation of fourteen FASB standards between 1972 and 2009. Using a time-varying difference-in-differences research design, I document increases in firms’ regulatory burden following FASB standard promulgation, relative to an entropy-balanced control group. This evidence suggests that political costs of disclosure 1) exist and 2) suppress the production of information in the economy. An event-time specification corroborates and documents the validity of the parallel trends assumption in the setting. Supplementary analyses reveal that more credible disclosures drive the association. Placebo tests illustrate that FASB standards delivering little new information to firm stakeholders elicit no regulatory response.

Board of Directors Composition, Cash Conversion Cycle and Firms Performance: An Empirical Evidence from India

This paper examines the influence of cash conversion cycle (CCC) on the performance of Indian pharmaceutical companies. Furthermore, it aims to find out whether corporate governance measured by board of directors' composition moderates the relationship between CCC and firms' performance. The analysis of this paper is based on a panel dataset of 82 companies over the period from 2008 to 2017. The study uses generalised method of moment (GMM) model for estimating the results. Return on assets (ROA), net operating margin (NOM), and Tobin Q (TQ) are used as proxies for firms' performance, while CCC is used as an independent variable. Leverage and firms' size are used as control variables. The study revealed that CCC negatively affects the profitability of Indian pharmaceutical companies. Furthermore, it is also revealed that board of directors' composition moderates the association between CCC and firms' profitability. The study seeks to contribute to the existing literature by evaluating CCC on the performance of pharmaceutical companies in a different context; India.

A trade-off between tax reporting and financial reporting aggressiveness based on financial variables

Firms likely exhibit greater financial reporting aggressiveness to increase their earnings and eventually attract investors. However, firms also tend to reduce their taxable income to maximize their cash flow. Consequently, firms arguably manage their corporate income tax aggressively. This research aims to investigate whether firms with low debt levels are more aggressive in their tax reporting than in financial reporting, firms with financial deficits are more aggressive in their financial reporting than in tax reporting, and firms with better access to external/internal capital market are more aggressive in their tax reporting rather than in financial reporting. We use three financial variables, namely debt ratios, financial deficits, and access to internal or external capital markets as proxies for firms’ financial condition. This study finds that all financial variables except financial deficits, motivate firms to engage in aggressive reporting decisions. Specifically, firms with higher debt ratios and easier access to external or internal capital markets will likely exhibit more aggressive tax reporting than financial reporting. JEL Classification: H26, G32, M41 DOI : https://doi.org/10.26905/jkdp.v24i3.4018

Capital Structure and Firms’ Performance. A Review of Quoted Nigeria Banks

Capital is vital for any business to survive and its composition matters a lot if the business wants to continue in perpetuity. This paper therefore examines capital structure and firms’ performance of quoted banks in Nigeria for the period of 1981-2019. It drew heavily from the Static Trade-Off Theory, Irrelevance and Relevance Theory of Modigliani And Miller and the Pecking Order Theory. Secondary data with respect to return on assets, equity ratio and leverage ratio were obtained from the Nigerian stock exchange reports. The data were subjected to unit root tests using the Augmented Dickey-Fuller test and were found to be stationary at first difference: 1(1). The Johansen Co-integration test conducted showed that the variable under study were co-integrated in order 1(1). The results of the Error Correction Model indicated that the debt ratio has negative and insignificant relationship to the return on assets, while the equity ratio and leverage ratio had significant positive relationship to the return on assets proxy for firms’ performance. Furthermore, a uni-directional causality was identified between equity ratio and return on assets, equity ratio, debt ratio and leverage ratio and return on assets, after employing the Granger Causality tests. The paper therefore recommends that short-term employment of debt finance is needed so as to easily absorb applicable interest charge and reduce corporate task burden. The paper further suggest that financial managers should rely more on internal funds before exploring other external avenues to source for funds.

Does Corporate Governance Moderate the Relationship between Liquidity Ratios and Financial Performance? Evidence from Indian Pharmaceutical Companies

The current study is going to examine the impact of liquidity ratios on the financial performance of Indian pharmaceutical companies. Furthermore, it attempts to find out whether corporate governance moderates the relationship between liquidity and firms’ performance. The analysis of this paper is based on a panel data approach of 82 pharmaceutical companies, for the period from 2008 to 2017. GMM model is used for estimating the results. Two accounting-based measures and one marketing based measure are used as proxies for firms' financial performance. Current ratio and quick ratio are used as proxies for independent variables. Leverage and firms' size are used as control variables. The study found that the current ratio and quick ratio significantly and positively impact pharmaceutical companies’ financial performance measured by return on assets and Tobin Q. Moreover, it was found that corporate governance moderates the relationship between current ratio, quick ratio, and net operating margin. It seems that the impact of liquidity ratios on firms’ performance has been over-studied and the literature is overwhelming. However, this study adds a new contribution to the existing literature by introducing a corporate governance as a moderation factor.

Do Implied Volatility Comovements Measure Macro-Connectedness?

Prior literature exploits option implied volatility to extract information about expectations of future information arrival intensity. We explore relations across implied volatilities, in contrast to the prior literature’s focus on implied volatilities of individual firms or indices. We investigate implied volatility comovement, IVC, the comovement between a firm’s implied volatility and the implied volatility of the market index. We hypothesize that IVC reflects the extent to which firm managers’ private information is informative about future aggregate equity returns. Using insider purchase intensity as a proxy for firms’ private information, we find that the association between insider purchases and future unexpected market returns significantly increases with IVC. Further, firms with higher IVC have stock returns that are more informative about future aggregate earnings and have stronger aggregate market reactions to their earnings announcements. This suggests that a firm’s implied volatility embeds important information about the nature of private information generated inside the firm.

Fast Internet, Digital Vulnerabilities and Firm Performances in Developing and Transition Countries

This paper provides city-level evidence on the impact of fast Internet on firm performances in developing and transition economies. Over the last two decades, international connectivity has been boosted by the laying of more than 300 sub-marine telecommunication cables (SMC). Almost all coastal developing and transition countries are henceforth plugged to the global Internet, so that the remaining structural impediments to Internet economy’s growth are twofold: first the digital isolation, i.e. the gap between Internet users and the existing and often lacking terrestrial telecommunication infrastructure network; and second, the country’s exposure to SMC faults. We estimate the impact of Internet access on firm performance by adopting an instrumental variable (IV) approach reflecting these two digital vulnerabilities. Estimations are carried out using large a sample of firms from more than 2,600 cities in some 60 developing and transition countries. They stress that a 10% increase in the incidence of e-mail use among firms, induced by lower digital vulnerabilities, raises the firm’s average annual sales by 24%, average sales per worker by 18%, and temporary employment by 15%. This result is robust to the exclusion of outliers, of exporters and big firms, of firms created after SMC arrival, and to the use of other proxies for firms’ access to Internet. It therefore suggests the existence of large spillover effects of fast Internet at the local level.

Uncertainty in Managerss Reporting Objectives and Investorss Response to Earnings Reports: Evidence from the 2006 Executive Compensation Disclosures

We examine whether the information content of the earnings report, as captured by the earnings response coefficient (ERC), increases when investors’ uncertainty about the manager’s reporting objective decreases, using the 2006 compensation disclosures as an instrument to capture a decrease in investors’ uncertainty about managers’ incentives and reporting objectives. Using a difference-in-differences design and exploiting the staggered adoption of the new rules, we find a statistically and economically significant increase in ERC for treated firms relative to control firms. The effect is weaker in firms that received a comment letter from the SEC urging them to improve their compliance with the new rules (a proxy for firms less responsive to the new rules), and stronger in firms with more independent boards (a proxy for firms more responsive to the new rules). Our findings represent the first empirical evidence of a role of compensation disclosures in enhancing the information content of financial reports, consistent with the theoretical prediction in Fischer and Verrecchia (2000). As such, they may be of interest to both policy-makers and investors.

Expectations Management and Stock Returns

We show that proxies for firms’ incentives to manage earnings expectations toward beatable levels contain strong predictive power for earnings announcement returns. Firms with stronger incentives to manage expectations predictably outperform firms with weaker incentives by approximately 1% in their expected announcement months. We validate our proxies by showing that firms with stronger incentives display several intuitive patterns; they are more likely to beat analysts’ forecasts even when earnings decline, more often narrowly beat expectations than narrowly miss, and issue low-ball earnings guidance. Collectively, our results suggest firms predictably influence investors’ expectations to manufacture positive “surprises” in high attention periods and thus that expectations management is important for understanding earnings announcement premia, return seasonalities, and the role of investor attention.

Modelling analysts’ target price revisions following good and bad news?

We study the relation between analysts’ target price revisions and recent market returns, excess stock returns, and other analysts’ target price revisions. Empirical results show that, after controlling for earnings forecast and recommendation revisions, target price revisions are associated with each of these information sources. We also find that target price revisions are more sensitive to negative than to positive excess stock returns. We conjecture that firms’ tendency to withhold bad news, while releasing good news promptly, drives this effect and, using proxies for firms’ withholding of bad news, we report evidence supporting this hypothesis.

The Relationships between, on the One Hand, Size, Growth and Age of the Firm and, on the Other Hand, Small Business Survival A Constructive Critique and a Proposal of a New Framework

This article claims that the basic relationships between, on the one side, size, growth and age of the small firm and, on the other side, the small firm’s hazard of exit is, apart from the “honeymoon” and the “liability of senescence” effects, non-linear, either U-shaped or inverted U-shaped. Variations from these patterns are dependent upon choices of different specifications and the presence or absence from the multivariate analysis of the real determinants for which size, growth and age of the firm proxy. The article also claims that the quadratic specification that has traditionally been fitted is rarely the most adequate, since other combinations of different pairs of exponents would certainly better capture nuances of the relationships being regressed. The article conclusively claims that these realizations explain findings in the extant literature that are awkward, unexpected, embarrassing and unacceptable and interpretations that are many times even more inapplicable.