Firm Responses Research Articles

Patterns in firms’ inventories and flexibility levels after a low‐probability, high‐impact disruption event: Empirical evidence from the Great East Japan Earthquake

How do firms respond after being exposed to a low‐probability, high‐consequence (lp‐hc) disruption event? This study examines inventory and flexibility patterns in manufacturing firms in the years following an lp‐hc event, the Great East Japan Earthquake of 2011. We find patterns suggesting that most firms exposed to the event began to increase their raw material inventories (RAW) over the longer term and increased their volume flexibility for a shorter period. Furthermore, we found that firms increased their RAW mainly when inventories were already at high levels, while the opposite is true for volume flexibility. Firms that were classified as risk‐averse before the event show stronger swings after the event. Preliminary explorations suggest that the performance of firms that have engaged in these inventory shifts is significantly impeded. This study provides insight into a previously unexplored phenomenon, namely, the longer‐term responses of firms to exposure to lp‐hc events. It opens the possibilities of new research regarding causality, economic consequences, and mechanisms of the identified patterns. Increased efforts in this direction should enable our discipline to provide improved normative guidance both socially and operationally.

Optimal responses of multinational firms towards non-tariff or tariff barrier: Onshore versus offshore manufacturing

Trade barriers are typically provided by emerging economies to impede multinational firms (MNFs) and safeguard their small and medium-sized local firms. So far, it is still unclear how MNFs modify their manufacturing strategies to better manage trade barriers. As a result, this paper systematically examines how MNFs respond to various trade barriers including non-tariff and tariff barriers, where both onshore (ONM) and offshore (OFM) manufacturing are feasible. Three important and intriguing findings of this research can be distilled via the definition of the relative market size. (1) Under ONM, trade barriers do undoubtedly aid in the growth of local firms in emerging economics, and the relative market size can have an impact on the MNF’s marketing strategy. Also, the MNF exhibits a bargaining effect when the relative market size is bigger, meaning that trade barriers will not result in a decline in the MNF’s operational performance. (2) Under either of trade barriers, the MNF can base on the relative market size to select OFM or ONM. That is, when the relative market size is sufficient, the MNF prefers to use ONM to guarantee a stable supply process even while facing trade barriers; otherwise, the MNF is advised to adopt OFM to avoid trade barriers and occupy greater product shares in the emerging market. (3) Regarding emerging economics, trade barriers are advised to be implemented if their local enterprises are not sufficiently developed. And as their local firms become more reliable, trade barriers are ineffective to restraint the MNF since the MNF is willing to shift its production base.

Dynamic behavior in a Cournot duopoly with social responsibility

In an oligopoly with isoelastic demand, the paper analyzes the quantity competition between NPM profit-maximizing firms and NRS socially responsible firms whose objective function is a linear combination of profit and consumer surplus.From the static analysis it follows that greater social responsibility has a competitive effect, since reduces the equilibrium price and increases the market share of socially responsible firms. In addition, it increases both the consumer surplus and total surplus.For the duopoly case, the dynamic study leads to the conclusion that, if at least one of the firms follows the gradient rule as an adjustment mechanism, an increase in the speed of adjustment is a source of instability. An increase in the value of the elasticity of demand as well as a reduction in the marginal cost has a stabilizing effect on the Cournot equilibrium. A higher level of social responsibility exerts a stabilizing role on the dynamics as long as demand is sufficiently elastic.

Racial Diversity Exposure and Firm Responses Following the Murder of George Floyd

ABSTRACTGeorge Floyd's murder caused many firms to reveal how exposed they are to racial diversity issues. We examine investor and firm behaviors after this socially significant event to provide evidence on the valuation effects of the exposure and ensuing corporate responses. We develop a text‐based measure of a firm's exposure to racial diversity issues from conference call transcripts and find that, after the murder of George Floyd, firms with diversity exposure experience a stock price decrease of approximately 0.7% around the date of the conference call. We provide evidence that this effect is attributable to race‐related exposure and not gender‐related exposure. Initiatives taken by firms mitigate the negative market reaction. We document that firms with racial diversity exposure respond by appointing Black directors. The stock market views appointments of Black directors more favorably after George Floyd's murder, except when they are perceived as symbolic. We also find that firms with greater exposure to racial diversity are more likely to establish diversity, equity, and inclusion (DEI) departments, appoint DEI leaders, specify diversity goals, increase supply chain diversity, and donate to racial justice causes. Our paper provides evidence that exposure to racial diversity issues adversely affects firm value, and companies address the exposure by taking actions.

Effect of green credit policy on energy firms’ growth: evidence from China

The response of energy firms to green credit policy is of great significance, which is related to the emission reduction effect of green finance and transformation of energy firms. This paper analyzes the impact of green credit policy on the growth of energy firms based on the data of Chinese listed companies from 2009 to 2019. The empirical results show that green credit policy has significantly promoted the growth of energy firms. Further research shows that green credit policy promoted the growth of energy firms by reducing financing costs and promoting green innovation. Besides, the owned firms, big-scale firms and firms in central and eastern China are more susceptible to the impacts of the green credit policy. This study is relevant to the implementation of green credit policies and the promotion of the development and transformation of energy firms.

Decarbonising our food systems: contextualising digitalisation for net zero

The food system is undergoing a digital transformation that connects local and global supply chains to address economic, environmental, and societal drivers. Digitalisation enables firms to meet sustainable development goals (SDGs), address climate change and the wider negative externalities of food production such as biodiversity loss, and diffuse pollution. Digitalising at the business and supply chain level through public–private mechanisms for data exchange affords the opportunity for greater collaboration, visualising, and measuring activities and their socio-environmental impact, demonstrating compliance with regulatory and market requirements and providing opportunity to capture current practice and future opportunities for process and product improvement. Herein we consider digitalisation as a tool to drive innovation and transition to a decarbonised food system. We consider that deep decarbonisation of the food system can only occur when trusted emissions data are exchanged across supply chains. This requires fusion of standardised emissions measurements within a supply chain data sharing framework. This framework, likely operating as a corporate entity, would provide the foci for measurement standards, data exchange, trusted, and certified data and as a multi-stakeholder body, including regulators, that would build trust and collaboration across supply chains. This approach provides a methodology for accurate and trusted emissions data to inform consumer choice and industrial response of individual firms within a supply chain.

Market Power, Financial Constraints, and Monetary Transmission

There is growing evidence that corporate market power is increasing and affecting monetary policy transmission. This paper develops a partial equilibrium model that highlights the role of financial constraints in shaping the role of markups for the response of firms to monetary policy shocks. We find support for such a role using a large cross-country firm-level dataset for 14 advanced economies.

The response of Australian firms to AASB 138 disallowing the recognition of internally generated identifiable intangibles

AbstractThis paper responds to a call by the Australian Accounting Standards Board to investigate how Australian firms responded to a perceived loss of information pursuant to AASB 138 (IAS38) which mandated the de‐recognition of previously recognised internally generated identifiable intangibles, from its effective date of 1 January 2005. We find that the sample firms did not choose to provide alternative or substitute disclosure elsewhere in their annual report or financial statements anytime during our sample period (2005–2010). Prima facie, this is surprising given prior evidence from the value relevance literature that disclosures relevant to the value of internally generated intangibles are correlated with firm value and presumably informative for investors. However, we caution against the drawing of simple conclusions that this finding implies alternative disclosure may not be valuable. Rather, it is important to understand the forces or frictions that contribute to this result. Schipper (The Accounting Review, 82, 2007, 301) and Skinner (Accounting and Business Research, 38, 2008, 191) offer valuable insights into the potential issues such as the costs of alternative disclosure including proprietary costs of disclosing competitive information and, the lower credibility of financial disclosures outside of audited financial statements. These are important considerations in the on‐going standard‐setting debate on recognition versus disclosure of value relevant information on intangible assets.

Corporate social responsibility and abnormal executive compensation

PurposeThe authors examine the association between corporate social responsibility (CSR) and abnormal executive compensation. The authors hypothesize that socially responsible firms are more likely to pay their executives at a level that is in line with economic determinants.Design/methodology/approachUsing the expected compensation model developed by Core et al. (2008), the authors test our hypothesis using a large sample of US public companies.FindingsThe authors find that CSR performance is negatively associated with how much executive compensation deviates from the expected level. The authors further examine whether CSR performance is associated with excess compensation or inadequate compensation and find that socially responsible firms are less likely to pay their executives either excessively or inadequately.Originality/valueThis study provides evidence on the association between CSR performance and abnormal executive compensation, especially how CSR is associated with inadequate compensation, an area that has been largely overlooked by the literature.

Virtually present others and their influence on complainants’ follow-ups and firm response

PurposeThe purpose of this empirical research is to investigate the influence of interactive virtually present others (VPOs) on a firm response and customers’ reiterated complaints (follow-ups) during service failures. This research follows up on previous experimental studies that suggest VPOs affect the focal customers’ complaint intention.Design/methodology/approachMore than 16,000 posts (of complaints and complainants’ follow-ups) on 13 airline Facebook pages were analyzed using partial least squares.FindingsThis empirical study found that customers’ complaints are attended to the extent the complaints are followed up with more comments as supported by VPOs suggesting a contagion effect. Besides, it appears, the squeaky wheel is the one that gets the grease. The interactive virtual presence of others does not have an effect on a firm response toward them, despite their support to complainants and calling the airline to act.Originality/valueTo date, previous experimental studies have only featured a single VPO in potential complainants’ responses; however, in this empirical study the authors take into consideration the interaction of several VPOs in the service failure. Also, the focus is on the influence of VPOs on customers' complaints rather than the other way around.

Unraveling Firms: Demand, Productivity and Markups Heterogeneity

Abstract We develop a novel framework that simultaneously allows recovering heterogeneity in demand, quantity total factor productivity and markups across firms while leaving the correlation between the three dimensions unrestricted. We accomplish this by explicitly introducing demand heterogeneity and systematically exploiting assumptions used in previous productivity estimation approaches. In doing so, we provide an exact decomposition of revenue productivity in terms of the underlying heterogeneities, thus bridging the gap between quantity and revenue productivity estimations. We use Belgian firms’ production data to quantify total factor productivity, demand and markups, and show how they are correlated with each other across time and with measures obtained from other approaches. In doing so, we find quantity total factor productivity and demand to be strongly negatively correlated with each other, so suggesting a trade-off between the quality of a firm’s products and their production cost. We also show how our framework provides deeper and sharper insights on the response of firms to increasing import competition from China. In particular, we find that changes in revenue productivity materialise as the outcome of complex and sometimes offsetting changes in quantity total factor productivity, demand, markups and production scale.

How firms cope with social crisis: The mediating role of digital transformation as a strategic response to the COVID-19 pandemic.

The COVID-19 pandemic has drawn attention to the strategic responses of Chinese firms on digital transformation and led to a call for enhancing competitive advantage via accelerating digital transformation. Besides the physical health issue, the pandemic has triggered an extraordinary social and economic crisis in which service industries have been attacked hard. In this situation, firms are meeting increasing competitive pressure, which urges them to achieve better performance with the help of digital transformation. Based on the technology-organization-environment framework and dynamic capabilities theory, this research proposed two studies with two methods, including a structural equation model and a regression discontinuity design with a fixed-effect model. The findings suggest digital transformation mediates the relationship between competitive pressure and firm performance among Chinese small- and medium-sized enterprises and large firms after the outbreak of COVID-19, respectively. It confirms that digital transformation is a practical strategic decision for Chinese service firms to respond to increasing competitive pressure in the COVID-19 pandemic. Besides, the results also illustrate the moderating effects of absorptive, innovative, and adaptive capability on the relationship between digital transformation and firm performance among large firms.

Earnings management in socially responsible firms around seasoned equity offerings: Evidence from France, Germany, Italy and Spain

Earnings manipulation (EM) has been a matter of interest to researchers for decades. How this is measured or the motivations of managers to engage in such actions have been studied in detail. Some studies find that managers have incentives to manipulate the earnings that accompany financing activities such as seasoned equity offerings (SEO). Under the corporate social responsibility (CSR) approach, profit manipulation actions have been shown to be mitigated in socially responsible companies. To the best of our knowledge, there are no studies that analyse whether CSR mitigate EM actions in a SEO context. Our work contributes to filling this gap. We investigate whether socially responsible companies exhibit EM in periods prior to SEO. This study uses a panel data model of listed non-financial firms from countries with the same currency and similar accounting rules (France, Germany, Italy and Spain) between 2012 and 2020. Our results show that in all the countries analysed, except Spain, there is a manipulation of operating cash flows in the year prior to capital increases, and only in French companies is there a decrease in the management of this variable in companies with higher development of corporate social responsibility.

Shifting consumers’ mindset towards the growth of sustainable fashion practices in India

The concept of sustainability is becoming increasingly important to Indian customers. Millennials are recognized to be the most active, intelligent and sensitive buyers and consumers. This article focuses on millennials, because India has the world’s largest millennial population. Millennials are known for their high spending power and desire for eco-friendly workplaces and products. Indian millennials are more concerned about their buying behaviours’ environmental effects than their social and economic effects. The transformation of consumer behaviour towards more environmentally responsible consumption is a challenge for many countries, including India. It is not enough to have socially responsible firms that make environmentally friendly goods or to create standards for regulatory compliance; one must also meet customers’ growing need for ecologically responsible fashion. As time passed, consumers have become more enlightened about the products they purchase and how they are made. Consumers now want to make socially responsible purchases that boost their wardrobes. Large global fashion companies are increasingly prioritizing an ethical and transparent fashion industry that honours clients and the local ecosystem. Slow designer brands develop sustainable and ethical clothing by providing safe work environments to labourers, partnering with handloom industries and talented artisans to create handmade goods, employing green products or recyclable materials and upcycling post-production and post-consumer waste. The growing movement towards fashion that is both environmentally and socially responsible can be seen clearly in India. New and established fashion companies are transforming daily to meet the growing demand for environmentally friendly clothes by embracing new innovative approaches, new designer brands and new supply chain systems. This research’s main goal is to understand the shifts that sustainable fashion recommends, which are also necessary for ethical production and consumption. The goal is to uncover clients’ psychological buying habits and persuade them to shift their decision to buy sustainable clothes.

INTENTIONS TO ADOPT ECOPRENEURSHIP WITH MODERATING EFFECT OF COLLECTIVISM: A CASE OF SME SECTOR OF PAKISTAN

SME sector, particularly manufacturing SME's, must recognize importance of economic sustainability and seek out routes that support for sustainability, like ecopreneurship. This study explores ecopreneurship adoption intentions while expanding the theory of planned behaviour model by incorporating moderating effect of collectivism. The population of research is comprised of Pakistani manufacturing SMEs. Study's sample includes of manufacturing SMEs operating in Lahore region. Employees of SMEs were surveyed to obtain data. The results suggested that attitude to ecopreneurship, subjective norms and self-efficacy are primary drivers of ecopreneurship. Further, outcomes revealed that collectivism has moderating effect amid observed variables. Also, relevance of three-way interactions for attitude, subjective norms, and self-efficacy with collectivism has shown moderating effect of collectivism. Environmentally responsible firms SME's generate greater possibilities since many successful businesses are ecologically aware and continually seek the economic benefits by being green. The research is thus restricted to Pakistani manufacturing SMEs.

Coalitions and Their Negative Consequences: An Examination in Service Failure-Recovery Situations.

The social nature of customer experiences creates complex and potentially detrimental dynamics in failure situations, such as when other customers side with the complainer or the firm. The present research is the first to analyze such coalitions and their consequences. We conceptualize a triad composed of a complainer, a service employee, and one or multiple others as a third actor. A field study of consumer complaints on social media shows that coalitions occur in 32% of cases, negatively shifting the affective tone of an online conversation from approximately neutral to negative. Both third actor-complainer and third actor-service employee coalitions independently deteriorate the affective tone, their individual effects are not additive, and the third actor-complainer coalition exerts the larger impact of both coalitions. Two experiments reveal that complainers feel betrayed by the third actor when this actor sides with the service employee (vs. the complainer), which strengthens complainers' satisfaction with taking steps as a recovery effort by the firm and weakens satisfaction with an offered apology. This research provides managerial insights into the practical significance of coalition effects, how coalitions impair firm response effectiveness, and under which conditions different responses sustain their effectiveness. It also presents several avenues for future research.

Joint drivers of different shades of green IT/IS practices: a strategic cognition perspective

PurposePractitioners and academics are starting to recognize the benefits of green IT/IS practices. Despite these benefits, this study aims to know more regarding the factors that would drive organizations to use green IT/IS practices within their IT function and across the enterprise. To further understanding in this area, this study applies a strategic cognition framework of firm responsiveness and institutional theory to determine the extent to which an organization uses green IT/IS practices in response to stakeholder concerns. This study investigates the extent to which two organizational logics – expressive and instrumental – and three institutional pressures – coercive, mimetic and normative – jointly affect an organization's use of both green IT practices and green IS practices.Design/methodology/approachThis study tested the hypotheses with survey data collected from 306 organizations. Structural equation modeling was used for data analysis.FindingsFindings support four joint effects: (1) individualistic identity orientation and coercive pressure positively affect green IT practices; (2) collectivistic identity orientation and normative pressure positively influence green IS practices; (3) cost reduction orientation and mimetic pressure positively affect green IT practices; and (4) revenue expansion orientation and normative pressure positively influence green IS practices.Originality/valueThis study contributes to the literature by providing evidence for joint drivers of green IT and green IS practices. Green IT and IS practices represent organizations' different levels of commitment to environmental sustainability and responsiveness to stakeholders (i.e. green IT/IS practices). Organizations of different expressive and instrumental orientations are attuned to institutional pressures to various degrees, which leads to different green IT/IS practices.

Does internal whistleblowing build more socially responsible firms？

We examine the impact of internal whistleblowing on firms' CSR performance. We find that establishing internal whistleblowing poses a significantly positive impact on firms' CSR performance. To alleviate endogenous problems, we implement the instrumental variable regression and propensity score matching methods.Furthermore, we find that the effect of internal whistleblowing on firms' CSR performance is more pronounced in firms with fewer financial constraints or own higher profitability, firms with less institutional shareholding and less analyst following, and firms located in provinces with a greater cultural atmosphere of egalitarianism and humanism. Finally, we further provide evidence that a positive effect of internal whistleblowing on firms' profit and market value is stronger among the more socially responsible firms. Our paper is the first to explore the link between the monitoring role of employees and firms' CSR, contributing to the growing literature on whether and how employees impact a firm's CSR performance.

Environmental performance and financial constraints in emerging markets

ABSTRACT We examine how corporate environmental performance relates to financial constraints in an environment likely to face high global pressure to address climate change. Using multivariate regressions and a large dataset of over 8,500 firm-years from 24 emerging market countries during 2003 to 2020, we find superior environmental performance (especially relating to carbon emissions) to be associated with significantly lower levels of financial constraints. This finding is robust to an alternative measure of financial constraint, different sample compositions, and to endogeneity concerns. Further analyses reveal that the reductions in financial constraints are significantly higher for firms: (i) in high carbon-emitting countries; (ii) in countries that adopted the 2015 Paris Climate Agreement early; and (iii) that cross-list onto foreign stock exchanges. Finally, we provide evidence to suggest that the environmental aspects of a firm’s CSR efforts mitigate its financial constraints more than can be attained by the other major CSR dimensions. Overall, the findings imply that stakeholders (capital providers) of emerging market firms prioritise environmental concerns and, therefore, reward environmentally responsible firms with cheaper and easier access to financing, especially when global environmental concerns are high.

Bankruptcy law, creditors' rights and dividend policy: evidence from a quasi-natural experiment

PurposeThe purpose of this paper is to examine how changes in creditors' rights affect the dividend policy behavior of corporate firms.Design/methodology/approachThe authors use the implementation of the bankruptcy and insolvency code (IBC) in India in 2016 as a quasi-natural experiment setup. Differential application of this law allows them to use the Difference in Differences approach to extract the marginal impact of change in creditors' rights on the dividend policy.FindingsThe authors show that firms responded to strengthening creditors' rights by decreasing their dividend payout. Further, the authors observe that this negative response is conditioned on firm leverage and the nature of the creditor, i.e. public or private. The firms with a greater leverage ratio and a greater proportion of private debt in the total debt in the pre-event period have shown greater response to the change in the law. Lastly, the authors show that stock markets positively respond to the observed decrease in dividends only when a corresponding decrease in the leverage accompanies such a decrease.Originality/valueThe authors contribute to the finance and law literature from several aspects. First, the authors extend this stream by bringing to light the dividend policy response of firms when they are subjected to a change in creditors' rights. Second, the authors also show how firm-level factors like financial policy and the nature of the creditor condition their response to IBC. Lastly, the authors also examine the market reaction to the dividend policy response of firms to the change in bankruptcy law.