Tobin ’s Q Research Articles

The Influence of Enterprise Risk Management, Corporate Social Responsibility, Cost of Capital, and Firm Size on Firm Value

Implementing corporate social responsibility (CSR) and enterprise risk management (ERM) is becoming more important, since it is an indication of a long-term sustainable business. Investigating the effects of ERM, CSR, cost of capital (CoC), and company size on the value of manufacturing sector enterprises in Indonesia is the aim of this study. 56 manufacturing companies that are listed on the Indonesia Stock Exchange and that provide annual reports and detailed financial statements for the fiscal years 2016 through 2019 make up the study’s sample. Firm value is proxied by the Tobins’q (TQ) value. CoC is determined using WACC, CSR is evaluated using each company’s disclosure index, and the firm’s size is indicated by LnTotal Assets. The data in Eviews 12 was analyzed using panel data regression. The study results show that CSR and ERM are essential to raising a company’s worth. The company value increases with the degree of ERM and CSR adoption. The study also found a significant negative correlation between company size and worth. However, this study is unable to show how capital expenses affect the value of a company. Keywords: CSR, cost of capital, enterprise risk management, firm size, firm value

Unveiling the influence of ESG disclosures on corporate profitability: Insights from Thailand’s publicly listed companies

This study investigates the influence of Environmental, Social, and Governance Disclosures (ESGD) on the profitability of firms, using a sample of 385 publicly listed companies on the Thai Stock Exchange. Data from 2018 to 2022 is sourced from the Bloomberg database, focusing on ESGD scores as indicators of companies’ ESG commitments. The study utilizes a structural equation model to examine the relationships between independent variables; ESGD, Earnings Per Share (EPS), Debt to Assets ratio (DA), Return on Investment Capital (ROIC), Total Assets (TA), and dependent variables Tobin’s Q (TBQ) and Return on Assets (ROA). The analysis reveals a positive relationship between ESGD and TBQ, but not with ROA. Further exploration is conducted to determine if different ESGD levels (high, medium, low) yield consistent effects on TBQ. The findings indicate discrepancies: high and medium ESGD levels are associated with a negative impact on TBQ when EPS increased, whereas low ESGD levels correlate with an increase in TBQ with rising EPS. This nuanced approach challenges the conventional uniform treatment of ESGD in previous research and provides a deeper understanding of how varying commitments to ESG practices affect a firm’s market valuation and profitability. These insights are crucial for firm management, highlighting the importance of ESGD in relation to other financial variables and their effects on market value. This study offers a new perspective on ESGD’s impact, emphasizing the need for differentiated strategies based on ESG commitment levels.

The diffusion of financial technology-enabled innovation in GCC-listed banks and its relationship with profitability and market value

Purpose This study aims to examine the relationship between the diffusion of technology-enabled innovation in financial services (i.e. financial technology [FinTech]) and the financial performance, i.e. profitability and market value of the banks listed in the Gulf Cooperation Council (GCC) countries. Design/methodology/approach An extensive review of the literature was carried out, and a diffusion index of 73 items including was adopted to measure the level of FinTech usage or diffusion for the banks that are listed on the GCC stock exchanges. The study used return on assets (ROA) and Tobin’s Q (TQ) as proxies to measure profitability and market value, respectively. Findings The findings of the empirical results indicate that there is a positive relationship between FinTech implementation and market performance (TQ) in the GCC banks. The results also showed that the highest level of FinTech implementation was 79.7% by United Arab Emirates banks followed by Bahraini banks at 76.7% based on the index developed for this study. Practical implications This study, hence, recommends that policymakers and governments implement supportive policies and initiatives, allowing consumers to embrace technology as part of their way of life. This encourages banks and other organizations to formulate strategies that integrate technology into operations. Originality/value This paper offers new contributions to the GCC literature regarding financial technology and provides recommendations to the GCC financial institutions, financial markets, policymakers and governments.

Nexus between boardroom independence and firm financial performance: evidence from South Asian emerging market

This study empirically investigates the linkage between boardroom independence and the financial performance of non-financial firms in an emerging market featured by family-controlled businesses and concentrated ownership. The relationship is tested in a sample of 152 non-financial firms listed on the Pakistan Stock Exchange over a period from 2003 to 2018. Firms’ financial performance is measured through return on assets (ROA), return on equity (ROE), market-to-book ratio (MBR), and Tobin’s Q (TQ), while boardroom independence is measured through the proportion of non-executive directors on the corporate board. Using the dynamic GMM approach to address the possibility of endogeneity, it was found that boardroom independence is significantly negatively related to the financial performance of the sample firms. This negative impact is due to the reason of close ties of outside independent directors (non-executive directors) with dominant shareholders and management in personal, financial, and social terms. A significant negative influence of the board size and CEO duality on firms’ financial performance was also observed. The present study will add to the existing literature on corporate governance and firm financial performance using firm-level manually collected data. Further, our findings will also help the policymakers by providing empirical insights for strengthening corporate governance mechanisms in emerging market economies, specifically in the context of Pakistan.

The Impact of Value Creation (Tobin’s Q), Total Shareholder Return (TSR), and Survival (Altman’s Z) on Credit Ratings

This research explores the impact of financial indicators on the credit ratings of companies listed on the S&P 500, employing a Sys-GMM model to address endogeneity concerns. Three independent variables categorized as market and survival factors alongside seven control variables sourced from leverage, liquidity, interest coverage, profitability, market, survival, and macroeconomic domains were investigated. The sample consisted of 2398 observations from Capital IQ Pro, spanning nine years (2013 to 2021) and encompassing 240 public companies. The findings suggest that neither Tobin’s Q (TQ) nor Total Shareholder Return (TSR) lack significant correlations with credit ratings, implying that stock market performance and total shareholder return do not directly impact credit ratings. In contrast, the Altman Z-score (AZS) emerged as a significant predictor, indicating its importance in assessing credit risk. These insights enhance the understanding of financial indicators’ impacts on credit ratings, aiding financial institutions and companies in prudent lending and financing decisions.

Utilising AI-based Chatbot for Maximising Value and Profitability of Islamic Financial Institutions

global Islamic finance industry has experienced significant growth in recent years, establishing Islamic financial institutions (IFIs) as prominent players in the international financial landscape. To maintain competitiveness and sustainability, IFIs must embrace innovation and explore avenues for maximising their performance. This research aims to investigate the effect of AI-based Chatbots on the value and profitability of IFIs in Organisation of Islamic Cooperation (OIC) countries. The study has employed quantitative methodology, and the data was collected from the Bloomberg database, Thomson Reuters DataStream, World Development Indicators and annual reports of 104 IFIs across 44 OIC countries from 2020 to 2022. Employing the Generalised Method of Moments (GMM), this study investigates the impact of AI-based Chatbots on the value and profitability of IFIs. The findings show a positive impact of Chatbot on Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q (TBQ). Furthermore, the analysis reveals that variables such as Gross Domestic Product (GDP), institutional size (SIZE), and age (AGE) exhibit positive associations with the value and profitability of IFIs. Conversely, the study identifies Consumer Price Index (CPI) as exerting a negative influence on the value and profitability of IFIs, indicating potential challenges posed by inflationary pressures. IFIs may consider investing in the development and deployment of advanced AI technologies to enhance overall profitability. Keywords: AI-based Chatbot; Profitability; Islamic financial institutions (IFIs); OIC Countries; Dynamic GMM

Effect of Environmental, Social, and Governance System Guided by Wireless Communication Network on Enterprise Investment

Abstract Objective in the context of the rapid development of wireless communication networks, it explores the relationship between environmental, social, and governance (ESG) scores and corporate financing technical efficiency (TE). Methods A-share listed companies are the research object, and the ESG scores of A-share listed companies from 2020 to 2022 are screened. ESG scores are the explanatory variable, and the marketization process (Market) is the moderating variable. Leverage level (LEV), company size (SIZE), return on assets (ROA), growth ability (Growth), Tobin’s q (TBQ), and return on equity (ROE) as control variables, the fixed effect model is adopted for empirical analysis. Results TE: mean 1.386, median 1.062; ESG: mean 5.31, median 5.03; SIZE: mean 10.823, the maximum value 14.302, and the minimum value 7.694. The correlation coefficient (CC) between TE and ESG is 0.096 (P < 0.05). The CC between Growth and SIZE is −0.041 (P < 0.1); the CC between LEV and TE is −0.131 (P < 0.05). By adding the Market, the adjusted R2 of the model is 0.767, and the CC between ESG and TE is −0.215. The CC between ESG and TE of state-owned enterprises is 0.156 (P < 0.01); the CC between ESG and TE in non-state-owned enterprises is 0.347 (P < 0.01). Conclusion in short, the higher the ESG score is, the higher the TE of the enterprise is. Adjusting the Market can affect the TE of enterprises; state-owned enterprises have weaker financing ability.

The economic consequence of corporate philanthropic donations: evidence from Jordan

PurposeThe purpose of this study is to investigate the impact of Corporate Philanthropic Donations (CPD) on the Corporate Economic Performance (CEP) of a group of Jordanian public shareholding companies.Design/methodology/approachThe sample includes 94 companies listed on the Amman Stock Exchange between 2010 and 2016. Manual content analysis is employed to collect the quantitative-related data needed for this study.FindingsOur findings show that CPD is relevant, with a significant impact on financial performance. More specifically, CPD has a positive impact on the performance indicators measured by Tobin’s Q (TQ), return on equity (ROE) and return on assets (ROA).Research limitations/implicationsThis study contributes to the research debate on CPD and CEP, especially in developing countries. It emphasizes the importance of such practices in increasing corporate profitability.Practical implicationsThe study’s findings highlight the importance of CPD for Jordanian corporate managers. A greater emphasis on donations is likely to attract investor attention, government attention, media attention and humanitarian activism, all of which will enhance corporate goodwill.Originality/valueThis study demonstrates the positive relationship between corporate social responsibility (CSR) and CEP in an emerging economy, with a focus on one aspect of CSR, namely donation, that is underrepresented in developing countries. The study employs multiple methods for analyzing profitability as proxied by TQ, ROE and ROA, given the presence of multiple proxies to measure profitability. A further interesting aspect is examining the topic of CPD in the Jordanian context, where listed companies exhibit a uniform understanding of CPD.

Determinants of WCM of Indian listed firms: A GMM regression approach

This research paper purposes to discover the reasons that impact the working capital management (WCM) of Indian-listed manufacturing firms. The study uses a panel data set of 291 firms covering years from 2011 to 2020. The authors use working capital requirement (WCR) and cash conversion cycle (CCC) as proxies for working capital management and assess the effect of operating cash flow (OCF), performance as return on assets (ROA), valuation as Tobin’s Q (TQs), size, age, growth opportunities, leverage, and economic condition as the gross domestic product (GDP) over them. We use OLS and GMM estimators for the analysis of the study. Indian listed manufacturing firms’ cash conversion cycle (CCC) has been found to be positively correlated to their firm value, performance, and leverage. At the macro level, CCC is positively correlated to GDP. Further, CCC has been found to be negatively correlated with growth opportunities, operating cash flow, firm size, and age. The working capital requirement (WCR) of the firms, on the other hand, is positively associated with performance, firm age, and value, while it is negatively related to OCF, growth opportunities, leverage, size, and GDP. Our study adds uniqueness to the existing works on working capital in many ways. First, to our knowledge, very few studies exist to measure working capital management in the Indian context using two proxies WCR and CCC of working capital as dependent variables. Second, we used both OLS and GMM estimators to measure the explanatory variable’s effect over WCR and CCC which provided a more valid result. Third, we used eight factors as explanatory variables that provide a wider scope to explain the working capital management of Indian listed firms.

Social distinctions of directors and firm performance

PurposeThis paper aims to examine the effects of the social distinction of company directors on firm performance.Design/methodology/approachThe social distinction of company directors adds to the firm’s reputation, allowing the firm to access resources and privileges. The indicators of social distinction this study uses are the prenominal titles of directors in Malaysian companies. As Malaysian companies are known to have directors with political connections and the prenominal titles can be intertwined with these connections, to ascertain the effects of social distinction on firm performance, this study examines whether social distinctions proxy and complement political connections in improving firm performance. This study uses Tobin’s Q (TQ) for longer-term performance and gross sales for current-year performance.FindingsThis study finds evidence to suggest that the impact of higher-order titles on Tobin’s Q and sales is greater in politically unconnected firms than in connected firms. This study also finds evidence to suggest that higher-order titles amplify the effect on Tobin’s Q in politically connected firms, whereas lower-order titles amplify sales, both moderated by firm-age. The findings shed light on the mediating variables that contribute to the above, and are robust for alternative performance measures, and account for endogeneity concerns.Research limitations/implicationsThe results are generalisable only to countries where social distinctions are of significance.Practical implicationsFuture research on political connections should consider social connections that affect firms. Also, such research should prompt the awarders of titles to prohibit the use of titles for pecuniary motives to minimise market imperfections.Originality/valueAdding to the prior literature on the characteristics of directors and firm performance, this study shows that the social distinctions of directors do matter.

Do Chief Executive Officer’s Attributes Impact on the Performance of Nigerian Firms?

This study investigated the effect of Chief Executive Officer’s (CEO) attributes on the performance of manufacturing firms listed on the Nigeria Stock Exchange (NSE). In line with the ideals of upper echelon theory that firms are reflective of the cognitive behaviours of the CEO, we examined such attributes as CEO education, experience and gender on the performance and value of manufacturing firms. Secondary data were collected from the firms’ annual reports from 2013 to 2021, which was made suitable by the adoption of ex post facto research design. Thirty-six firms were purposely selected for the study wherein the data were analysed with the descriptive statistics, correlation and panel regression analysis. The results of the study indicate that CEO characteristics jointly have a significant effect on firm performance and firm value which were measured by Return on Equity (ROEQ) and Tobin’s Q (TOBNQ) respectively, of the manufacturing firms at 1% significant levels. The study therefore, recommends that CEO characteristics should not be independently sought for, but jointly as complementary components in individuals being considered for the CEO position. Additionally, appointing a female CEO should not be a fulfilling task, but a woman could be made the CEO if she possesses other complementary attributes, required for driving the firm towards greater performance and value, as would do by a male counterpart.

Enhancing Firm Value through the Lens of ESG Materiality: Evidence from the Banking Sector in OECD Countries

Momentous developments in the regulatory environment, increasing investor demand, and growing awareness of climate change and societal issues are leading banks to adopt a comprehensive approach beyond the traditional financial lens. Assessing performance towards sustainability issues, including environmental, social, and corporate governance (ESG), and its’ relevance in firm value in the banking sector offers a field of continuous interest for researchers. This paper investigates the role of ESG materiality in firm value, based on a sample of banks operating in OECD countries, for the period 2016–2020. Adopting the materiality classification for the banking sector provided by the Sustainability Accounting Standards Board (SASB), the study consists of a multi-layer methodology. In the first stage, a dynamic technique for order preference by similarity to ideal solution (TOPSIS) and entropy methods are utilized to calculate ESG score based on ESG materiality for 1115 bank-year observations while in the second stage, value relevance analyses are applied in order to reveal whether ESG materiality affects firm value. The results depict that ESG performance based on ESG materiality has a positive influence on the firm value for both models, price-to-book value ratio (PBV), and Tobin’s Q (TQ). Moreover, collected from the Refinitiv database, ESG combined has a low impact on PBR whereas there is no significant effect on TQ. The implication is that the firm value is influenced by the materiality-adjusted ESG performance than by the extended ESG spectrum.

Sustainability reporting and retail sector performance: worldwide evidence

ABSTRACT This study investigates the relationship between the level of sustainability reporting and retail sectors’ performance (operational, financial and market). Using data culled from 4065 observations from 38 different countries for ten years (2008–2017), an ‎independent variable derived from ESG score are regressed against dependent manufacture performance indicator variables [Return on Assets (ROA), Return on Equity (ROE) and Tobin’s Q (TQ)]. Two types of control variables complete the regression analysis in this study: firm-specific and macroeconomic. The findings elicited from the empirical results demonstrate that there is a significant relationship between ESG and operational performance (ROA), financial performance (ROE) and market performance (TQ). The model in this study presents a valuable analytical framework for exploring sustainability reporting as a driver of performance in retail sectors’ economies. In addition, the results of this study has significant implications for retailers, as it allows the current retailers to consider the possible sustainable activities for better outcomes, and encourages newcomers to find different sustainability approaches to attempt to offer better returns.

Corporate Governance Mechanisms and the Practice of Sustainability Activities in Nigeria

The paper examined the determinants of sustainability practice (SP) in Nigerian. Two main dimensions of the factors influencing sustainability practice were investigated. First, company characteristics, proxied by firm size (FSIZE), dividend per share (DIPS), Tobin’s-Q (TOBQ), type of industry (IDTY), and profit after tax margin (NPTM). Secondly, the board characteristics, proxied by disclosure of board roles and function (DBRF), chairman roles in the board (DCRB), board members appointment date (BADT), shareholders engagement policy (DISS), and board meetings with attendance records (DMBM). The content analysis approach was introduced to extracted relevant data from 270 annual reports of the sample companies between 2011 and 2020. The Global Initiative Reports GRI (G4) index was used to examine these annual reports. The panel regression result exerts that all of the elements of board characteristics are important determinants of SRP in Nigeria. This suggests that factors related to the identity of companies might influence the disclosure for SRP, particularly when the disclosure is voluntary. Whereas, the proxies of the company characteristics except for DIPS, TOBQ, and IDTY are not important factors, which might be linked with the voluntary nature of sustainability practice in Nigeria. The results further reveal a low level of disclosure. The low rating and disclosure indicated that listed Nigerian firms are still behind when it comes to disclosing and reporting sustainability activities in line with the GRI-G4 guidelines. Therefore, the study is empirically and theoretically relevant, as it might be in need of investigating the commitments and contributions of Nigerian companies and institutions towards a sustainable world by 2030.

The Impact of Working Capital Management on the performance of Listed Firms: Evidence of an Emerging Economy

The aim/purpose of this scientific inquiry is to empirically examine the impact of working capital management (WCM) [cash conversion cycle (CCC), number of days inventory (INV), number of days account receivable (AR), number of days account payable (AP)] and control variables [sales growth (GROW), size (SIZE), leverage (LEV), current ratio (CR) fixed financial assets to total assets (FFA)] on firm performance (FP) [ROA, Tobin’s Q (TQ)] in the context of an emerging economy, Ghana. The research used a dynamic panel System of Generalized Method of Moment (GMM) to test the hypotheses. Utilizing financial data extracted from final accounts of 36 listed companies, spanning 2010-2019, the study examined WCM-performance-nexuses by following the methodologies of researchers/scholars in extant literature. Findings/Results indicates that, whilst INV, AR, LEV demonstrated negative/inverse/indirect associations with FP; AP, GROW, SIZE, CR, FFA depicted positive/direct associations with FP. CCC however, exhibited a quadratic concave relationship with ROA.

Sustainability reporting in food industry: an innovative tool for enhancing financial performance

PurposeThis study investigates the relationship between the level of sustainability reporting and Food Industry Performance (operational, financial and market).Design/methodology/approachUsing data culled from 1426 observations from 31 different countries for ten years (2008–2017), an independent variable derived from environmental, social, and corporate governance (ESG) score is regressed against dependent manufacture performance indicator variables [return on assets (ROA), Return on Equity (ROE) and Tobin’s Q (TQ)]. Two types of control variables complete the regression analysis in this study: firm-specific and macroeconomic.FindingsThe findings elicited from the empirical results demonstrate that there is a significant relationship between ESG and financial performance (ROE). However, there is no significant relationship between ESG and operational performance (ROA) and market performance (TQ).Originality/valueThis paper presents a new framework that considers sustainability reporting as an innovation tool, examining innovation in terms of its positive or negative impact on financial performance. It contributes to research on the innovation paradigm and knowledge management by highlighting the significance of sustainability reporting as a tool of innovation in enhancing the financial performance.

Corporate Governance Practices and Firm Performance in Emerging Markets: Empirical Insights from India and Gulf Countries

The purpose of this article is to analyse the impact of corporate governance practices on the performance of listed firms from countries like India and the Gulf countries. This research study relies on secondary data collected from annual reports of 100 companies covering 8 years, from 2010 to 2017, using manual content analysis. Fifty non-financial listed companies from each emerging market were selected; the selection is based on the market capitalization. Findings from countries’ dummy indicate that Indian companies perform better in corporate governance practices than Gulf countries. Moreover, corporate governance practices negatively impact Indian and Gulf countries’ firms’ performance measured by return on assets (ROA), except for governance effectiveness (GE) that has a positive impact. In contrast, corporate governance measured by board structure (BS) is negatively affected by the performance of Indian and Gulf countries’ listed companies measured by Tobin’s Q (TQ), whereas transparency and disclosure (TD), leverage (LEV) and GE have a positive impact. The results have implications for managers and policyholders to understand the corporate governance practices and their relationships with performance. Based on the best knowledge of the authors, this is one of the first studies that addresses the comparison between India and Gulf Cooperation Council (GCC) countries.

Corporate Governance, Sharia’ah Governance and Performance: A Cross-Country Comparison in the MENA Region

This study examines the relationship between corporate governance bank’s operational (ROA), financial (ROE) and market performance (TQ) in both conventional and Islamic Banks. This study examines 127 banks listed on the MENA countries for ten years (2008-2017). ‎The study independent variable is corporate governance principles, the dependent variables are return on assets (ROA); return on equity (ROE) and Tobin’s q (TQ). Also, the study utilizes bank and country specific control variables to help measuring the relationship between governance and bank’s Performance. The findings deduced from the empirical results demonstrate that sharia’ah governance significantly influenced the ROA and ROE. However, the corporate governance significantly influenced the TQ. Furthermore, the results indicate that there are differences between sharia’ah governance and corporate governance with regard to operational, financial and market performance. The study provides insights about the differences in the relationship between sharia’ah governance, corporate governance, and the improvement of performance, which might be utilized by both banks to re-adopt the governance practices in enhancing the operational, financial and market performance.

Agency costs in the market for corporate control: evidence from UK takeovers

PurposeThis paper aims to examine whether agency costs predict disciplinary takeover likelihood for the UK listed companies between 1986 and 2015.Design/methodology/approachUsing survival analysis, the approach is to identify candidates for disciplinary takeover on the basis of Tobin’s Q (TQ), which is consistent with the approach advocated by Manne (1965). This study then examines how indicators of agency costs affect takeover likelihood within the set of disciplinary candidates.FindingsThis paper provides evidence of the effectiveness of TQ, rather than excess return, in identifying disciplinary takeover candidates. Takeover hazard for disciplinary candidates is higher for companies with higher levels of asset utilization and sales growth in particular. Companies with stronger agency problems are relatively less susceptible to disciplinary takeover.Practical implicationsGiven the UK context of the study, where anti-takeover provisions are disallowed and when compared to findings of US studies, the results imply some support for the effectiveness of an open merger policy.Originality/valueWhile the connection between takeover likelihood and the market for corporate control has been made in previous studies, the study adopts a more explicit agency theory framework than previous studies of takeover likelihood. A key component of the contribution follows from differentiating candidates for disciplinary takeovers from other forms of mergers and acquisitions.

Working Capital Management (WCM) and Firm Performance in Emerging Markets: A Case of Bangladesh

We examine the impact of efficient working capital management on market value and profitability. Using secondary data on selected firms from Dhaka Stock Exchange we explore the effects of various working capital components (i.e. cash conversion cycle (CCC), current ratio (CR), current asset to total asset ratio (CATAR), current liabilities to total asset ratio (CLTAR), debt to asset ratio (DTAR), siz,e and growth) to the firm’s performance by looking firm’s value i.e. Tobin’s Q (TQ) and profitability i.e. return on asset (ROA) and return on invested capital (ROIC). Our results show that, for both food and overall manufacturing sectors, there is a significant association between working capital variables and firm’s value & return on assets, but an insignificant association with return on invested capital.