Firm Value Creation Research Articles

Liquidity and Corporate Governance

This paper discusses the relationship between stock market liquidity and corporate governance. Both concepts are widely investigated from different angles in the literature. It is generally agreed that they are related so that better corporate governance implies higher liquidity for shares of listed companies. However, the importance of good corporate governance for the market liquidity of the share will differ depending on the characteristics of the firm’s business. Good corporate governance will be particularly important in reducing agency problems in firms subject to a high degree of uncertainty. Proper corporate governance, in other words, matters most in cases where external assessment of the firm’s business prospects is difficult, while it is less important for value creation in firms where the business is easier to understand.

The Influence of Intellectual Capital on Firms Performance of Indian Automobile Industry

The aim of the paper was to investigate, the effect of intellectual capital on the financial performance of automobile companies in India. The required information was gathered from Indian automobile companies, between 2009 and 2018 and the (MVAIC) was employed for measuring the intellectual capital. Indian automobile firms efficiently utilized their IC. MVAIC created the effect on financial performance of sample firms. The contribution of IC to financial performance has been consistently recorded in the firms’ performance of Indian automobile companies. The present research would provide the knowledge on IC to academicians and managers, by highlighting its contributions to value creation of sample firms. The results would help the stakeholders and policymakers, in emerging automobile industry in India, by properly reallocating intellectual resources for effective use.

Board gender diversity and environmental, social, and economic value creation: Does family ownership matter?

AbstractPrior literature on firm value creation for stakeholders has oversimplified and narrowed the concept of value down to “economic returns.” Although economic returns are fundamental to a firm's core stakeholders (i.e., shareholders), other legitimate stakeholders want “value” beyond economic returns. We define stakeholder value as the financial and nonfinancial returns a firm can offer to its legitimate stakeholders, and empirically investigate whether board gender diversity (BGD) improves our multidimensional measure of value. Using Thomson Reuters' ASSET4 data for U.K.‐listed firms available from Eikon for the period 2007–2017, we report a significant positive relationship between BGD and stakeholder value creation. In particular, BGD increases social and environmental value creation in addition to economic returns. Furthermore, our results suggest that even though gender‐diverse boards are associated with stakeholder value creation in family firms, this is only conspicuous for environmental value creation. The findings suggest that although female directors cater to the interests of broader stakeholder groups, family ownership causes them to mainly focus on environmental stakeholders. The study provides important implications for regulators, stakeholders, and academic scholars.

Research on relationship between government innovation funding and firms value creation using clustering-rough sets

PurposeThe purpose of this paper is to reveal the pattern between government innovation funding and enterprise value creation. Many factors, including government innovation funding, R&D ability, corporate governance and some company characteristics significantly affected the efficiency of firm value creation.Design/methodology/approachThis paper proposed a novel methodology based on clustering-rough sets to explore the characteristics of enterprise value creation behavior, and map the relationship between government innovation funding and enterprise value creation. The agglomerative hierarchical clustering (AHC) algorithm were used to classify firm performance and get two types of value creation efficiencies and to discretize condition attributes because the rough set theory cannot deal with continuous attributes. This paper utilized the rough sets method to realize data mining and get rules of government innovation funding and enterprise value creation.FindingsR&D ability, proportion of independent directors, remuneration of directors, operating revenue, number of employees, price-earnings ratio, quick ratio, capital intensity and ROA were important to identify firm value creation efficiency when government funded the firms. Firms of high level of government innovation funding, high lagged R&D ratio, high remuneration of directors, low price-earnings ratio, low quick ratio, moderate capital intensity and high ROA were more likely to have high efficiency of value creation.Originality/valueSince China implemented the innovation-driven development strategy, facilitating enterprise innovation has become an important way to achieve high-quality economic growth. With constantly increasing of Chinese government innovation funding, studying on the effect of government innovation funding on firm’s value creation is significant to improve the efficiency of government resource allocation. It is valuable to reveal the pattern between government innovation funding and enterprise value creation based on the value added theory. The rules obtained could be used to provide decision-making support to improve the efficiency of government innovation funding and prevent waste of government resources effectively.

Stellar Evolution: Firm Value Creation and Capture across Star Employees’ Careers

Star employees are thought to have the unique ability to create disproportionate amounts of value for firms. Yet, the burgeoning strategic human capital literature is increasingly noting that human...

The emergence of multi-sided platform MNEs: Internalization theory and networks

The rise of the digital economy provides firms across the globe with unique business opportunities. Companies such as Facebook, Alibaba, and Uber are competing in a new multi-sided platform world; the primary focus of these firms, from their inception, is to provide digital infrastructure, information and technology—intangible assets that enable direct interaction or value creation across platforms by linking different user group and complementors, often at the international level. Building on data drawn from multinational multisided Platform corporations (MMPCs) operating in China, we combine insights from internalization theory and network effects in understanding the value creation of such firms. We explore the boundaries of these new “breed” of MNEs in exploiting firm-specific advantages (FSAs) and in creating new knowledge between headquarters and subsidiaries. The findings suggest that internalization theory needs to shift its focus from the ‘boundaries of the firm’ to the ‘boundaries of the local network’. By integrating their internal and external networks of knowledge in adapting their business models in host markets, this new breed of MNEs is more likely than the traditional one to gain a sustainable competitive advantage in the new information age.

Shareholder Engagement and Firm Value Creating Outcomes in Kenya

Purpose: The objective of the study was to determine the firm value creating outcomes arising from institutional shareholder engagement in Kenya.
 Methodology: The study used data from a sample of 117 institutional investors in the Nairobi Securities Exchange, Kenya, selected using stratified simple random sampling technique.
 Findings: The study established that the shareholder engagement outcome that significantly explains firm value creation is improvement of a firm’s system of governance, which includes boards of directors that have independent, equitable and minority representation.
 Implications: The study contributes to literature on shareholder engagement from a Kenyan perspective and adds an impetus to investors, management and policymakers to address issues that are impeding shareholder engagement given its effect on governance and value of the firm. The study recommends that firms invest in improvement in governance structures, and policymakers are advised to maintain an updated register of all the institutional investors, including their current contacts, and a Kenya-specific central depository of data on engagement actions and outcomes across listed companies.

The impact of national culture on integrated reporting quality. A stakeholder theory approach

AbstractIntegrated reporting (IR) is a new corporate‐reporting system that aims to represent the firm's value creation in the short, medium, and long term. In contrast to other disclosure systems focusing on non‐financial dimensions, including social and environmental aspects, IR is characterized by information connectivity. In recent years, integrated reporting has received increasing interest, both academic and professional. However, report quality is still a critical aspect of IR. Although several studies investigate IR, few focus on quality and its determinants. This study aims to fill this gap by investigating the impact of national culture, an external determinant, from a stakeholder theory perspective. The results show that IR quality is related to five dimensions of Hofstede—power distance, individualism, masculinity, and indulgence negatively and uncertainty avoidance positively. This study contributes to the relevant literature by analysing an additional factor that influences the quality of corporate reports, namely, national culture. This is the first study that investigates national culture as a determinant of integrated‐reporting quality.

A project‐level analysis of value creation in firms

AbstractThis paper analyzes value creation in firms at the project level. We present evidence that managers facing short‐termist incentives set a lower threshold for accepting projects. Using novel data on new client and product announcements in both the U.S. and international markets, we find that the market responds less positively to a new project announcement when the firm's managers have incentives to focus on short‐term stock price performance. Furthermore, textual analysis of project announcements shows that firms with short‐termist chief executive officers use vaguer and generically positive language when introducing new projects to the marketplace.

Business models for industrial symbiosis: A taxonomy focused on the form of governance

The aim of this paper is to propose a taxonomy of industrial symbiosis (IS) business models. Rather than to adopt a firm perspective, we take a system perspective and focus on the governance of the system made up of the firms implementing IS, being the latter considered an important factor influencing firm’s competitive advantage. Four extreme IS business models are identified, characterized on the basis of two governance features: (1) need for coordination and (2) centralization of control. For each model, the main characteristics are presented and the main factors influencing firm value creation and value capture discussed. In doing so, our study contributes to clarify how and why firms applying IS practice can gain competitive advantage, a major gap in the current literature. Consequently, we contribute to the practical development of IS, which appears to be still not fully exploited by firms, despite its relevance.

Determinants of Value Creation in Oil and Gas Firms: A Firm-Specific Comparative Study Using Panel Data

Abstract This study examines the role of firm-level financial and operational characteristics in explaining the market valuation of oil and gas-based energy companies. Using panel data based on 82 major oil companies, the study explores the value drivers involved in value creation of integrated and independent oil companies. In other words, the study explores the impact of investment, financing, and dividend decisions on value creation in energy firms. The results suggest that stock market is skeptical about the risky capital expenditures undertaken by oil and gas firms. The study finds some evidence for signaling theory of debt financing, which suggests that the use of higher debt by energy companies is viewed positively by markets. Higher dividend payment is viewed negatively by markets. The enterprise value variable EVEBITA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is positively related to share price with statistical significance. Higher profitability of oil firms leads to greater value creation for oil and gas-based firms. The higher the liquidity position, the greater the value enhancement of oil and gas firms would be. The study finds some evidence for the positive association of operating characteristics with market valuation of oil-based energy firms. Higher reserve replacement leads to higher valuation and is viewed positively by market analysts. This study aims to provide new insights into how financial and operational information relates to the market valuation of both independent and integrated oil companies. The identification of factors for value creation in stock market is critical for the design of effective policies for wealth creation. JEL classifications: G30, G31 Keywords: Market Valuation, Profitability, Reserve Replacement, Integrated Oil Companies

The value of being socially responsible: A primal-dual approach

This study attempts to formalize and explain the process through which Corporate Social Responsibility (CSR) is created incorporating it into a production model as one of the outputs comprising the technology. Our framework allows for analyzing technical efficiency and deriving a system of internal shadow prices to quantify the overall value as well as the marginal impact of implementing socially responsible activities. The empirical application focuses on the food and beverage manufacturing sector where we encounter high levels of technical efficiency among the firms included in the analysis. Our findings also document a positive average shadow price of CSR activities, implying that the net value of implementing these activities is positive as their benefit exceeds the cost. Regarding the value at the margin, we show that increasing the socially responsible commitment positively contributes to the creation of firm value. Conversely, reducing the CSR engagement has a negative marginal impact, indicating that firms perceive lower levels of CSR as very costly and damaging.

Are firms ready to use big data analytics to create value? The role of structural and psychological readiness

ABSTRACTIn this study, we leverage Information Technology (IT) readiness literature and resource-based view (RBV) to investigate the impact of firm structural and psychological readiness on firm value creation, as mediated by big data analytics usage. The proposed research model is empirically validated using survey data from 179 senior IT managers. The findings demonstrate the importance of both structural (i.e. IT infrastructure capability, tools functionality, employee analytical capability, and bigness of data) and psychological readiness (i.e. IT proactive climate) in enhancing firm value creation through big data analytics usage. These results provide interesting theoretical and practical insights.

Intellectual capital efficiency and performance of Firms: evidence from nse 50 firms

In view of increasing contribution of intangibles in the value creation of firms, this paper tries to explore the relationship between the intellectual capital efficiency of firms with its financial and market performance. 50 large cap firms from NIFTY50 listed on National Stock exchange are selected for analysis for the year 2017–18. Multiple linear regressions is used for estimation. The empirical results indicate that profitability and productivity of these firms is strongly affected by the efficiency of intellectual capital whereas the sales of these firms are not at all influenced. It was also observed that the influence of intellectual capital is high in service sector than in manufacturing sector. The results of the study are important both for internal management and policy makers to measure and manage the intellectual capital of the firms for ensuring optimal performance.

Firm Value and the Impact of Operational Management

Operational management has been gaining increasing importance in the financial industry and firms make substantial investments in operations management systems to reduce operational risk. Using a standard model of operational risk, it can be shown that pair trade profits reveal differences in relative operational performance between firms. Consequently, pair trade profits have implications for understanding operational performance. Moreover, although operations management systems are well established sources of firm value creation, their relation to pair trade profits are not well understood. In this paper we investigate the impact of operations management systems upon firm value in the financial sector. Firstly, we show that relative operational performance between firms can be evaluated from pair trade returns, providing a new method of measuring operational performance, and demonstrate this using 11,648 pair trades data, weekly stock price data and operational event data from 2000 to 2007. Secondly, we find that pair trade returns and operational risks vary significantly by business line and event type, implying that operational systems can improve firm performance by strategically reallocating them. Thirdly, we show that investor risk aversion varies significantly with different operational risks, implying firms should manage operational systems more strategically to reduce firm value losses. Finally, this paper offers an alternative explanation to pair trade returns compared to current research.

Financial performance and corporate social responsibility: Empirical evidence from Taiwan

This study, using data provided by CSRHub, examines the effect of CSR dimensions on the financial performance of firms in Taiwan. Specifically, we examine whether CSR in employment exhibits a signaling effect and results in financial benefits to firms in Taiwan. We find that allocating resources to diversity, labor rights, treatment of unions, compensation, benefits, training, health, and worker safety can be beneficial to a firm's value creation. Using sustainability ratings by CSRHub, we are able to cover a broader range of companies in size, geography, and industry type than those previously studied.

Value creation and value capture in governing shareholder relationships: Evidence from a policy experiment in an emerging market

Research SummaryProtecting minority shareholders is a central issue in corporate governance. A common tool of empowering minority shareholders is to curb controlling shareholders’ power of expropriating firm value, but this approach was rarely successful because of the resistance from powerful controlling shareholders. We examine an alternative way of empowering minority shareholders without directly fighting with controlling shareholders. A major corporate governance reform in China gave minority shareholders a decision right over certain actions that affected the creation of firm value. We demonstrate that the greater the extent to which minority shareholders’ actions can influence the firm's value ex post, the more value controlling shareholders concede to minority shareholders ex ante. This effect becomes even stronger when controlling shareholders are able to expropriate a larger portion of firm value.Managerial SummaryMinority shareholders often have to contend with excessive extraction of firm value by powerful controlling shareholders, particularly in emerging markets. When this tension is considered as a zero‐sum game in which every gain to controlling shareholders has to come from a loss to minority shareholders, controlling shareholders strongly resist any effort to empower minority shareholders. We propose an alternative approach to empower minority shareholders. A major reform of Chinese listed firms bestowed on minority shareholders decision rights to take certain actions that could ex post create a larger “pie” (firm value) for all shareholders. We find that controlling shareholders give away greater value ex ante to minority shareholders to induce more of these actions. Consequentially, minority shareholders are more effectively empowered when they can affect firm value.

Nuances in the Interplay of Competition and Cooperation: Towards a Theory of Coopetition

Progress in coopetition research is impeded by two problems in the literature: (a) superficial conceptualization of simultaneity and outcomes and (b) lack of theorizing about core properties of coopetition and how they influence outcomes. This paper addresses these interrelated problems and charts a path towards a theory of coopetition. We systematically analyze competition and cooperation and illuminate how the interplay between specific aspects of competition and cooperation manifests through unique coopetition mechanisms. We explicate a range of possible outcomes from coopetition—joint value creation for all firms, value creation for individual firms, and value destruction—and suggest that coopetition mechanisms help explain how and why coopetition may lead to varying outcomes. Furthermore, we explain how effective navigation of simultaneity and value creation intent, two fundamental elements of coopetition, may be instrumental in deriving beneficial outcomes. Navigating simultaneity involves balancing competition and cooperation and maintaining both at moderately strong levels, and navigating value creation consists of managing the trade-off between joint value creation and firm value creation without compromising overall value creation. By explaining how coopetition manifests, what its unique underlying properties are, and how such properties influence outcomes, our paper provides a deeper understanding of the phenomenon and progresses the literature towards a theory of coopetition.

A Project-Level Analysis of Value Creation in Firms

This paper analyzes value-creation in firms at the project level. We present evidence that managers facing short-termist incentives set a lower threshold for accepting projects. Using novel data on new client and product announcements in both the U.S. and international markets, we find that the market responds less positively to a new project announcement when the firm’s managers have incentives to focus on short-term stock price performance. Furthermore, textual analysis of project announcements show that firms with short-termist CEOs use more vague and generically positive language when introducing new projects to the marketplace.

Determinants of working capital requirement in listed firms: Empirical evidence using a dynamic system GMM

AbstractWorking capital management is a critical element in the survival of every firm. While the effective management of working capital leads to value creation in firms, ineffective management of...