Various Measures Of Firm Performance Research Articles

Employer cooperation, productivity and wages: new evidence from inter‐firm formal network agreements

AbstractUsing uniquely rich administrative matched employer–employee data for Italy from 2008 to 2018, we investigate the impact of firms' formal network agreements (FNAs) on firm performance and employee wages. We find an overall significant and economically relevant positive effect of FNAs on various measures of firm performance, but there are no tangible benefits for the workers, and wages decrease slightly, on average. There is, however, marked heterogeneity in the impact on both firms and workers. Estimated rent‐sharing equations, as well as other tests that exploit unionization data, suggest that the negative effects on wages can be explained by a decrease in workers' bargaining power following the introduction of FNAs.

Corporate Governance and Firm Performance: A Review of Empirical Studies

Although, there is growing consensus that corporate governance mechanisms and firm performance are related, empirical evidence to support the consensus is, however, far from settled. In fact, scholars and market analysts have not reached agreement on the strength of the relationship between various governance mechanisms and performance of the firm. To some, there is no connection between the two. In view of these, sufficient empirical evidences have emerged in support thereof. This study provides elaborate insights into the literature that studied the role of these mechanisms in relation to various measures of firm performance. The findings from our review are, no doubt, ambiguous. These ambiguities may be due to differences in theoretical frameworks, sampling and estimation methods as well as variations in data used as well as peculiarities of countries and/or industries of studies. In view of these, this study notes these shortcomings and advocates more appropriate research design, a mixture of accounting and market-oriented variables, longer study period, larger sample size and advance technique of data analysis that are capable of providing better ways of minimising the principal-agent problems of the corporate world.

Linguistic cues of chief executive officer personality and its effect on performance

Chief Executive Officer (CEO) personality belongs to the most important constructs for business practice and research, but its measurement remains a major obstacle. Therefore, I propose a language‐based approach of freely available, large‐scale corporate documents to study linguistic hints regarding CEOs' personality dimensions by applying a validated, closed‐based approach developed to a sample of Fortune 500 companies. I compare the results to validated, machine learning‐trained open‐based results obtained from conference calls of 3000 CEOs of S&P 1500 companies. In order to provide a basis for comparison, I supplement these linguistic personality profiles with a sample of convicted criminal CEOs that provide an archetype of extreme linguistic cases. Finally, after controlling for commonly used content analytical constructs (e.g., entrepreneurial orientation, market orientation) to capture CEOs' cognitive state, I link these cross‐sectional linguistic profiles to longitudinal firm‐level performance data. The analysis indicates that the linguistic manifestations of CEO personality explain a great share of firm performance in conjunction with observable individual, industry, and firm‐level data. While there appear to be complementarities between open‐based and closed‐based language approaches, the analysis also indicates that the open‐based linguistic trait of neuroticism is negatively related to various measures of firm performance. In particular, these measures appear to be more robust against genre effects and language that are unique among CEOs (self‐selection effects). Therefore, the approach sheds light on the important role of validation procedures in the realm of computer‐aided content analysis (CATA) and the conducive and detrimental effects of CEO personality cues on firm performance. The paper discusses practical implications for stakeholders and shareholders wishing to infer personality cues of key decision‐makers from large‐scale corporate documents and theoretical implications for the advancement of the upper echelon research.

Linguistic Cues of CEO Personality and its Effect on Performance

Chief Executive Officer (CEO) personality belongs to the most important constructs to understand strategic change and performance of companies but its measurement remains a major obstacle. Therefore, I study whether freely available, large-scale corporate documents reveal linguistic hints about CEOs' personality dimensions (Big-5) by applying a validated, closed based approach developed by Yarkoni (Journal of Research in Personality, 44, 2010) to a sample of FORTUNE 500 companies. I compare the results with validated, machine-learning trained open-based results from a specifically developed tool of 3000 CEOs of S&P 1500 firms obtained from conference calls (Harrison, Thurgood, Boivie, & Pfarrer, Strategic Management Journal, 2019). In order to provide a basis of comparison, I supplement these linguistic personality profiles with a sample of convicted criminal CEOs that provide an archetype of linguistic extreme cases. In addition, these linguistic profiles are complemented with a subsample of actual personality orientation, using the “positive” leadership attribute of CEO humility identified via a video metrics approach. Finally, after controlling for commonly used content analytical constructs (e.g., entrepreneurial orientation, market orientation) to capture CEOs' cognitive state, I link these cross-sectional linguistic profiles to longitudinal firm- level performance data. The analysis indicates that linguistic manifestations of CEO personality explains in conjunction with observable individual, industry and firm-level data a great share of firm performance. While there appear complementarities between open- based and closed based language approaches, the analysis also indicates that the open-based linguistic trait of neuroticism is negatively related to various measures of firm performance. In particular, these measures appear to be more robust against genre effects and language that is unique among CEOs (self-selection effects). The video 2 metric approach confirms the importance of certain linguistic personality markers, in particular neuroticism. Hence, the approach sheds light on the important role of validation procedures in the realm of computer-aided-content-analysis (CATA) as well as the conducive and detrimental effects of CEO personality cues on firm performance. The paper discusses practical implications for share and shareholders wishing to infer personality cues of key decision makers from large-scale corporate documents as well theoretical implications for the advancement of the upper- echelon research.

When do appointments of corporate sustainability executives affect shareholder value?

AbstractOver the last two decades, firms have been appointing corporate sustainability executives (CSEs) to be part of their top management teams. Although there is a vast literature on sustainable practices and their relationships with various measures of firm performance, little is known about the nature of the empirical link between CSE appointments and financial performance. We add to the understanding of this link by estimating the stock market reactions to a sample of 115 announcements of CSE appointments made by firms during the period 2000–2018. Our findings using event study methodology, followed by regression analyses, suggest that although the stock market reaction to CSE appointments is not significantly different from zero, the stock market reacts more, or less positively under certain firm‐ and industry‐specific conditions. We find that the stock market reaction is more positive in instances where the announcing firms faced a prior adverse sustainability‐related incident, and less positive for announcing firms that operate in industries that face relatively higher levels of regulatory sanctions. Also, we find that the stock market reaction is more positive when firms announce CSE appointments with focused as compared to broad responsibilities. Additionally, we find that CSE appointments are associated with subsequent improvements in operating performance—partly driven by a decrease in total costs and partly by an increase in sales. Overall, our findings support the strategy of appointing CSEs to top management teams and enable executives and stakeholders to more deeply understand the shareholder value and operating performance effects of appointing CSEs.

Determinants of firm performance: does ethnic diversity matter?

This paper empirically investigates the impact of ethnic diversity on firm performance and applies systematic analysis of the possible channels with which this can happen. Using unit record data on 28,088 publicly listed firms in 62 countries, we first adopt indices of ethnic diversity for countries and then examine its impact on various measures of firm performance. Our empirical analyses show that higher levels of ethnic and linguistic heterogeneity are associated with poorer firm performance. This finding is consistent across various measures of firm performance and is robust to several sensitivity checks. We argue that the observed negative effect of ethnic diversity on firm performance could be explained by various mechanisms of influence including trust, social networks and discrimination. Specifically, trust and social networks enhance firm performance but are lower in ethnically diverse countries. Further, we find that the extent to which discrimination hinders firm performance is higher in more diverse countries.

When Do Appointments of Corporate Sustainability Executives Affect Shareholder Value?

Over the last two decades, firms have been appointing corporate sustainability executives (CSEs) to be part of their top management teams. Although there is a vast literature on sustainable practices and their relationships with various measures of firm performance, little is known about the nature of the empirical link between CSE appointments and financial performance. We add to the understanding of this link by estimating the stock market reactions to a sample of 115 announcements of CSE appointments made by firms during the period 2000–2018. Our findings using event study methodology, followed by regression analyses, suggest that although the stock market reaction to CSE appointments is not significantly different from zero, the stock market reacts more, or less positively under certain firm- and industry-specific conditions. We find that the stock market reaction is more positive in instances where the announcing firms faced a prior adverse sustainability-related incident, and less positive when announcing firms operate in industries that face relatively greater levels of regulatory sanctions. Also, we find that the stock market reaction is more positive when firms announce CSE appointments with focused as compared to broad responsibilities. Additionally, we find that CSE appointments are associated with subsequent improvements in operating performance – partly driven by a decrease in total costs and partly by an increase in sales. Overall, our findings support the strategy of appointing CSEs to top management teams and enable executives and stakeholders to more deeply understand the shareholder value and operating performance effects of appointing CSEs.

The angel-halo effect

PurposeThis paper aims to examine how increases in corporate social responsibility (CSR) and corporate social irresponsibility (CSiR) relate to firm performance. Further, this paper investigates how increases in CSR (CSiR) while CSiR (CSR) is present relate to three measures of firm performance: profitability, management efficiency and market valuation.Design/methodology/approachUsing over 10,000 observations from 2009-2013 and combined data from Sustainalytics and Compustat, this paper examines how increases in either CSR or CSiR relate to firm performance.FindingsThe paper finds that increased CSR significantly relates to increased firm performance in all three measures, and that increased CSiR significantly relates to decreased profitability only. Furthermore, increased CSR when CSiR is present relates to increased efficiency and market valuation. Finally, increased CSiR when CSR is present relates to increased profitability and efficiency. The results suggest that CSR dominates the relationship to firm performance, as it was positively related to all three measures of firm performance, and when CSR and CSiR exist simultaneously, CSR has a dominant positive effect.Research limitations/implicationsThe study sample consists of US firms only from 2009-2013, thus the generalizability of the results to other countries and periods is unknown.Practical implicationsThe results demonstrating differing effects based on the measure of firm performance suggest that managers should be specific with which measures are used to gauge the impact of CSR and CSiR. In addition, managers would be wise to invest in CSR, as the results suggest that they can improve profitability, efficiency and market value. Even further, the empirically identified angel-halo effect suggests that investments in CSR may counter any potential negative effects from CSiR. Finally, the latter results suggest that firms can “get away” with some degree of CSiR when CSR is present.Originality/valueBy examining changing levels of CSR and CSiR independently and conjunctly across various measures of firm performance, this paper found a dominating role for CSR, which is labeled as the angel-halo effect.

CEO incentives in European energy utilities: evidence from regulated versus unregulated firms

This paper studies the effect of incentive mechanisms provided by economic regulation and CEO compensation in European energy firms. We investigate the differences in CEO pay-for-performance sensitivity across regulated and unregulated firms on CEO monetary incentives. Using various measures of firm performance, we find that CEO pay-for-performance sensitivity is lower in regulated companies. These results hold when we control for national corporate governance variables (investor protection, legal origin, disclosure requirements and contract enforcement). Our findings suggest that incentive compensation is a weaker incentive mechanism for firms operating in regulated and less-competitive markets.

The Impact of Business Support Services for Small and Medium Enterprises on Firm Performance in Low‐ and Middle‐Income Countries: A Systematic Review

Support to small and medium enterprises (SMEs) can improve their revenue and profits, their ability to create jobs, labour productivity and their ability to invest. But these effects are not large, and the cost effectiveness of the interventions not known. The effects on innovation are unclear.What is this review about?Large amounts of funding are going towards programmes to support small and medium enterprises (SMEs) in low- and middle-income countries in order to increase revenue and profits, generate employment, and, so, create economic growth and reduce poverty.The Campbell review summarizes evidence of the impact of these programmes on measures of SME performance including revenues, profits, and productivity, as well as the firms’ ability to generate employment and their labour productivity.

Capital structure, managerial ownership and firm performance: evidence from Egypt

This paper focuses on an important issue, which has generally received less attention in corporate governance literature, being the effect of managerial ownership on the relationship between debt and firm performance. By employing a sample of Egyptian listed firms, the generalized least squares method, as a panel data technique, is used to examine the joint effect of debt and managerial ownership on various measures of firm performance (i.e., Tobin’s q and ROA). The results reveal that managerial ownership moderates the relationship between debt and firm performance, with the relationship being negative (positive) in presence (absence) of managerial ownership concentration. The implication of this finding is that the optimal capital structure is more likely to be contingent on contextual variables as well as the roles, power, and stakes of key internal and external actors. Put simply, the effectiveness of one corporate governance mechanism (i.e., debt) is more likely to be contingent on the effect of other existed corporate governance mechanisms, and hence, there is not one best arrangement of either capital structure or ownership structure, but different arrangements are not equally good.

The Association between Various Earnings and Cash Flow Measures of Firm Performance and Stock Returns: some Iranian evidence

The main purpose of this research is the study of association between various measures of firm performance based on earnings and cash flows and stock returns. This research is an applied research, and its design is semi-empirical, which is done by the method of post-event (past information). The statistical population of the research includes all companies listed in Tehran Stock Exchange (TSE), and its period is nine consecutive years, from 2003 to 2011. Simple and multiple regressions are applied in order to test the hypotheses. Results of the research represent that earning based measures are more related to stock returns than cash flow based measures. Furthermore, earning based measures depict the company performance better than cash flow measures in some companies with higher accruals. But in companies with lower accruals, the company performance cannot be depicted properly neither by earning based nor cash flow based measures.

Innovative Resources and Capabilities in Emerging Economies – Their Impact on Firm Performance

Innovative resources and capabilities have been found to be essential to climb up the value chain in most industries. However, development of innovative resources and effective deployment of these resources requires significant investments on a sustained basis, which is a difficult task for domestic firms in many emerging economies, especially if they operated with obsolete technologies under protected regimes for long periods of time. To understand how and what type of resources and capabilities are developed in emerging economies, which are going through institutional transitions from protected to liberalized regimes, we examine various management theories and propose a conceptual framework that integrates relevant theories and helps us study the process of resource and capability development. Based on the existing literature on resource based view and dynamic capability approach, we also frame certain hypotheses on innovative resources and capabilities and their impact on firm performance. We collected primary and secondary data from the Indian auto component industry to test these hypotheses and carried out detailed interviews with industry experts to understand the industry dynamics and the results from our data analysis. We use the proposed conceptual framework and qualitative inputs from industry experts to explain our empirical results which provide very interesting insights into the selection and development of innovative resources and capabilities by the emerging economy firms and their impact on various measures of firm performance.

Effects of Works Councils on Firm‐Provided Further Training in Germany

AbstractUnions are an important indicator of various measures of firm performance in Anglo‐Saxon countries. The same is true for the German analogue of the workplace union, the works council. Using German establishment data, I examine the impact of works councils on further training. I employ pooled logit and count‐data models to analyse the further training activity and intensity of German firms. Because the treatment variable may suffer from endogeneity, I also adopt linear and nonlinear instrumental variable techniques. The analysis reveals a positive impact of works councils on firm‐provided training and provides slightly weaker evidence for firm‐size differentials in workplace representation. I conclude that enhanced management–employee relations foster the training efforts of firms.

Do organisational and environmental factors moderate the effects of Internet-based interorganisational systems on firm performance?

We developed a model of the relationships among several organisational, interorganisational and technological factors, the adoption of Internet-based interorganisational systems (IBIS) and various measures of firm performance. We used structural equation modelling to empirically test these relationships. The findings showed that adopting IBIS indirectly improves the operational performance of firms through business process performance. The positive effect on financial performance of adopting IBIS is not direct, but through the mediating effects of operational performance and business process performance. We also utilised multiple group analysis to test some of the model relationships across firms using several organisational and environmental factors as moderators. The organisational factors tested are firm type, age and ownership type. The environmental factors consisted of dynamism, complexity and hostility. We found that the organisational factors are significant moderators and that complexity and hostility are not significant moderators. However, the effects of dynamism as a moderator are less clear.

Implicit human resource management theory: a potential threat to the internal validity of human resource practice measures

Since the publication of Huselid's (1995) paper examining the relationship between HR practices and firm performance, there has been an explosion of published papers examining the empirical relationship between HR practices and various measures of firm performance. This study examines the possibility that informants typically providing data about organizational HR practices may be biased by an implicit theory of human resource management. Our findings suggest the responses from subjects typically providing data about HR practices may be biased in their reporting by the performance of the organization. The generalizability of these results is considered and implications for future studies of the HR-firm performance relationship reviewed.

Brand value and firm performance nexus: Further empirical evidence

Establishing a link between brand value and firm performance is important because (1) like other forms of investment, expenditure on building brand value has to improve shareholder value; (2) it provides marketers with the necessary justification that brand investments have the required pay-off; (3) it allows for brand equity to be included in the balance sheet. Previous research has provided evidence to support a positive relationship between the two variables, but they tend to be based on individual-level data. Studies that are based on secondary and/or third-party information are not rigorous in their methodology. In this paper, we use a panel data framework comprising the leading 50 US companies between 2000 and 2005 to establish the nexus between brand value and various measures of firm performance. We also utilise the price and returns model to show that brand value could provide some value-added information for future share price predictions.

Human resource practices and firm performance of multinational corporations: influences of country origin

Drawing from a cultural values perspective, we investigate the effects of country origins on HR (human resource) practices of firms from the United States, Great Britain, Japan and Hong Kong operating in Hong Kong. In general, results supported hypothesized differences in HR practices of firms from different countries. In addition, results indicated that HR practices, specifically structural training and development and retention-oriented compensation, were related to various measures of firm performance. Of further interest was the finding that country origin moderated relationships of HR practices with firm performance; in general, relationships of structural training and development and retention-oriented compensation were stronger for Hong Kong firms. Implications of the results are discussed.