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1 – 10 of over 78000Peter Navarro, Philip Bromiley and Pedro Sottile
Business cycles strongly influence corporate sales and profits, yet strategy research largely ignores the possibility that corporate management practices related to the business…
Abstract
Purpose
Business cycles strongly influence corporate sales and profits, yet strategy research largely ignores the possibility that corporate management practices related to the business cycle influence profitability. This paper aims to offer initial empirical support for the view that high peformance firms use a variety of business cycle management (BCM) practices that low performance firms do not.
Design/methodology/approach
This exploratory study examines the association of firm performance with business cycle management behaviors identified in the prescriptive literature and further developed from a set of case analyses. The empirical analysis uses a matched sample of 35 pairs of high vs low performers from the S&P 500.
Findings
Discriminant and conditional logit analyses provide preliminary evidence that business cycle‐sensitive behaviors such as countercyclical hiring and investment associate positively with firm performance.
Research limitations/implications
Future research should use larger data sets and strictly archival data to overcome the limitations of the small sample size and data coding with some subjective elements.
Practical implications
This research suggests a variety of business cycle related practices dealing with staffing, capital investment, acquisitions and divestitures, capital financing, credit policy, pricing, and advertising may improve firm performance.
Originality/value
This is the first paper to offer evidence of the impact of business cycle related practices across a range of practices and industries.
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Anne‐Marie Croteau, Pierre‐Majorique Léger and Luc Cassivi
This paper aims to investigate the alignment between the information‐processing needs and capabilities during interorganizational relationships through the lenses of both the…
Abstract
Purpose
This paper aims to investigate the alignment between the information‐processing needs and capabilities during interorganizational relationships through the lenses of both the product and the business relationships life cycle concepts, and the types of information exchanged.
Design/methodology/approach
This paper follows up on a previous empirical study conducted in the automotive sector, investigating the electronic collaboration within the supply chain of a large European Automotive Supplier (EAS). Out of the 61 respondents from this previous study, four illustrative cases are selected to further investigate their information alignment, where each case involves one specific relationship between EAS and its business partners based on the supply chain collaboration classification provided by the German Association of the Automotive Industry (VDA).
Findings
The conclusion is that the phenomenon is bimodal and requires that the different information‐processing needs and capabilities associated with each stage of both the product and the business relationships life cycles should be considered.
Research limitations/implications
The small number of illustrative cases and the specificity of the chosen sector limit the generalizability of the results. Without considering the various types of information‐processing needs and capabilities as well as the stage of both product and business relationships life cycles, a biased conclusion could lead to inappropriate information and communication technology investments and business decisions.
Originality/value
The richness of the cases and the genuine integration of the life cycle concepts and the type of information with the notion of alignment help to identify some key aspects of interorganizational relationships.
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This research aims to investigate whether and to what extent the co-movements of cross-country business cycles, cross-country stock market cycles and cross-country real estate…
Abstract
Purpose
This research aims to investigate whether and to what extent the co-movements of cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles are linked across G7 from February 1990 to June 2014.
Design/methodology/approach
The empirical approaches include correlation analysis on Hodrick–Prescott (HP) cycles, HP cycle return spillovers effects using Diebold and Yilmaz’s (2012) spillover index methodology, as well as Croux et al.’s (2001) dynamic correlation and cohesion methodology.
Findings
There are fairly strong cycle-return spillover effects between the cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles. The interactions among the cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles in G7 are less positively pronounced or exhibit counter-cyclical behavior at the traditional business cycle (medium-term) frequency band when “pure” stock market cycles are considered.
Research limitations/implications
The research is subject to the usual limitations concerning empirical research.
Practical implications
This study finds that real estate is an important factor in influencing the degree and behavior of the relationship between cross-country business cycles and cross-country stock market cycles in G7. It provides important empirical insights for portfolio investors to understand and forecast the differential benefits and pitfalls of portfolio diversification in the long-, medium- and short-cycle horizons, as well as for research studying the linkages between the real economy and financial sectors.
Originality/value
In adding to the existing body of knowledge concerning economic globalization and financial market interdependence, this study evaluates the linkages between business cycles, stock market cycles and public real estate market cycles cross G7 and adds to the academic real estate literature. Because public real estate market is a subset of stock market, our approach is to use an original stock market index, as well as a “pure” stock market index (with the influence of real estate market removed) to offer additional empirical insights from two key complementary perspectives.
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Kenneth A. Couch, Robert Fairlie and Huanan Xu
Labor force transitions are empirically examined using Current Population Survey (CPS) data matched across months from 1996 to 2012 for Hispanics, African-Americans, and whites…
Abstract
Labor force transitions are empirically examined using Current Population Survey (CPS) data matched across months from 1996 to 2012 for Hispanics, African-Americans, and whites. Transition probabilities are contrasted prior to the Great Recession and afterward. Estimates indicate that minorities are more likely to be fired as business cycle conditions worsen. Estimates also show that minorities are usually more likely to be hired when business cycle conditions are weak. During the Great Recession, the odds of losing a job increased for minorities although cyclical sensitivity of the transition declined. Odds of becoming re-employed declined dramatically for blacks, by 2–4%, while the probability was unchanged for Hispanics.
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Foluso Abioye Akinsola and Sylvanus Ikhide
This paper aims to examine the relationship between commercial bank lending and business cycle in South Africa. This paper attempts to know whether commercial bank lending in…
Abstract
Purpose
This paper aims to examine the relationship between commercial bank lending and business cycle in South Africa. This paper attempts to know whether commercial bank lending in South Africa is procyclical.
Design/methodology/approach
The model assumed that the lending behaviour is related to the business cycle. In this study, vector error correction model (VECM) is used to capture the relationship between bank lending and business cycle to accurately elicit the macroeconomic long-run relationship between business cycle and bank lending, as some banks might slow down bank lending due to some idiosyncratic factors that are not related to the downturn in the economy. This paper uses data from South African Reserve Bank for the period of 1990-2015 using VECM to understand the extent to which business cycle fluctuation can affect credit crunch in the financial system. The Johansen cointegration approach is used to ascertain whether there is indeed a long-run co-movement between credit growth and business cycle.
Findings
Results from the VECM show that there are significant linkages among the variables, especially between credit to gross domestic product (GDP) and business cycle. The influence of business cycle is seen vividly after a period of four to five years, where business cycle explains 20 per cent of the variation in the credit to GDP. South African banks tend to change their lending behaviour during upturns and downturns. This result further confirms the assertion in theory that credit follows business cycle and can amplify credit crunch. The result shows that in the long run, fluctuations in the business cycle can influence the credit growth in South Africa.
Research limitations/implications
The impulse analysis result shows that the impact of business cycle shock is very persistent and lasting. This also demonstrates that the shocks to the business cycle result have a persistent and long-lasting impact on credit. This study finds that commercial bank lending in South Africa is procyclical. It is suggested that the South African economy needs forward-looking policies that will mitigate the flow of credit to the real sector and at the same time ensure financial stability.
Originality/value
Most research papers rarely distinguish between the demand side and supply side of credit procyclicality. This report is presented to develop an econometric model that will examine demand side procyclicality. This study adopts more realistic and novel methods that will help in explaining the relationship between bank lending and business cycle in South Africa, especially after the global financial crisis. This report is presented with a concise and detailed analysis and interpretation.
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Kimmo Alajoutsijärvi, Tuija Mainela, Pauliina Ulkuniemi and Emma Montell
The aim of this paper is to identify the effects of business cycles on industrial business‐to‐business relationships within extremely volatile industries.
Abstract
Purpose
The aim of this paper is to identify the effects of business cycles on industrial business‐to‐business relationships within extremely volatile industries.
Design/methodology/approach
The paper is an in‐depth case study on Outotec plc, a leading provider of technologies for the mining and metal industries.
Findings
The study identifies the changes in a business relationship during a business cycle as the dominance between the parties and the cooperative and the competitive nature of the relationship alternate.
Practical implications
The study identifies ways to smooth the effects of business cycles in extremely volatile industries from the viewpoint of a project‐based technology provider.
Originality/value
While a significant amount of macroeconomic research on cycles and a few studies on industry‐specific business cycles can be found, this study is a rare example of company‐specific research on surviving business cycles.
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This paper estimates the sensitivities of the output of the manufacturing industries of the four Southeast countries (Indonesia, Malaysia, Philippines, Singapore) to both the…
Abstract
Purpose
This paper estimates the sensitivities of the output of the manufacturing industries of the four Southeast countries (Indonesia, Malaysia, Philippines, Singapore) to both the country-specific and global business cycle fluctuations. The study investigates whether the business cycle exposures of these industries differ to their nature classified as producing durable or nondurable goods and also to booms and recessions.
Design/methodology/approach
Using annual time series data on sectoral manufacturing production indices for major manufacturing industries over the period from 1999 to 2018, this paper uses the seemingly unrelated regression (SUR)–based generalized least square estimator to estimate the exposures of each industry for each of the four countries to local and world business cycle.
Findings
The individual country analysis indicates that generally the sensitivities of the ASEAN manufacturing industries to booms and recessions are different from the pattern observed in the developed countries and Russia. We do not find evidence consistent with the commonly held view among economists and business managers that demand for durable goods flourishes in booms and falls in recessions. Also, very few industries exhibit an asymmetric reaction to booms and busts. However, the analysis of panel data reveals the expected pattern of industrial sensitivities to the local business cycle only.
Originality/value
The paper makes several contributions. Firstly, the model proposed in the paper estimates sensitivities of industries to both the local and global business cycle variations. Secondly, the model enables us to explicitly test the asymmetric reaction of industries to booms and busts. Thirdly, the paper is the first attempt to estimating business cycle exposures for manufacturing industries in emerging markets.
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Imanda Luzari Indomo and Arief Wibisono Lubis
The issue of capital structure among property developers in Indonesia becomes interesting as the government speeds up housing development. Examining which theory prevails…
Abstract
Purpose
The issue of capital structure among property developers in Indonesia becomes interesting as the government speeds up housing development. Examining which theory prevails (trade-off versus pecking order) can be done by looking at several determinants of capital structure. This study aims to argue that examining determinants of capital structure in this context should also incorporate business cycles, as the activities of property developers are cyclical.
Design/methodology/approach
Using a total of 183 observations of listed property developers from 2010 to 2019, this study uses the ordinary least squares regression technique. The focus is on determinants of capital structure, which are profitability, tangibility, firm size, ownership and potential growth. The observations are divided into different business cycles (expansion, peak, trough and decline) based on economic growth rates.
Findings
The results show that the natures of relationships between capital structure (leverage) and its determinants are different during distinct business cycles. For example, profitability has a significant and positive effect on leverage during peak, but the signs are negative during trough and decline. Trade-off theory provides a better explanation of property developers’ capital structure behaviour during peak while pecking order theory is more relevant during trough. It is more difficult to conclude which of these theories is superior in expansion and sideways.
Originality/value
There have been limited studies that focus on corporate finance issues of property developers in Indonesia, and no particular attention has been given to the role of business cycles.
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Sungsoo Kim and Brandon byunghwan Lee
This paper aims to clarify the relationship between corporate capital investments and business cycles. Specifically, a major purpose of this paper is to investigate whether there…
Abstract
Purpose
This paper aims to clarify the relationship between corporate capital investments and business cycles. Specifically, a major purpose of this paper is to investigate whether there are inherent differences in corporate investment patterns and whether the stock market exhibits different reactions to the value relevance of capital expenditures across different business conditions.
Design/methodology/approach
The authors use pooled ordinary least square regressions with archival stock price data and financial data from CRSP and Compustat. The authors regress buy and hold returns on the main test variables and control variables that are identified to be related to the investment literature.
Findings
This paper provides empirical evidence that US firms’ capital expenditures are more value relevant to capital market participants during expansionary business cycles and, conversely, less value relevant during contractionary business cycles. This evidence validates previous literature that has found the information content of capital expenditures to be uncertain and cyclical in nature.
Research limitations/implications
The main limitation of this paper, as with other work dealing with stock returns and archived financial data, is that the authors try to match stock returns with contemporaneous financial data in an association study context. The precise mapping in this methodology is always challenging and has been questioned in the literature.
Practical implications
This paper has various implications for capital market participants. Capital expenditures are good news for investors, but they will make a better investment when firms make capital investments during an expansionary period. Creditors deciding whether to extend credit to firms would benefit from more accurate information on the viability of long-term investment. The results also suggest to creditors that an excessive number of loans during the contractionary period may be suboptimal because firms’ returns on capital investment are smaller in that period than in the expansionary period.
Social implications
Given the valuation of implications of long-term capital investments across different business conditions, this paper sheds light on asset allocations for mutual funds, institutional investors who are entrusted with investors’ investments including retirement funds.
Originality/value
This paper fulfils an identified need to study how capital investments are valued differently across different business conditions.
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