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Article
Publication date: 21 February 2024

Vivien Lefebvre

This paper aims to revisit the relationship between sales growth and profitability by exploring the direct and indirect effects of cost stickiness in the growth process. Cost…

Abstract

Purpose

This paper aims to revisit the relationship between sales growth and profitability by exploring the direct and indirect effects of cost stickiness in the growth process. Cost stickiness refers to asymmetric variations of costs associated with increases and decreases in sales. Cost stickiness is analyzed as a strategic liability that negatively affects profitability because it contributes to organizational rigidity that causes opportunity costs.

Design/methodology/approach

The empirical design is based on a large sample of 65,599 French firms drawn from the Amadeus database and it covers the period 2010 to 2019. The authors take advantage of the presentation of expenses made by nature in Amadeus to calculate cost stickiness in a more direct way than what is commonly done in the literature. The authors use various regression models to test the hypotheses.

Findings

For firms that experience rapid growth in sales, cost stickiness has a positive moderating effect on the relation between sales growth and profitability because of a higher asset turnover efficiency. However, for firms that experience slow growth, no growth or a decrease in sales, cost stickiness plays a negative moderating effect on the relation between sales and profitability.

Originality/value

This work contributes to the discussion about the conditions under which high growth is associated with greater profitability and conceptualizes cost stickiness as a strategic liability. The empirical context, privately held firms, has been overlooked by previous research.

Details

Journal of Accounting & Organizational Change, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1832-5912

Keywords

Article
Publication date: 19 December 2023

Rachael E. Rees-Jones, Ross Brown and Dylan Jones-Evans

Research on high growth firms is booming yet a strong conceptual understanding of how these firms obtain (and sustain) rapid growth remains (at best) partial. The main purpose of…

Abstract

Purpose

Research on high growth firms is booming yet a strong conceptual understanding of how these firms obtain (and sustain) rapid growth remains (at best) partial. The main purpose of this paper is to explore the role founders play in enabling episodes of rapid growth and how they help navigate this process.

Design/methodology/approach

This paper reports the findings from a qualitative study involving in-depth interviews with entrepreneurs enlisted onto a publicly funded high growth business accelerator programme in Wales. These interviews explored the causes of the firms rapid growth, their key growth trigger points and the organisational consequences of rapid growth.

Findings

The research reveals that periods of high growth are intrinsically and inextricably inter-linked with the entrepreneurial traits and capabilities of their founders coupled with their ability to “sense” and “seize” pivotal growth opportunities. It also demonstrates founder-level dynamic capabilities enable firms to capitalise on pivotal “trigger points” thereby enabling their progression to a new “dynamic state” in a firm’s temporal evolution.

Originality/value

The novel approach towards theory building deployed herein is the use of theoretical elaboration as means of extending important existing theoretical constructs such as growth “trigger points” and founder dynamic capabilities. To capitalise on these trigger points, founders have to undergo a process of “temporal transitioning” to effectively manage and execute the growth process in firms. The work also has important policy implications, underlining the need for more relational forms of support for entrepreneurial founders.

Details

International Journal of Entrepreneurial Behavior & Research, vol. 30 no. 1
Type: Research Article
ISSN: 1355-2554

Keywords

Article
Publication date: 18 April 2023

Zilong Liu, Hongyan Liang and Chang Liu

In theory, the impact of debt liquidity risk (DLR) on the firm's future growth is ambiguous. This study aims to examine the empirical relationship between the DLR and firms'…

Abstract

Purpose

In theory, the impact of debt liquidity risk (DLR) on the firm's future growth is ambiguous. This study aims to examine the empirical relationship between the DLR and firms' growth rate using annual data for USA companies from 1976 to 2020.

Design/methodology/approach

Given the longitudinal nature of the data, the author uses OLS (ordinary least squares) regression methodology with fixed effects to control for unobserved characteristics that might affect the dependent variable. Instrument variable regression is also used to address the potential endogeneity problem.

Findings

The results show that firms having higher DLR, as proxied by more short-term debt, experience lower growth rate. An increase in firms' short-term debt decreases the firms' future growth rate as evidenced by lower assets, revenue and employee growth rate. Moreover, the authors' results show that small firms or firms with more investment opportunities grow fast if the firms take higher DLR. Finally, cyclical firms with higher DLR exhibit lower growth rate during the credit tighten period. The authors' results hold for both the pre-zero lower bound (ZLB) era and ZLB period.

Originality/value

To the authors' best knowledge, this is one of the earliest studies to carefully examine the effects of DLR on firms' growth rate. While prior research finds that firms with higher growth potential, measured by market-to-book (MTB) ratio, use more short-term debt, the authors' research directly addresses whether DLR affects firms' future growth rate. The authors’ findings also help explain why firms with high growth potential use more short-term debt.

Details

International Journal of Managerial Finance, vol. 20 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 9 January 2024

Alejandra Parrao, Tomás Reyes, Alfonso Cruz and Kristel Schön Molina

Previous evidence has shown a generally positive relationship between continuously developed innovation, known as innovation persistence and employment growth in firms. This study…

Abstract

Purpose

Previous evidence has shown a generally positive relationship between continuously developed innovation, known as innovation persistence and employment growth in firms. This study investigates whether firm size moderates this relationship and how, considering persistent product and process innovation.

Design/methodology/approach

The authors studied the influence of firm size on the relationship between innovation persistence and employment using a 10-year panel database of firms based on national innovation surveys. The authors consider firm size as sales and measure innovation persistence through the hazard rate of innovation spells. To assess the main model, they use a system generalized method of moments (GMM) estimator.

Findings

The authors' main findings indicate that firm size negatively moderates the relationship between persistent innovation and employment growth. These results suggest that the positive effects of product and process persistent innovation on employment growth decrease as firm size increases. The authors also find evidence indicating that the moderator role of firm size is greater when firms innovate more persistently. Robustness tests with different specifications confirm the results.

Originality/value

The authors show that firm size negatively affects the strength of the relationship between innovation persistence and employment growth in product and process innovations. The authors also show that the moderator role of firm size is greater when firms are more persistent in generating product and process innovation. Additionally, using a panel dataset, they provide evidence from a sample of firms in a developing country where no studies on this matter have previously been conducted.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 27 April 2023

Snow Xue Han

The current paper extends previous studies on the match between CEO and firm and explores whether certain characteristics of young CEOs make them more desirable to young firms…

Abstract

Purpose

The current paper extends previous studies on the match between CEO and firm and explores whether certain characteristics of young CEOs make them more desirable to young firms. Results in this paper will provide useful information to startup companies when they need to find managers leading the firms.

Design/methodology/approach

This study use a large sample of panel regression to study the match between CEOs and firm via a difference-in-differences approach.

Findings

The author finds that young firms hire a disproportionately higher percentage of young CEOs than established firms. Young firms led by young CEOs exhibit higher growth rates in sales and assets and invest more in capital expenditure and R&D activities than similar firms led by older CEOs. Young CEOs in young firms also receive higher compensation than both older CEOs working in young firms and young CEOs working in established firms.

Originality/value

There are many studies examining how CEO age affect their decision-making process. There are also many studies examining the differences between young firms and established firms. However, there is no study so far examining the intersection of the two questions above. Specifically, whether the differences between young vs established firms make certain characteristics of young CEOs beneficial to young firms.

Details

International Journal of Managerial Finance, vol. 20 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 28 March 2024

Calvin W.H. Cheong and Ling-Foon Chan

This study aims to investigate the impact of corporate diversification and growth opportunities on the performance of real estate investment trusts (REIT) in Malaysia and…

Abstract

Purpose

This study aims to investigate the impact of corporate diversification and growth opportunities on the performance of real estate investment trusts (REIT) in Malaysia and Singapore before and during the pandemic.

Design/methodology/approach

The sample consists of 33 public-listed REITs across Singapore and Malaysia. A dynamic panel system generalized method of moments (DPS-GMM) estimation is used to account for unobservable factors and a relatively short sample period (2009–2022).

Findings

Results indicate that the impact of diversification is contingent on the market where the REIT is based and other institutional factors. The estimates also show that diversified REITs are better able to weather period of economic uncertainty.

Practical implications

We provided a definitive answer as to why corporate diversification leads to conflicting outcomes – market and institutional factors, strategic intent and the overall economic environment. We also show that the impact of typical firm controls (i.e. free cash, size) can differ. Future firm-level work should thus study similar phenomenon more contextually and carefully consider these varying effects.

Originality/value

The literature is divided on the impact of diversification on firm performance. By using a two-country sample, we show conclusive evidence that this contradictory outcome is due to market and institutional factors. We also show evidence that strategic intent is an important factor that influences the outcomes of diversification, regardless of market. We also infer that excess cash aids the resilience of the firm, contrary to the negative perception of excess cash during normal times. Firm size, in contrast, does not contribute to firm performance during a crisis.

Details

Journal of Property Investment & Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 5 May 2023

Pragati Priya and Chandan Sharma

The study examines how the liquid assets holdings among non-financial Indian firms vary due to tightening monetary policy and increasing macroeconomic uncertainty.

Abstract

Purpose

The study examines how the liquid assets holdings among non-financial Indian firms vary due to tightening monetary policy and increasing macroeconomic uncertainty.

Design/methodology/approach

The authors analyze 5,640 firms for the period 2011–2021. The authors first estimate India’s monetary policy shocks by decomposing the exogenous shocks from the systematic component of monetary policy changes. The authors then examine the effects of the estimated monetary policy shocks and a range of macroeconomic and policy uncertainty indicators on companies’ cash and bank balances to asset ratios using two-step system generalized method of moments (GMM) estimators.

Findings

The authors find that monetary policy shocks cause the cross-sectional variances for the firms’ liquidity holdings to increase. In anticipation of macroeconomic volatility, companies respond to these shocks after taking into account all the firm-level information to minimize the opportunity costs of holding extra cash or too few cash balances that can hamper firms’ operations. Furthermore, compared to other shocks, the contribution of inflation-induced shocks is predicted to be the largest in the cross-sectional deviation of the firm’s cash holdings. The authors also find that low-growth, older and financially constrained firms observe lesser heterogeneity in their cash holdings as they tend to hold cash as a precautionary buffer.

Originality/value

The authors’ approach to the analysis is unique in many ways. To address potential transmission bias, the authors use nowcasts and forecasts of real gross domestic product (GDP) growth and inflation to generate a series of exogenous monetary policy shocks for identifying unanticipated changes in short-term interest rates. Subsequently, the authors estimate how these shocks affect the cross-sectional deviation of liquid assets. For estimating the effects of macroeconomic uncertainty on corporate cash demand, the authors utilize a range of proxies for uncertainty. Unlike previous attempts, the authors offer evidence for a developing and fast-emerging economy.

Details

International Journal of Managerial Finance, vol. 20 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 29 June 2023

Muhammad Arsalan Nazir, Raza Saleem Khan and Mohsin Raza Khan

The link between SME performance, growth and development is well established; however, the characteristics of SMEs that allow firms to be successful in the long run in an…

Abstract

Purpose

The link between SME performance, growth and development is well established; however, the characteristics of SMEs that allow firms to be successful in the long run in an underdeveloped country context, i.e. Pakistan, are still unclear. This paper aims to bridge this gap by identifying the SMEs’ characteristics that set them apart from their rivals and become successful.

Design/methodology/approach

This study uses Storey’s development framework to identify the SMEs’ characteristics. Data is gathered using the case study method from SMEs with a metropolitan context in Pakistan. A narrative methodological framework was used during the data gathering and analysing stages.

Findings

Findings of this study indicate that the prosperity of SMEs in Pakistan is dependent on a combination of characteristics, including entrepreneurial characteristics of owner–managers, knowledge of business operating models, social networks and relationship building and innovation in business style. Additionally, other factors such as governance structure, strategic planning of market diversification and export characteristics also influence the prosperity of an SME. These findings may have several important implications for key stakeholders, including entrepreneurs, SMEs and policymakers in the government.

Originality/value

This research provides evidence about factors that can help an SME to become successful in uncertain situations surrounding a business environment. Theoretically, the contribution of this research is that it demonstrates that entrepreneurial characteristics and the effective leadership style of owner–managers can help SMEs achieve prosperity in external unforeseeable situations.

Details

Journal of Asia Business Studies, vol. 18 no. 1
Type: Research Article
ISSN: 1558-7894

Keywords

Article
Publication date: 4 July 2023

Neeraj Jain and Smita Kashiramka

This study aims to investigate the effects of peers on corporate payout policies in one of the largest emerging markets – India. It also examines the motives for mimicking payout…

Abstract

Purpose

This study aims to investigate the effects of peers on corporate payout policies in one of the largest emerging markets – India. It also examines the motives for mimicking payout decisions.

Design/methodology/approach

The sample is composed of 3,024 non-financial and non-government firms listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) for the period 1995 to 2020. To encounter the endogeneity problem, the instrumental variable technique based on peer firms' idiosyncratic risk is used to estimate the effects of peers on firms' payout policy. To define peer reference groups, the authors use the basic industry classification of the firms.

Findings

The results indicate a significant positive impact of peers on firms' dividend policies in India. A firm with all dividend-paying peers is more likely to declare dividends than the one with no dividend-paying peers. Further, peer effects are found to be more pronounced amongst larger and older firms, thus supporting the rivalry theory of mimicking.

Originality/value

To the best of the authors' knowledge, the present study is the first of its kind that attempts to understand peer effects on payout decisions in an emerging market India, that offers a unique institutional setting. Moreover, the authors extend the existing literature by investigating the peer effects on a firm's payout policies considering various firm-level characteristics, such as growth opportunity, cash holding, financial constraint and profitability, which previous studies have not taken into consideration. These results provide additional insights into the heterogeneity and motives behind peer effects.

Details

International Journal of Managerial Finance, vol. 20 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 15 March 2024

Emmanuel Mamatzakis and Mike Tsionas

This study proposes a new model to measure unexpected core earnings, using Bayesian dynamic latent method.

Abstract

Purpose

This study proposes a new model to measure unexpected core earnings, using Bayesian dynamic latent method.

Design/methodology/approach

The Bayesian dynamic latent modeling approach identifies the effects that stem from complex, multidimensional variables related to culture and legal framework, on unexpected core earnings. It also allows testing whether there is persistence over time in unexpected core earnings. We use sequential Bayesian Monte Carlo methods, also known as particle filtering, that simplify estimations.

Findings

In an international empirical application, we find evidence of persistence in unexpected core earnings as well as classification shifting. The impact of the legal framework on classification shifting shows variability across samples. Religion reduces classification shifting, whereas the cultural variables of power distance, masculinity and uncertainty avoidance enhances it. Interestingly, the persistence in unexpected core earnings is strong and moderates the ability of legal framework and religion in abating classification shifting.

Research limitations/implications

In terms of policy implications, we show that strengthening legal framework would improve financial reporting and reduce the scope for manipulation. This could involve stricter enforcement mechanisms, increased penalties for non-compliance and regular audits to detect and deter classification shifting practices. Given that religion plays a role in moderating classification shifting, policymakers may explore partnerships or collaborations with religious institutions to promote ethical financial practices. Engaging religious leaders and organizations can help emphasize the importance of integrity and ethical behavior in financial reporting, potentially influencing the behavior of individuals and organizations.

Originality/value

To the best of our knowledge this is the first study that opts for Bayesian dynamic latent model for an international sample.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

Keywords

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