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Article
Publication date: 15 July 2021

Kyung Soon Kim and Yun W. Park

Existing studies show that firms may have an incentive to use share repurchases opportunistically, thereby taking advantage of market participants’ confirmation bias that…

Abstract

Purpose

Existing studies show that firms may have an incentive to use share repurchases opportunistically, thereby taking advantage of market participants’ confirmation bias that share repurchase is a signal of undervaluation. This study aims to investigate whether signaling costs and accounting transparency can serve as tools to identify opportunistic share repurchases.

Design/methodology/approach

The authors measure signaling costs by using two share repurchase methods (direct and indirect share repurchase) with different share repurchase costs, and measure accounting transparency using the history of earnings timeliness. The authors further measure long-term performance following share repurchases using operating performance and stock returns. Lastly, the authors compare the long-term performances between the groups defined by share repurchase method and earnings timeliness level.

Findings

The authors find that indirect share repurchase firms with a history of poor earnings timeliness experience unfavorable long-term performance, while other share repurchase firms do not. This finding reinforces the view that some share repurchases may be driven by managerial opportunism. In particular, when firms with a history of poor earnings-reporting behavior choose a low-cost repurchase method, their share repurchases may be motivated by managerial opportunism.

Originality/value

The findings suggest that past earnings timeliness and the signaling costs of a repurchase together are useful predictors of false signaling. Moreover, they suggest that investors can – at least in part – predict opportunistic share repurchases by using signaling costs and accounting transparency.

Article
Publication date: 10 April 2018

Gun Jea Yu and Joonkyum Lee

The purpose of this paper is to investigate the contrasting moderating effect of a firm’s exploration on the relationship between the two types of long-term incentives…

Abstract

Purpose

The purpose of this paper is to investigate the contrasting moderating effect of a firm’s exploration on the relationship between the two types of long-term incentives (stock options/stock ownership) for the chief executive officers and a firm’s long-term performance. Even though the two types of incentives are designed to improve long-term performance, the degrees of impact on long-term performance differ. Based on behavioral agency theory, this study theoretically and empirically examines the role of a firm’s exploration on the above relationship.

Design/methodology/approach

This study used three archival sources to obtain data on stock options, stock ownership, patents and exploration, financial measures, and others. Based on a sample of 1,963 firms in various industries from 1995 to 2006, this study tested the moderating effect of a firm’s exploration on the relationship between stock options/ownership and a firm’s performance.

Findings

This study reveals the contrasting moderating effect of a firm’s exploration on the relationship between stock options/ownership and a firm’s long-term performance: a positive moderating effect on the relationship between stock options and performance and a negative moderating effect on the relationship between stock ownership and performance. In addition, empirical evidence was added on the inverted U-shaped relationship between stock ownership and a firm’s long-term performance.

Originality/value

There is little research on a firm’s internal characteristics that strengthen or weaken the effects of stock options and stock ownership on firm performance. This study demonstrates the differential moderating effects of exploration on the relationship between stock options/stock ownership and long-term performance. Such effects of exploration come from the different risk features of stock options and stock ownership. The key implication is that stock options could be more effective than stock ownership to enhance a firm’s long-term performance when a firm has a strong exploration orientation.

Details

Management Decision, vol. 56 no. 9
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 4 July 2018

Won-Seok Woo, Suhyun Cho, Kyung-Hee Park and Jinho Byun

This paper aims to investigate the causes of mergers and acquisitions (M&A) deals that acquiring firms pay excess premium beyond the market-expected level and examine the…

Abstract

Purpose

This paper aims to investigate the causes of mergers and acquisitions (M&A) deals that acquiring firms pay excess premium beyond the market-expected level and examine the relation between the announcement return and long-term performance of the acquiring firms.

Design/methodology/approach

Based on a sample of 1,767 US firms’ M&A deals from 2000 to 2014, the authors use the expectation model used by Ang and Ismail (2015) to measure normal offer premium in an M&A deal. They conduct the standard event study methodology to observe the market reaction for acquiring companies on the announcement day. Buy-and-hold abnormal returns are used for the main explanatory variable so as to find the impact of the premium paid on the long-term performance of the acquirer.

Findings

First, acquiring firms are faced with negative market returns when acquiring firms pay excess premiums. Second, poor long-term performance of the acquiring firms is observed if acquiring firms pay excess premium. Finally, the negative relation between excess premium and acquiring firms’ long-term performance weakens, as the sample period becomes longer.

Research limitations/implications

The hypotheses and results of the empirical study are as follows. First, the acquirer’s market reaction on the announcement day is negative when it pays an excess offer premium. This is because the market perceives the premium to be greater than the value of the deal, which damages the value of the market, as it is not perceived as a proxy for future synergy. Second, the acquirer’s long-term performance is low when it pays the excess offer premium. It is the same result as the acquirer’s market reaction on the announcement day. This shows that the excess premium does not result in either a short-term positive reaction or a long-term profit for the acquiring shareholders. However, it is found that the relationship between the excess premium and the long-term performance of the acquirer decreases with time. This is because the long-term performance of the acquirer is more affected by management and other events after the deal.

Originality/value

The authors divide the total premium paid into the normal offer premium and the excess premium, and their focus is on the excess premium part. The main contribution of this paper is that it analyzes how the excess premium affects the market reaction on the announcement day and the long-term performance of acquiring firms.

Details

Studies in Economics and Finance, vol. 35 no. 3
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 1 May 1997

Krishna R. Kumar

Factors associated with the use of long‐term plans in management compensation contracts and the choice between earnings‐based performance plans and market‐based long‐term

Abstract

Factors associated with the use of long‐term plans in management compensation contracts and the choice between earnings‐based performance plans and market‐based long‐term plans are examined. Results indicate the firms using long‐term plans are large, have diffuse ownership and more long‐term growth. Furthermore, performance plans are more likely to be used when stock‐return variability is high relative to earnings variability. Firms using performance plans are also larger and have more diffuse ownership than firms with market‐based plans alone. Overall, the evidence is consistent with long‐term plans serving as incentive alignment mechanisms.

Details

Managerial Finance, vol. 23 no. 5
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 1 January 2004

J.H. von Eije, M.C. de Witte and A.H. van der Zwaan

Mainstream literature on long‐term performance of initial public offerings focuses on long‐term underperformance. Because underperformance is an anomalous phenomenon, many…

804

Abstract

Mainstream literature on long‐term performance of initial public offerings focuses on long‐term underperformance. Because underperformance is an anomalous phenomenon, many authors search for explanations based on financial market imperfections. More recently, however, the attention shifts from underperformance to long‐term performance in general. This induces the search for other than financial market imperfections in explaining under‐ or outperformance. This article presents the idea that in many companies the preparation for the IPO and the IPO itself may bring organizational change. It searches for IPO‐related organizational change in The Netherlands with interviews of Dutch corporate officers. The research shows that an IPO primarily changes financial management and financial reporting, but that other types of organizational change may also be relevant. Moreover, long‐term stock market performance was on average higher in companies where IPO‐related organizational changes were reported than in companies where the changes were not reported.

Details

Managerial Finance, vol. 30 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 July 2004

Nicholas O'Regan and Abby Ghobadian

Contrary to popular belief, managing short‐term performance differs significantly from managing long‐term performance. It is not an extension of short‐term performance

2982

Abstract

Contrary to popular belief, managing short‐term performance differs significantly from managing long‐term performance. It is not an extension of short‐term performance over a longer‐term time frame. This paper examines the steps of managing performance from the context of organisational factors. The analysis indicates a dramatic picture as the improvement of short and long‐term performance is driven by distinctly different attributes of strategy, leadership, culture and organisational capability. The difference in all cases indicates that attributes that are perceived as “internally orientated” are associated with improving short‐term performance, whereas attributes that are commonly perceived as “externally orientated” are associated with improving long‐term performance. These findings will be helpful to managers focusing on improving their firm's performance in the short or long term and enable them to focus on the attributes of each of the factors examined that help the achievement of the performance targets set.

Details

International Journal of Productivity and Performance Management, vol. 53 no. 5
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 1 August 1996

Barbara Brockie Leonard and Chandrasekhar Mishra

Long‐term performance contracts are awarded to top management in order to provide incentives to maximize shareholder value. We test the incentive hypothesis using 350…

Abstract

Long‐term performance contracts are awarded to top management in order to provide incentives to maximize shareholder value. We test the incentive hypothesis using 350 firms, one half of which has adopted long‐term performance plans over the period 1971–80. The analysis uses performance indicators such as earnings per share (EPS), rate of return on assets (ROA), rate of return on equity (ROE), rate of return on investment (ROI), and stock returns (ASR). In addition to using a control group of firms that did not adopt plans, the test period consists of a control period (six years prior to plan adoption) and a test period (six years following plan adoption). The results support the incentive hypothesis in that all performance indicators for the test firms improved compared to prior performance, but the performance of test firms in the period subsequent to plan adoption when compared to the control firms was not significantly different.

Details

Managerial Finance, vol. 22 no. 8
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 15 February 2022

Suparak Suriyankietkaew

Today’s small enterprises are forced to rethink their business-as-usual management and shift toward corporate sustainability. The empirical paper responds to a crucial…

Abstract

Purpose

Today’s small enterprises are forced to rethink their business-as-usual management and shift toward corporate sustainability. The empirical paper responds to a crucial quest for many modern leaders and entrepreneurs, specifically small business owners in emerging economies. This paper aims to answer what they can do to increase long-term financial performance and enhance stakeholder satisfaction, thereby contributing to long-term business sustainability.

Design/methodology/approach

Using a convenience sampling, data were collected from a sample of 280 business leaders and entrepreneurs of small enterprises across industries in an emerging economy of Thailand. This study used a sustainable leadership research framework. Factor analysis and multiple regression analysis were used for data analysis.

Findings

Seven valid and reliable leadership factors were uncovered as new underlying leadership constructs to examine business sustainability in small entrepreneurial enterprises in Thailand. Results from multiple regressions revealed two significantly positive factors or drivers (i.e. trusting, innovative team orientation and strong, shared vision) for enhanced two sustainability performance outcomes (i.e. financial performance and stakeholder satisfaction). The findings thus contribute to advance our limited knowledge about the contextualised constructs and possible theoretical development of the developing research realm.

Research limitations/implications

Successful small entrepreneurial organisations in Thailand and other emerging economies that wish to improve their business sustainability are suggested to adopt the essential leadership and management practices (i.e. trusting, innovative team and strong, shared vision). Future studies may examine data from a larger sample size and other countries to expand our limited understanding in different contexts.

Practical implications

The resulting practical insights can be used to guide business leaders, entrepreneurs, practitioners and policymakers towards making strategic priorities and investments for improved business competitiveness, resilience and sustainability in small entrepreneurial enterprises. Overall, this study may be a starting point for further investigation on developing entrepreneurial growth and business sustainability in small sustainable enterprises across emerging economies.

Originality/value

The paper responds to calls for more contextualised research studies in the evolving multidisciplinary field of entrepreneurial leadership and business sustainability, particularly in an emerging economy of Thailand. It also unveils the essential strategic leadership factors that positively drive business sustainability in small entrepreneurial firms. And, it empirically examines the effects of diverse strategic leadership factors and multiple sustainability performance outcomes in a single study. It further proposes an emergent leadership-performance model for entrepreneurial business sustainability in the context-specific study. Above all, it advances the currently limited empirical knowledge in the emerging research front towards more sustainable futures.

Details

Journal of Entrepreneurship in Emerging Economies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2053-4604

Keywords

Article
Publication date: 1 February 2000

Rosalind Whiting and Simon Gilkison

This study tests the relationship between financial leverage and a firm's operational and financial short term responses to poor performance, based on Jensen's (1989…

Abstract

This study tests the relationship between financial leverage and a firm's operational and financial short term responses to poor performance, based on Jensen's (1989) argument that higher predistress leverage increases a firm's incentive to respond more quickly to poor performance. This research is conducted on a sample of 45 poorly performing New Zealand firms between 1985 and 1994. The results indicate that higher leverage increases the probability of firms taking action in the short term. In particular, the evidence suggests that the probability of asset sales is positively associated with long‐term leverage, in addition to its relationship with the firm's stock return. Increased probability of management replacement is related to higher levels of short‐term leverage and surprisingly, the probability of dividend cuts decrease with higher levels of total and short‐term leverage. Poorly performing firms with higher leverage also appear to cut asset levels and dividends more aggressively than those with lower leverage levels.

Details

Pacific Accounting Review, vol. 12 no. 2
Type: Research Article
ISSN: 0114-0582

Book part
Publication date: 8 April 2010

Terhi Chakhovich, Seppo Ikäheimo and Tomi Seppälä

Purpose – This research presents empirical evidence on which performance measures are perceived as short-term oriented and long-term oriented by company executives, and on…

Abstract

Purpose – This research presents empirical evidence on which performance measures are perceived as short-term oriented and long-term oriented by company executives, and on whether any perceived performance measure-related time orientation affects the time orientation of these executives. In addition, the study explores which measures impact executive time orientation, regardless of how these measures are perceived.

Methodology/approach – A survey was used to collect the perceptions of chief financial officers (CFOs) in 109 companies listed in the Nasdaq OMX, the Nordic Stock Exchange. Performance measures include: stock price, earnings, returns, cash flow, success of development programs, EVA™, sales, and balanced scorecard, and the method employed was multiple regression.

Findings – First, the CFOs perceived returns, sales, EPS, and stock price to have long time orientation. Second, the use of returns, stock price, and success of development programs as major performance measures encourage the CFOs toward long-term behavior, whereas the use of cash flow encourages short-term behavior. Third, stock price, earnings, and EPS are measures whose perceived time orientation affects the time orientation of executives. It is most likely due to this influence, that they have received major attention in public debates on the short time orientation of executives at the expense of other, more “silent” measures that also impact executive time orientation. Contextual factors strongly affect the results.

Practical implications – The study assists in designing executive performance measurement systems that encourage desired time orientation.

Originality/value – This study contributes to the fields of performance measurement and time orientation by recognizing the multidimensionality of the construct of time orientation and by showing how performance measures and their perceived time orientation influence executive time orientation.

Details

Performance Measurement and Management Control: Innovative Concepts and Practices
Type: Book
ISBN: 978-1-84950-725-7

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