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Article
Publication date: 4 October 2011

Jun Su and Yuefan Sun

The purpose of this paper is to test the effect of informal finance and trade credit on the performance of private firms.

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Abstract

Purpose

The purpose of this paper is to test the effect of informal finance and trade credit on the performance of private firms.

Design/methodology/approach

Based on a survey to private firms in 19 cities, the paper empirically tests the promoting effects of informal finance and trade credit on the performance of private firms in China.

Findings

It was found that informal finance and trade credit have positive effects on private firms' performance measured by ROA. The net income reinvestment rate of private firms is positively related to whether or not the firm adopts informal financing or trade credit financing. A private firm having limited access to formal finance is more inclined to rely on self‐funds and is more limited by financing choices. Informal financing and trade credit can relieve the tension of cash flow chain but cannot solve the financing constraints. The empirical results also show that bank credit is still not the main financing choice for private firms and has not yet played a promoting role in private firms' performance and growth. Informal finance is more important to promote performance in manufacturing industry, while trade credit is more effective in wholesale and trading industry. The results show the coexistence viability of informal financing channels and formal financial institutions in China.

Practical implications

The policy implication is the Chinese Government should take careful steps to regulate informal financing sources.

Originality/value

After some theoretical literature, such as Lin and Sun, this paper explores for the first time the effect of informal financing channels on the performance of private firms.

Details

Nankai Business Review International, vol. 2 no. 4
Type: Research Article
ISSN: 2040-8749

Keywords

Article
Publication date: 3 August 2020

Hongyan Yang, H. Kevin Steensma and Ting Ren

This paper aims to study how state ownership influences the innovation process in terms of allocating resources toward searching for new solutions and converting these…

Abstract

Purpose

This paper aims to study how state ownership influences the innovation process in terms of allocating resources toward searching for new solutions and converting these efforts into economic value. On one hand, deep pockets of the state provide slack resources that may facilitate risk taking and innovation. On the other hand, soft budgets can create incentive problems and dampen the efficient use of resources. The authors suggest how accounting for competitive context can disentangle these countervailing forces.

Design/methodology/approach

The authors use a panel of over 240,000 Chinese firms over the years 2004–2008. The broad sample and period afforded substantial variability in terms of state ownership within and across firms. The authors use a two-stage model and a within-firm (i.e. fixed-effects) design, controlling for all time-invariant firm characteristics and the problematic unobserved heterogeneity that can often lead to erroneous inferences. Furthermore, the relatively short window limits the likelihood of time-varying unobserved firm characteristics biasing the empirical results.

Findings

The authors found that private-sector competition has the opposite effect on the relationship between state ownership and the second step of the innovation process. In industries where there is robust private-sector competition, state ownership diminishes the firm’s ability to convert R&D efforts into economic value. Private-sector competition competes away any advantages state-owned firms may have in terms of developing or accessing the complementary resources needed for commercialization. Ultimately, the inefficiencies of state ownership in terms of relatively undisciplined selection and monitoring of R&D activities outweigh any potential resource advantages derived from state ownership.

Originality/value

The state remains a prominent player in many economies throughout the world. The authors explored how state ownership of firms influences the resources they expend in searching out new solutions, and their success in converting such resources into economically valuable new products and services. State ownership has potentially countervailing effects on innovation. The authors disentangle these countervailing effects through consideration of how accounting for competitive context could determine whether the beneficial effects of state ownership dominate its detrimental effects for both searching for new solutions and converting these efforts into economically valuable new products. With a focus of market competition as an external force that drives the difference in innovation between SOEs and the private-sector, this study serves as a parallel effort to Jia et al. (2019) who investigate the joint effect of public and corporate governance on SOEs’ innovation performance, and Zhou et al. (2017) who concern the balance of the institution and efficiency logics on the comparative advantage of SOEs over privately owned enterprises in innovation performance.

Details

Competitiveness Review: An International Business Journal , vol. 31 no. 4
Type: Research Article
ISSN: 1059-5422

Keywords

Open Access
Article
Publication date: 15 December 2021

Thai-Ha Le, Donghyun Park and Cynthia Castillejos-Petalcorin

This policy paper compares the performance of state-owned enterprise (SOEs) versus private firms in selected emerging economies in Asia, focusing on a number of…

1988

Abstract

Purpose

This policy paper compares the performance of state-owned enterprise (SOEs) versus private firms in selected emerging economies in Asia, focusing on a number of performance indicators. The indicators are internationally recognized quality innovation, product and/or service innovation, financing of operations, dealing with government regulations and labor performance. To the best of the authors’ knowledge, there has been no such comparative study for these indicators between SOEs and private firms and across countries. Most studies of SOEs have been national case studies. As such, they give us little knowledge of how a country compares with other countries at similar stages of economic development. A cross-country comparative analysis can help us identify broader trends and patterns.

Design/methodology/approach

The authors compare and discuss the performance of SOEs versus private firms in a number of emerging Asian countries, namely China, India, Indonesia, Malaysia and Vietnam. To do so, the authors use data from the 2018 World Bank Enterprise Survey (which is the latest available) for the period 2012–2015. The authors focus on a number of key performance indicators, namely internationally recognized quality innovation, product and/or service innovation, financing of operations, dealing with government regulations and labor performance.

Findings

The comparative analysis uncovers some interesting differences between the two types of firms. For example, somewhat surprisingly, SOEs tend to innovate more than private firms. However, the single most significant pattern the authors find is that in middle-income Asia both types of firms face formidable challenges with respect to doing business – e.g. scarcity of relevant training programs for employees. Therefore, the priority of policymakers must be to improve the overall business environment for all firms, regardless of their ownership structure.

Research limitations/implications

The nature of this paper is a policy paper. This is because the data used in this study is survey data, conducted every four–five years (or more) for each country in the study and available for very few countries. As the data are not available for a continuous period of time, The authors could not conduct empirical research for this topic and thus made it a policy paper that presents a comparison across Asian countries as case studies.

Originality/value

The five selected Asian countries are interesting case studies for a comparative analysis since they are middle-income countries where SOEs play a significant role in the economy. Furthermore, state ownership is an important institutional dimension in emerging markets, and strong ties with the government can influence the performance of SOEs through various market and non-market channels. Despite the potential importance of the research theme, there is very little existing research on cross-country comparisons of the performance of SOEs vis-à-vis private firms. This could be explained by scarce data availability. With this in mind, the study attempts to shed some light on SOEs' performance and add to the rather limited literature.

Details

Journal of Asian Business and Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2515-964X

Keywords

Article
Publication date: 18 February 2022

Emmanuel Adu-Ameyaw, Albert Danso, Linda Hickson and Theophilus Lartey

This study provides a large sample comparison of research and development (R&D) spending intensity in private and public firms and the extent to which these firms' unique…

Abstract

Purpose

This study provides a large sample comparison of research and development (R&D) spending intensity in private and public firms and the extent to which these firms' unique characteristics affect their R&D spending rate.

Design/methodology/approach

The study compares both private and public data from UK firms for the period 2006–2016, generating a total matched 232,029 firm-year observations, and applies a probability model technique to our large panel datasets.

Findings

The authors uncover that private firms show lower R&D spending intensity compared to their public counterparts. The authors evidence also shows that privately owned firms in the technological (non-technological) sector display higher (lower) probability of R&D spending intensity. Compared with public firms, the authors further observe that the intensity of private firms' R&D spending increases with higher internal cash flow, leverage and industry information quality. The authors results remain robust to alternative econometric models.

Research limitations/implications

Despite the findings of this study, the authors would like to point out that the use of a single country's data limits the generalisability of our findings. Thus, future studies may also consider extending this study across multiple countries.

Practical implications

A key implication of our study is that private firms are more likely to finance R&D intensity from the internally generated cash flow compared to the public ones. This stems from the fact that private firms are more likely to experience higher costs in raising external finance for innovative activities than public firms. Thus, easy access to funding for private firms is vital for enhancing R&D activities of the private firms.

Originality/value

By combining both private and public firms' datasets, the authors are able to provide new evidence to suggest that the intensity of private firms' R&D spending is dependent on internal cash flow, leverage and the industry information level. In fact, to the best of the authors’ knowledge, this is the first study that explores these relationships.

Details

Journal of Applied Accounting Research, vol. 23 no. 4
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 23 November 2021

Zhu Zhang, Jiaqi Xue and Baoxin Qi

This study aims to investigate the role of network in affecting private firms’ internationalization decision. Specifically, it investigates the way that business ties…

Abstract

Purpose

This study aims to investigate the role of network in affecting private firms’ internationalization decision. Specifically, it investigates the way that business ties, political ties and status influence an internationalization decision.

Design/methodology/approach

On the basis of the survey data collected from Chinese private firms, this study distinguishes business ties from political ties and introduces network status. Binary logistic regression is used to test the hypotheses.

Findings

Results show that private firms that have business ties are more likely to internationalize, whereas private firms that have political ties are less likely to internationalize. High-status private firms are more likely to internationalize. Political ties negatively moderate the relationship between business ties and internationalization. High-status firms with political ties are more likely to internationalize.

Originality/value

This study provides theoretical and practical contributions. Results complement previous research on social networks in the context of Chinese private firms and have implications for managers who exert effort to internationalize their firms.

Details

Chinese Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1750-614X

Keywords

Article
Publication date: 16 August 2011

Abdul Rashid

The purpose of this paper is to empirically examine the extent at which idiosyncratic and financial market uncertainty affect the UK private manufacturing firms'…

1057

Abstract

Purpose

The purpose of this paper is to empirically examine the extent at which idiosyncratic and financial market uncertainty affect the UK private manufacturing firms' investment decisions.

Design/methodology/approach

A firm‐level panel data covering the period from 1999 to 2008 drawn from the Financial Analysis Made Easy database was analyzed using the system‐generalized method of moments (GMM) technique to purge time‐invariant unobserved firm‐specific effects and to mitigate the potential endogeneity issues.

Findings

The results from the two‐step robust system‐GMM estimation indicate that firms significantly reduce their capital investment expenditures when uncertainty (measured by either form) increases. The findings also reveal that private firms' investment is more sensitive to idiosyncratic uncertainty than to financial market uncertainty. The results related to firm characteristics suggest that the firm‐specific variables such as debt‐to‐assets ratio, growth of sales and cash flow‐to‐assets ratio are also important in the determination of private firms' investment. The sensitivity analysis confirms that the findings are robust to an alternative method of estimation as well as to an alternative measure of idiosyncratic uncertainty.

Practical implications

The findings of the paper are useful for firms' investment decisions and authorities in designing effective fiscal and monetary policies.

Originality/value

The main value of this study is to investigate the effects of both idiosyncratic and financial market uncertainty on the investment decisions of private limited manufacturing firms.

Details

The Journal of Risk Finance, vol. 12 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

Open Access
Article
Publication date: 17 August 2021

Esteban Lafuente and Miguel Á. García-Cestona

This paper investigates how past performance changes, prior CEO replacements and changes in the chairperson impact CEO turnover in public and large private businesses.

Abstract

Purpose

This paper investigates how past performance changes, prior CEO replacements and changes in the chairperson impact CEO turnover in public and large private businesses.

Design/methodology/approach

We analyze 1,679 CEO replacements documented in a sample of 1,493 Spanish public and private firms during 1998–2004 by computing dynamic binary choice models that control for endogeneity in CEO turnovers.

Findings

The results reveal that different performance horizons (short- and long-term) explain the dissimilar rate of CEO turnover between public and private firms. Private firms exercise monitoring patience and path dependency characterizes the evaluation of CEOs, while public companies' short-termism leads to higher CEO turnover rates as a reaction to poor short-term economic results, and alternative controls—ownership and changes in the chairperson—improve the monitoring of management.

Originality/value

Our results show the importance of controlling for path dependency to examine more accurately top executives' performance. The findings confirm that exposure to market controls affects the functioning of internal controls in evaluating CEOs and shows a short-term performance horizon that could be behind the recent moves of public firms going private or restraining shareholders' power.

Details

Journal of Economics, Finance and Administrative Science, vol. 26 no. 52
Type: Research Article
ISSN: 2218-0648

Keywords

Article
Publication date: 15 November 2021

Ronny Prabowo, Usil Sis Sucahyo, Theresia Woro Damayanti and Supramono Supramono

The research aims to investigate the moderating role of secrecy culture on the effect of tax enforcement on the likelihood that private firms hire external auditors.

Abstract

Purpose

The research aims to investigate the moderating role of secrecy culture on the effect of tax enforcement on the likelihood that private firms hire external auditors.

Design/methodology/approach

The study generates more than 70,000 observations from 83 country-years from the World Bank Enterprise Survey 2018 dataset. Because the study focuses on private firms in emerging countries, data on publicly listed firms and firms from OECD (Organisation for Economic Co-operation and Development) countries are deleted. The secrecy culture data are generated from Hofstede's website. The data are then analyzed with logit analyses because the dependent variable is binary.

Findings

The results demonstrate that tax enforcement increases the likelihood that private firms hire external auditors. Further, secrecy culture weakens the relationship between tax enforcement and audit demand.

Practical implications

Governments in emerging countries need to encourage private firms to hire external auditors by intensifying tax enforcement because private firms often do not appreciate the importance of high-quality financial statements. However, secretive national culture may reduce tax enforcement's effectiveness in motivating private firms to hire external auditors. Hence, governments of highly secretive countries need to address this issue and find alternative ways to promote audited financial statements.

Originality/value

Audit demand of private firms in emerging countries is relatively understudied, especially concerning tax enforcement. Furthermore, the research also focuses on the moderating role of national culture (secrecy) in explaining the relationship between tax enforcement and audit demand.

Details

Journal of Accounting in Emerging Economies, vol. 12 no. 3
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 30 August 2018

Shaista Wasiuzzaman and Nabila Nurdin

The purpose of this paper is to examine the various factors that influence a small and medium enterprise’s (SME) decision to apply for bank loans.

2019

Abstract

Purpose

The purpose of this paper is to examine the various factors that influence a small and medium enterprise’s (SME) decision to apply for bank loans.

Design/methodology/approach

Data from survey responses of 145 SMEs from Selangor and the Federal Territory of Kuala Lumpur are used for this purpose. Exploratory factor analysis, logistic regression and SEM-PLS are used to analyze the data.

Findings

The findings from the survey show that an SME’s financial performance, its access to finance and its legal form play a significant positive role in its decision to apply for debt financing. Private limited SMEs that perform well and are able to access to various financing options are more likely to apply for financing. However, there is also evidence of a significant negative influence of credit history on the decision to apply for financing, as SMEs with a poor credit history are more likely to apply for financing. The age of an SME has weak influence while its size is found to be insignificant in influencing its decision to apply for financing.

Originality/value

The results imply the role of financial market imperfections such as adverse selection and information asymmetry in defining the SME’s demand for debt financing. The study contributes to a deeper understanding of the debt financing decisions of SMEs.

Details

International Journal of Bank Marketing, vol. 37 no. 1
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 11 September 2017

Dennis Sundvik

The purpose of this paper is to examine three different responses to the Finnish 2005 tax reform that, among other things, reduced the corporate tax rate and hiked…

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Abstract

Purpose

The purpose of this paper is to examine three different responses to the Finnish 2005 tax reform that, among other things, reduced the corporate tax rate and hiked dividend taxation. Focus lies on the factors influencing the decision to change the fiscal year-end and whether earnings management is more prevalent when the decision is not taken.

Design/methodology/approach

This study uses the financial statement data of Finnish private firms and studies 350 fiscal year-end changing firms and 700 non-changing firms with logistic and linear regression analysis. Discretionary accruals are the proxy for earnings management.

Findings

The results suggest that firms seize the window of opportunity and extend fiscal years depending on the magnitude of the expected tax savings. Firms that do not change their fiscal year-end engage in more tax-induced earnings management. In terms of economic consequences, the earnings management approach is less economically significant.

Research limitations/implications

This study only examines a limited number of firms that change their fiscal year-end, hence, care has been exercised in generalising the findings.

Practical implications

The findings may be considered when structuring future tax reforms, particularly when considering transition rules relating to changes in fiscal year-ends. The study may also have implications beyond tax reforms since the evidence of opportunistic changes in the fiscal year-end can be informative for tax authorities, independent auditors and creditors.

Originality/value

This study contributes to the relatively scarce literature on private firm responses to tax policy changes by analysing both upward and downward earnings management, as well as changes in the fiscal year-end. This is in contrast to previous research that mainly focusses on listed firms and absolute earnings management or earnings management in one direction.

Details

Journal of Applied Accounting Research, vol. 18 no. 3
Type: Research Article
ISSN: 0967-5426

Keywords

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