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1 – 10 of 210Muhammad Ansar Majeed and Xian-zhi Zhang
This study aims to examine the impact of product market competition (PMC) from existing rivals and potential market entrants on earnings quality (EQ) in China.
Abstract
Purpose
This study aims to examine the impact of product market competition (PMC) from existing rivals and potential market entrants on earnings quality (EQ) in China.
Design/methodology/approach
This study examines the impact of PMC on EQ by using the EQ measure of Kothari et al. (2005), and it uses measures for competition from existing and potential rivals. This study analyzed Chinese firms for the period of 2000-2014 and also examined the impact of International Financial Reporting Standards (IFRS) adoption and state ownership on the relationship between PMC and EQ.
Findings
This study found a positive relationship between PMC and EQ. It also documents that competition from existing rivals does not improve EQ by reducing real activity manipulation, but competition from potential entrants does. The findings propose that market competition from existing rivals is a relevant factor for determining EQ before and after IFRS adoption, but competition from potential entrants improves EQ only after IFRS adoption. Moreover, the results suggest that market competition plays no role in improving the EQ of state-owned enterprises (SOEs).
Originality/value
The results support the argument that PMC acts as a governance mechanism and influences managerial decisions regarding financial reporting. Our study also helps to understand the impact of change in the regulatory regime, i.e. IFRS adoption, on the relationship between PMC and EQ. This study also helps demonstrate the impact of competition on management decisions with respect to the EQ of SOEs.
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Li Liu, Wen Qu and Janto Haman
The purpose of this paper is to examine the association between firm performance and product market competition (PMC), and then examine the mitigation effect of corporate…
Abstract
Purpose
The purpose of this paper is to examine the association between firm performance and product market competition (PMC), and then examine the mitigation effect of corporate governance and/or state-ownership (SOEs) in the association between PMC and firm performance using Chinese listed firms.
Design/methodology/approach
The authors consider three determinants of the PMC that affect the nature of competition, and use market concentration, product substitutability and market size as proxies for PMC. The authors construct a corporate governance index which measures the extent of board independence, monitoring strength of supervisory board over board of directors, and monitoring strength of board of directors over CEO. The authors use Tobin’s Q as a proxy for firm performance. The authors use a sample of 20,706 firm-year observations listed on the Chinese stock market between 2001 and 2016 to empirically investigate the research questions proposed in the paper.
Findings
The authors find that higher PMC is associated with lower firm performance. The authors find that good corporate governance practices moderate the negative effect of higher PMC on firm performance. The association between higher PMC and lower performance is weaker for firms controlled by SOEs compared to non-SOEs. Further, the moderation effect of SOEs on the association between higher PMC and lower performance is more pronounced for firms with good corporate governance practices compared to firms with weak corporate governance practices.
Originality/value
Extant studies investigating the relationship between PMC and corporate governance suggest an either complementary or substitution relationship in developed economies. Our study highlights the interactive role played by SOEs and good corporate governance practices in firm performance in highly competitive product markets in an emerging economy. The findings provide insightful information to regulators of other emerging countries that SOEs with good corporate governance practices can play an important role in the economy by mitigating the negative effect of higher PMC on firm performance.
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Khairul Anuar Kamarudin, Wan Adibah Wan Ismail, Larelle Chapple and Thu Phuong Truong
This study aims to examine the effects of product market competition (PMC) on analysts’ earnings forecast attributes, particularly forecast accuracy and dispersion. The authors…
Abstract
Purpose
This study aims to examine the effects of product market competition (PMC) on analysts’ earnings forecast attributes, particularly forecast accuracy and dispersion. The authors also investigate whether investor protection moderates the relationship between PMC and forecast attributes.
Design/methodology/approach
The sample covers 49,578 firm-year observations from 38 countries. This study uses an ordinary least squares regression, a Heckman two-stage regression and an instrumental two-stage least squares regression.
Findings
This study finds that PMC is associated with higher forecast accuracy and lower dispersion. The results also show that investor protection enhances the effect of PMC on forecast accuracy and dispersion. These findings imply that countries with strong investor protection have a better information environment, as exhibited by the stronger relationship between PMC and analysts’ forecast properties.
Practical implications
The findings highlight the importance of strong governance mechanisms in both the country and industry environments. Policymakers, including government agencies and financial regulators, can leverage these insights to formulate regulations that promote competition, ensure investor protection and facilitate informed investment decisions.
Originality/value
This study advances our understanding of how PMC affects analysts’ earnings forecast attributes. In addition, it pioneers evidence of the moderating role of investor protection in the relationship between PMC and forecast attributes.
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Khairul Anuar Kamarudin, Akmalia Mohamad Ariff and Wan Adibah Wan Ismail
This paper aims to investigate the joint effect of product market competition (PMC) and institutional environment on accrual quality.
Abstract
Purpose
This paper aims to investigate the joint effect of product market competition (PMC) and institutional environment on accrual quality.
Design/methodology/approach
The sample covers a large data set of 52,138 firm-year observations from 35 countries over the period of 2011-2015. Using the weighted least square regression, the study estimates PMC and institutional environment on accrual quality. The study measures PMC based on Herfindahl-Hirschman index, anti-director rights index (ADRI) based on the revised and updated La Porta et al.'s (1998) and accrual quality using the modified Dechow and Dichev (2002) model proposed by McNichols (2002). The study also uses a series of specification tests using alternative measures for each variable.
Findings
The study finds that highly intensified PMC relates to a lower quality of accruals. The results also show that accrual quality is better in countries with stronger institutional environment, specifically countries with higher ADRI, investor protection, judicial independence, protection of minority shareholders’ interests, protection of property rights, strength of the auditing and reporting standards, efficacy of corporate boards and corporate ethics. The findings suggest that institutional factors weaken the negative impact of PMC intensity on accrual quality, hence suggesting that institutional environment has a significant role to enhance accrual quality among firms in highly intensified industries.
Practical implications
The findings provide additional insights to policymakers and regulators on the importance of strong institutional and industry environment that can provide incentives and extra governance mechanisms besides the conventional firm-level corporate governance.
Originality/value
This study contributes in understanding the impact of intensity of PMC on accrual quality internationally and subsequently highlights the role of institutional environment as significant country-level governance in determining financial reporting quality, particularly accrual quality.
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Zhenbo Zhang, Yuxuan Zhang and Mengfan Yan
This paper aims to explore the impact of product market competition (PMC) on companies’ investment in external auditing.
Abstract
Purpose
This paper aims to explore the impact of product market competition (PMC) on companies’ investment in external auditing.
Design/methodology/approach
This paper applies a conceptual framework derived from demand–supply analysis and a panel data set of 2,263 listed manufacturing companies in China covering the period 2012–2019. In the assessment of PMC, this study measures industry-level competition intensity and company-specific market power separately.
Findings
Industries appear to engage in a lower average level of external auditing if industrial competition intensity is either too high or too low. Similarly, companies spend less on external auditing if their market power is either too strong or too weak, and the company-level inverted U-shaped relationship is much more evident in industries with weak PMC.
Originality/value
This paper shows that a company’s external audit strategy is affected by the level of competition it faces in its market. The findings of this paper can improve the current linear PMC–auditing theoretical framework and provide insights into the strategic auditing of listed companies in China. The findings also have significant implications for policy recommendations regarding corporate governance and market scrutiny regulations.
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Khairul Anuar Kamarudin, Akmalia M. Ariff and Wan Adibah Wan Ismail
This study aims to investigate whether board gender diversity is associated with corporate sustainability performance and whether industry-level product market competition…
Abstract
Purpose
This study aims to investigate whether board gender diversity is associated with corporate sustainability performance and whether industry-level product market competition moderates the effect of board gender diversity on corporate sustainability performance.
Design/methodology/approach
This study uses international data extracted from global ESG data set from Thomson Reuters (Refinitiv) database. Using data of 23,137 firm-year observations from 37 countries, the authors perform regression analyses to examine the hypotheses.
Findings
The findings show that firms with high board gender diversity exhibit high corporate sustainability performance. The authors also find firms in highly competitive industries to have low corporate sustainability performance. In highly competitive industries, the positive relationship between board gender diversity and corporate sustainability performance is weakened. The results are robust to various specification tests such as alternative measures for corporate sustainability performance, board gender diversity, product market competition and also the use of propensity score matching to address endogeneity issue. Overall, the results support the prediction that board diversity and product market competition play a substitutive role in influencing corporate sustainability performance.
Research limitations/implications
This study offers empirical evidence that the appointment of female directors is a useful way to improve a firm’s corporate sustainability performance, hence, providing significant benefits in terms of stakeholders’ values and corporate reputation.
Practical implications
This study provides useful insights to investors and policymakers that intense industry competition might mitigate the role of board governance, particularly board gender diversity, in enhancing corporate sustainability performance.
Originality/value
Using an international data set, where the observations operate in various market and institutional differences, this study is able to extricate the positive impact of board gender diversity and product market competition on corporate sustainability performance. This study corroborates evidence that sustainability strategy and initiatives are reflections of integrated factors, including corporate governance as internal driver and market forces faced by firms as external driver.
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Pradip Banerjee and Soumya G. Deb
This study seeks to examine the relationship between a firm’s effectiveness in managing working capital (WCM), as measured by the cash conversion cycle (CCC), and its exposure to…
Abstract
Purpose
This study seeks to examine the relationship between a firm’s effectiveness in managing working capital (WCM), as measured by the cash conversion cycle (CCC), and its exposure to product market competition (PMC).
Design/methodology/approach
Using 85,356 firm-year observations of 9,611 unique firms for the period 1990–2019, from the US, the baseline model assesses the CCC and PMC connection while controlling for multiple firm-level factors. Additional analyses are conducted to control for financial constraints, economic policy uncertainty, and endogeneity.
Findings
An inverse relationship is shown between PMC and CCC, indicating that firms facing increased competition tend to implement more efficient WCM strategies in order to free up scarce resources. In addition, we observe that increased PMC pushes companies to strategically adjust their credit policies, while also improving their administration of payables and inventories, resulting in improved efficiency. Our research highlights that CCC serves as a mediator between PMC and firm performance.
Research limitations/implications
This study enhances comprehension of the impact of PMC on WCM, offering practical recommendations for companies seeking to optimize their strategy in competitive settings.
Originality/value
The study provides valuable insights for managers operating in competitive markets, highlighting the significant influence of working capital on business policies as a response to competition. This study contributes to the existing literature on WCM and PMC by providing guidance to organizations on how to improve their WCM practices, maintain competitiveness, and free up scarce resources.
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Muhammad Ansar Majeed, Xian-zhi Zhang and Zhaonan Wang
This study aims to examine the impact of various dimensions of product market competition on accounting conservatism particularly in the wake of regulatory changes and varying…
Abstract
Purpose
This study aims to examine the impact of various dimensions of product market competition on accounting conservatism particularly in the wake of regulatory changes and varying ownership structures in China.
Design/methodology/approach
This study examines impact of product market competition on accounting conservatism by using conservatism measure of Khan and Watts (2009) and measures for important dimensions of competition such as competition intensity, non-price competition and competition from existing rivals and potential entrants.
Findings
The findings suggest that competition intensity and non-price competition result in higher conservatism. This study also advocates that industry leaders exhibit lower conservatism as compared to industry followers. Moreover, the authors document positive association between competition from existing/potential rivals and accounting conservative. These findings reveal that regulatory changes (International Financial Reporting Standards adoption) influence the effect of various dimensions of competition on conservatism. The authors also propose that financial reporting practices of state-owned enterprises are not influenced by competition. However, competition affects financial reporting (conservatism) when institutional or managerial ownership is higher.
Originality/value
The authors document that strategic considerations shape conservative financial reporting decisions of the managers. This study also advocates that when regulatory changes affect the influence of competitive pressure on the conservative reporting decisions of the mangers. Findings also suggest that unlike state ownership, institutional as well as managerial ownership affects the influence of competition on managerial decisions like conservative financial reporting. These results are robust to various alternative measures of conservatism.
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Hanwen Chen, Liquan Xing and Haiyan Zhou
Product market competition may have various impacts on audit fees. On the one hand, according to the agency theory, product market competition can mitigate agency problems between…
Abstract
Purpose
Product market competition may have various impacts on audit fees. On the one hand, according to the agency theory, product market competition can mitigate agency problems between management and shareholders. For clients with higher product market competition, auditors will lower the level of engagement risk assessment and reduce the required level of audit evidence, and hence audit fees will be lower. On the other hand, according to the audit risk model, product market competition will increase client business risk and audit engagement risk. Moreover, for clients with competition advantage, client business risk and audit engagement risk will be lower, and hence a lower audit fee. The paper aims to discuss this issue.
Design/methodology/approach
In this paper, the authors collect financial accounting data and audit fee data from CSMAR database. Our sample selection starts with all available observations on the Chinese listed companies during 2006–2011. Since there is a big difference in accounting practices between financial companies and other industries, the authors delete observations on financial companies. The authors further remove observations with missing data, yielding 6,709 observations for the final analysis. To define the industry, the authors use the first two digits of standard industry classification code set by China Securities Regulatory Commission. In order to reduce the effect of extreme observations, the authors also truncate the data at 1 and 99 percent. The authors use the Herfindahl–Hirschman index (HHI) and the natural logarithm of the number of listed companies within the industry to measure product market competition intensity. HHI is calculated as the sum of the squared percentage of revenues of the client firm among the total revenues of all public companies, i.e.
Findings
Using a sample of 6,709 firm-year observations from the Chinese stock market for the period of 2007–2011, the authors find that the product market competition intensity has a negative impact on audit fees, which means that agency cost effect is dominant in audit pricing at industry level. In addition, a company’s competitive advantage in the industry has a significant and negative impact on audit fees, which means that business risk effect also plays a critical role in audit pricing of individual engagement. The findings indicate that, in determining audit fees, auditors in the emerging market of China consider both the competition intensity of their clients’ product market at the industry level and the competitive advantage of the specific clients within the industry.
Originality/value
The findings indicate that, in determining audit fees, auditors in the emerging market of China consider both the competition intensity of their clients’ product market at the industry level and the competitive advantage of the specific clients within the industry.
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Xing Li, Guiyang Zhang and Yong Qi
The purpose of this study is to explore how digital construction policy (DCP) drives enterprise green innovation (EGI) from an information processing theory (IPT) perspective…
Abstract
Purpose
The purpose of this study is to explore how digital construction policy (DCP) drives enterprise green innovation (EGI) from an information processing theory (IPT) perspective, including the mediating mechanisms of market information accessibility and operational risk, the moderating role of intellectual property protection (IPP) and product market competition (PMC) and the heterogeneous effects of ownership, Internet development and managerial ability.
Design/methodology/approach
Based on the matched panel data of A-share listed enterprises from 2011 to 2019 and the Broadband China policy as a quasinatural experiment, this study investigates the impact of DCP on EGI by constructing a multi-time point difference-indifferences (DID) model.
Findings
Digital construction policies can significantly promote EGI. DCP works in two fundamental ways, namely by increasing market information accessibility and reducing operational risk. IPP and PMC significantly increased the contribution of digital construction policies to EGI. Heterogeneity analysis found that digital technology has a stronger promotion effect for SOEs, high-managerial-ability enterprises and enterprises in regions with low Internet development levels.
Practical implications
The study provides new insights about the antecedents of EGI from a DCP perspective. It also enlightens emerging economies to actualize green innovation under the digital wave.
Originality/value
From the perspective of IPT, this study explains the mechanism of DCP-driven EGI. It enhances understanding of the relationship between DCP and EGI.
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