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1 – 10 of over 11000
Article
Publication date: 14 May 2018

Nader Elsayed and Hany Elbardan

While there have been extensive empirical investigations of pay-performance sensitivity, the perspective of performance-pay has received less attention to date. While executive…

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Abstract

Purpose

While there have been extensive empirical investigations of pay-performance sensitivity, the perspective of performance-pay has received less attention to date. While executive compensation is sensitive to firm performance, firm performance is also likely to be affected by executive compensation. Adopting multiple theoretical perspectives, the purpose of this paper is to examine whether executive compensation has a greater influence on firm performance or whether the latter has a greater influence on compensation.

Design/methodology/approach

Using data from a five-year period (2010-2014) for Financial Times and Stock Exchange 350 companies, the authors employ a set of simultaneous equation modelling to jointly investigate, after accounting for endogeneity problem, the mutual association of executive compensation and firm performance by employing four control variables (board size, non-executive directors, leverage and boardroom ownership).

Findings

The authors find strong evidence for the greater influence of executive compensation on firm performance than the pay-performance framework. This finding supports the tournament theory compared with the agency perspective.

Research limitations/implications

Inevitably, there are limitations in a wide-ranging study of this nature that could be addressed in future research. As any empirical study utilising company data, there may be concerns to the effect of survivorship bias and the manner in which companies have reorganised, if there is any, themselves during the period under examination. There are also issues as to missing data, some measures relating to both executive compensation and corporate governance are not provided by the BoardEx database.

Practical implications

The study results provide evidence that using the tournament perspective by remuneration committees as a guide for determining executive compensation helps in achieving better performance. This helps in developing appropriate mechanisms for setting executive remuneration.

Originality/value

This paper combines an empirical investigation of the frameworks of pay-performance and performance-pay and develops a system of six simultaneous equations to examine the associations between executive compensation and firm performance.

Details

Journal of Applied Accounting Research, vol. 19 no. 2
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 5 March 2018

Mouna Ben Rejeb Attia, Naima Lassoued and Mohamed Chouikha

The purpose of this paper is to examine the relationship between state ownership and firm profitability in developing countries by considering the endogenous nature of state…

Abstract

Purpose

The purpose of this paper is to examine the relationship between state ownership and firm profitability in developing countries by considering the endogenous nature of state ownership and firm profitability.

Design/methodology/approach

A simultaneous equation analysis is applied to study 232 Tunisian firms over the 2001-2013 period. This analysis is compared with OLS estimates to show its power in terms of an endogenous setting and its potential to improve estimation.

Findings

Unlike the OLS estimates that show a non-significant relationship between state ownership and firm profitability, the simultaneous equation analysis reveals a non-symmetrical concave relationship. Specifically, state ownership affects positively firm profitability when it is relatively small and negatively when state ownership dominates. Specification test indicates that both state ownership and firm profitability are endogenous. Furthermore, the simultaneous model’s explanatory power exceeds that of OLS estimates and proves to be a suitable estimation technique.

Practical implications

Taking into account public firms’ categorization, the authors implicitly examine the effect of privatization and corporatization on firm profitability. The findings imply that privatization is not the only solution to the operational problems of public firms, but an internal governance system restructuring can also be favorable for these firms.

Originality/value

In addition to focusing on a new database of developing countries, the case of Tunisian firms, the main empirical analysis is conducted by considering the endogeneity issue. Thus, the findings improve understanding of the role played by state ownership and suggest that a partial state control appears to be beneficial to firm profitability.

Details

International Journal of Public Sector Management, vol. 31 no. 2
Type: Research Article
ISSN: 0951-3558

Keywords

Article
Publication date: 22 July 2019

Sorour Farokhi, Emad Roghanian and Yaser Samimi

The purpose of this paper is to identify the accurate cause and effect relationships among strategic objectives and also to demonstrate how decision makers can be guided in the…

Abstract

Purpose

The purpose of this paper is to identify the accurate cause and effect relationships among strategic objectives and also to demonstrate how decision makers can be guided in the process of defining quantitative strategic target values in the framework of balanced scorecard (BSC) and performance measurement system.

Design/methodology/approach

Based on the proposed method in this research, after determining strategic objectives and developing an initial strategy map according to decision makers’ opinions, simultaneous equations system (SES) was used to determine the significance of the relationships among strategic objectives in higher perspectives of the BSC and corresponding strategic objectives in lower perspectives. Afterward, desirable values for performance measures were determined based on the equations and relationships obtained through SES and were optimized by goal programming method.

Findings

By applying the proposed method, a clearer picture of the associations among strategic objectives is obtained and the influence of strategic objectives on one another is determined. Afterward, optimal values for strategic objectives are determined to achieve the organization’s goals.

Research limitations/implications

This paper proposes a framework for constructing a strategy map and setting quantitative targets in the framework of BSC. Indeed, this paper presents a case study to demonstrate the applicability and effectiveness of the proposed approach. However, SES technique requires a greater amount of data to generate more accurate results. Although the advent of the Information Age has forced organizations’ decision makers to provide sufficient information and data for business analysis, the data requirements are met.

Practical implications

The presented quantitative approach is a supporting approach for improving decision makers’ opinions and enabling them to reach a more accurate picture of the relationships, valuing strategic objectives and achieving strategic goals. This research also presents a case study to demonstrate the applicability of the proposed approach. The application and implication of the proposed method in banking services show that the contributions of the paper are not only theoretical, but also practical.

Originality/value

The proposed method provides a novel approach for determining the most appropriate targets and applies a comprehensive and scientific model together with decision makers’ opinions and experiences and has two main contributions: first, the associations among strategic objectives are investigated and obtained in an effective way by conducting the SES for the first time in the framework of BSC. Second, quantitative targets have been determined to help in achieving the long-term goals. This task has been accomplished through a combination of SES, the three-stage least squares regression analysis and optimization by using weighted goal programming method.

Details

International Journal of Productivity and Performance Management, vol. 69 no. 9
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 8 April 2014

Dennis Olson and Taisier A. Zoubi

This study aims to examine the determinants of the allowance for loan losses (ALL) and loan loss provisions (LLP) for banks in the Middle East and North African (MENA) region…

Abstract

Purpose

This study aims to examine the determinants of the allowance for loan losses (ALL) and loan loss provisions (LLP) for banks in the Middle East and North African (MENA) region using both a two-stage approach and simultaneous equation system to address the potential problem of estimation bias introduced by estimating the ALL and LLP separately. The paper also tests three competing hypotheses: the earnings management hypothesis, the capital management hypothesis, and the signaling hypothesis.

Design/methodology/approach

The authors adopt a simultaneous equation and three-stage approaches to test whether MENA banks jointly determine LLP and ALL and the determinants of the two accounts. The sample consists of all available electronic data for 75 banks (451 bank-year observations) in nine MENA countries over the period 2000-2008.

Findings

Evidence suggests that the two accounts are jointly determined. The results support the earnings management hypothesis – meaning that MENA banks have engaged in year-to-year income smoothing. The authors also find that LLP and ALL provide signals about future earnings.

Research limitations/implications

The authors acknowledge that the LLP account is only one of many accounts on the income statement that could be used for signaling or to manage earnings, and that the ALL is one of several accounts that could be used for signaling, earnings or capital management. Future studies could examine other accruals for their role in managing earnings, signaling and capital.

Practical implications

The results indicate that bank managers use LLP and ALL accounts to manage earnings management, policy makers may want to limit the ability of banks to manipulate earnings.

Originality/value

Prior research on the loan loss accounting practices has been based on single equation models of the determinants of LLP and ALL. An issue that has not been adequately addressed in this literature is that ALL and LLP may be interrelated and jointly determined by banks. If the two accounts are not independent of each other, failure to include one when estimating the other may lead to an omitted variable problem, while including both in the same equation induces a potential simultaneity bias. The study is the first empirical work examining whether ALL and LLP are jointly determined by banks. By jointly estimating LLP and ALL, the study permits an assessment of the magnitude of the potential error from adopting ordinary least squares estimation of a single equation model.

Details

Journal of Islamic Accounting and Business Research, vol. 5 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

Book part
Publication date: 26 November 2019

Dipyaman Pal, Chandrima Chakraborty and Arpita Ghose

The present study aims to determine the existence of simultaneous relationship between economic growth, income inequality, fiscal policy, and total trade of the 13 emerging market…

Abstract

The present study aims to determine the existence of simultaneous relationship between economic growth, income inequality, fiscal policy, and total trade of the 13 emerging market economies as a group for the period 1980–2010. After establishing the existence of simultaneity between the above relationships, a simultaneous panel model has been formulated and estimated incorporating the nonlinearity among the variables as suggested by the existing literature. An inverted U-shape relationship is evident between (1) economic growth, income inequality, and total trade in economic growth equation, (2) income inequality, economic growth, and per capita income in income inequality equation, and (3) total trade and economic growth in total trade equation. Thus, the existence of a two-way nonlinear relationship is highlighted between economic growth, income inequality, and total trade. Apart from these nonlinear relationships, positive and significant effect of (1) gross capital formation, inflation, population growth, human capital, fiscal policy, monetary policy, and domestic credit to private sector on economic growth; (2) civil liabilities on income inequality; (3) gross capital formation and inflation on total trade; (4) total trade, population growth of those aged 65 years and above, political system on fiscal policy is highlighted. Also, negative and significant effect of (1) fiscal policy on income inequality and (2) income inequality on fiscal policy is revealed.

Details

The Gains and Pains of Financial Integration and Trade Liberalization
Type: Book
ISBN: 978-1-83867-004-7

Keywords

Article
Publication date: 25 October 2011

Chiung‐Ju Liang, Tzu‐Tsang Huang and Wen‐Cheng Lin

Previous empirical studies on the nature of the relationship between ownership and corporate value have produced mixed results. Meanwhile, effective management of knowledge‐based…

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Abstract

Purpose

Previous empirical studies on the nature of the relationship between ownership and corporate value have produced mixed results. Meanwhile, effective management of knowledge‐based intellectual capital has become a key factor to corporate success, both in firm performance and corporate value. Thus, this paper aims to reexamine the link among ownership, proxies for intellectual capital and corporate value in the emerging Taiwan market.

Design/methodology/approach

Using two‐stage least square estimation of panel data in a simultaneous equations framework, the authors focus on: What is the interdependent impact of ownership on corporate value through the mediating role of intellectual capital (IC)? Does ownership directly or indirectly (i.e. via IC) influence corporate value? Does it persist across industries?

Findings

The empirical results suggest that the relationship between ownership and corporate value mainly depends on industry characteristics and the nature of proxies for intellectual capital in the emerging Taiwanese market. Further, the impacts of ownership on corporate value in more traditional industries are even stronger, that is, there exists the direct impact of ownership mechanism on corporate value. Notably, for the high‐tech firms, ownership can indirectly affect corporate value through the moderating role of intellectual capital.

Research limitations/implications

The implication reminds managers and investors not merely focusing on ownership mechanisms as the main value‐creation information, but a thorough review of IC should be made in order to avoid making incorrect decisions. The limitations suggest areas for further research. For instance, it is important to extend the role of intellectual capital (i.e. to employ other variables to proxy for IC) in exploring the interdependent impact of ownership on corporate value.

Originality/value

The paper potentially adds to ongoing research by extending the importance of the concept of IC in assessing the interdependent impact of ownership on corporate value.

Details

Journal of Intellectual Capital, vol. 12 no. 4
Type: Research Article
ISSN: 1469-1930

Keywords

Article
Publication date: 16 August 2013

Ajang Tajdini, Jafar Ghajebeigloo and Mehran Roohnia

Veneer is one of the most important products in the wood‐based panel industry, therefore, to provide needed information for the development of this industry, it is necessary to…

Abstract

Purpose

Veneer is one of the most important products in the wood‐based panel industry, therefore, to provide needed information for the development of this industry, it is necessary to provide better understanding of the forces driving the demand and supply of veneer. The purpose of this paper is to describe how supply and demand can be estimated by using a simultaneous equations model.

Design/methodology/approach

A theoretical framework is proposed based on a systematic approach of iterative 3‐stage least squares (I3SLS). The reason for using simultaneous equations is the existence of reciprocal relations between economic variables in this research.

Findings

Applying this theoretical framework is a useful tool to study the situation of veneer as one of the most important wood‐based panel products in Iran. For example, based on the results, it can be understood that veneer is a normal and essential commodity, and any increase in the price of veneer can lead to a considerable rise in total income for producers. To satisfy the excess demand, extensive investment is needed in establishing new plants.

Research limitations/implications

There are many restrictions in applying other approaches, because of no access to research data. The present study provides a starting‐point for further research using other econometric models on different aspects of forest products marketing.

Originality/value

The framework (econometric models especially simultaneous equations) has proven to be useful in studying and improving forest products marketing. The use of such procedures was new and this research was done for the first time in Iran.

Details

Journal of Business & Industrial Marketing, vol. 28 no. 7
Type: Research Article
ISSN: 0885-8624

Keywords

Article
Publication date: 1 June 2001

P. Nithiarasu

A comparative study has been carried out to investigate the performance of two different time stepping schemes for convective heat transfer and flow in a fluid saturated porous…

Abstract

A comparative study has been carried out to investigate the performance of two different time stepping schemes for convective heat transfer and flow in a fluid saturated porous medium. Both the schemes are based on the velocity correction procedure. The first scheme is a semi‐implicit one in which the linear and non‐linear porous medium terms of the momentum equation are treated implicitly but solution of the simultaneous equation system is avoided by lumping the mass. The second procedure (quasi‐implicit) treats the porous medium and viscous terms implicitly and a simultaneous equation system is constructed to solve the equations of momentum conservation. Two numerical examples have been considered and both the schemes are tested for various parameters governing the flow and heat transfer in these problems. Results show that, at smaller Rayleigh numbers and on fine meshes, the quasi‐implicit scheme gives faster convergence to steady state in both Darcy and non‐Darcy regimes than that of the semi‐implicit scheme. At higher Rayleigh numbers, the semi‐implicit scheme is faster in the Darcy regime. Also, the semi‐implicit scheme is faster than that of the quasi‐implicit scheme on a coarse mesh used in this study. In general both the schemes predict transient cyclic developments well.

Details

International Journal of Numerical Methods for Heat & Fluid Flow, vol. 11 no. 4
Type: Research Article
ISSN: 0961-5539

Keywords

Article
Publication date: 9 November 2015

Pedro Carmona, Alexandre Momparler and Carlos Lassala

The purpose of this paper is to explore whether the provision of non-audit services (NAS) by public accounting firms undermines audit quality. The study addresses this question by…

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Abstract

Purpose

The purpose of this paper is to explore whether the provision of non-audit services (NAS) by public accounting firms undermines audit quality. The study addresses this question by testing for an association between the provision of consulting services and auditor independence in listed companies.

Design/methodology/approach

The authors study if the magnitude of non-audit fees explains variations in earnings management by looking at the joint determination of non-audit fees, audit fees, and abnormal accruals using the SURE-regression estimation method.

Findings

Evidence from tested models suggests that audit services quality is uncompromised by the provision of NAS. In other words, high non-audit fees do not necessarily result in poor quality financial reporting.

Research limitations/implications

A different research methodology and a different sample (e.g. non-listed companies) may lead to differing results. As the paper analyses only one country, generalizability of the results might be a limitation. There is no need to increase legal restrictions on the provision of consulting services by public accounting firms in order to better safeguard audit quality.

Practical implications

Consulting clients may be more confident to hire both audit and NAS with the same firm and can make a case before the general Shareholders’ meeting. By providing both audit and NAS, consulting firms obtain knowledge spillovers and synergies while appealing highly qualified professionals.

Originality/value

The use of simultaneous equations (SURE-regression) to establish the auditor-client relation allows us to better model theoretical relations between audit fees, non-audit fees, and abnormal accruals. Likewise, joint modeling takes account of correlations between the error terms of the individual models, yielding more efficient estimates than ordinary least squares. Performing this analysis in a non-Anglo-American country with low litigation risk is also a valuable contribution to extant literature.

Details

Journal of Service Theory and Practice, vol. 25 no. 6
Type: Research Article
ISSN: 2055-6225

Keywords

Article
Publication date: 18 May 2015

Vigdis Boasson and Emil Boasson

The purpose of this paper is to examine the role of geographic location of research-intensive firms in the ability to generate new research and products, which consequently…

Abstract

Purpose

The purpose of this paper is to examine the role of geographic location of research-intensive firms in the ability to generate new research and products, which consequently affects firm value.

Design/methodology/approach

The authors conduct the empirical study following a three-step process. First, if pharmaceutical firms are more likely to cite the patents of other firms and other innovators that are nearby, as opposed to firms and other innovators that are far away, then location (i.e. close proximity) is likely important when it comes to the ability to learn and to use the knowledge being generated by other innovators. The authors employ a “geographic information systems” (GIS) and geo-code each pair of citing and cited patents. In addition, the authors utilize spatial statistics such as Moran’s I to analyze the spatial clustering pattern of patent citations and knowledge flows. Next, the authors measure the pharmaceutical companies’ ability to generate useful patents as a function of the amount of innovation and industrial activity that is occurring close to them. Finally, the authors test whether a firm’s location relates to its firm value. Specifically, the authors model firm value as a function of its patents quality, but the authors also allow the firm’s patents quality to be a function of its location and locational attributes. In this way, the authors establish a link between location and firm value. Using a simultaneous system of equations, the authors find that location explains patent quality, which, in turn, explains firm value. In other words, there is a positive relationship between firm value, innovation and location.

Findings

In empirical tests using pharmaceutical firms and their patents, the authors first find that firms more often cite patents of other firms that are geographically closer to them than those firms that are farther away. The authors then find that a patent’s quality is a function of the firm’s near proximity to other knowledge-intensive institutions and activities. Finally, the authors find that because patent quality is a function of a firm’s geographic location, location consequently affects firm value.

Research limitations/implications

For knowledge-intensive firms, geographic location matters. More specifically, the authors contend that research-intensive firms are better able to use and to expand on existing knowledge when they are closer to other research-intensive enterprises. The implication is that firm value maximization involves a location factor.

Practical implications

The practical implication for investors is that investors should invest in those firms that are situated in a location that is rich in geographic innovation resources because those firms are more likely to generate more and higher quality patents or innovations.

Originality/value

The study is the first to establish the linkage among spatial knowledge diffusion, geographic drivers of innovation, and market valuation of the firm. The study is unique in that the authors not only present evidence on spatial knowledge flows by geo-coding the exact longitude and latitude location coordinates of citing and cited patens, but more importantly, the authors also identify geographic drivers of innovation, and examine their impacts on citation-weighted patent counts and knowledge stock. Finally, using a series of simultaneous equations, the authors show how geographic innovation resources positively affect citation-weighted patent stock and knowledge stock and consequently affect market value of the firm. Thus, the novel approach contributes not only to the literature that measures geographic localization of knowledge flow using patent citations, but also to the literature that examines the impact of geographic sources of innovations on patent outputs and patent quality and, thus on firm value for research-intensive firms.

Details

China Finance Review International, vol. 5 no. 2
Type: Research Article
ISSN: 2044-1398

Keywords

1 – 10 of over 11000