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This paper is devoted to an analysis of financial ratio adjustment in European financial statements. To that end, we use an hierarchical model based on the partial adjustment model. This model allows us to distinguish between adjustments that are due to external shocks and which affect all countries, on the one hand, and those resulting from internal shocks which affect the relative position of one country with respect to the rest, on the other. In addition to estimating the average adjustment coefficients of each ratio, we locate those countries that have a behaviour which is significantly different from the rest. We find that, in general, the evolution of the ratios analysed is mainly determined by their adjustments to external shocks, with the ratios related to the profit and loss account demonstrating a greater sensitivity to all types of shocks. By contrast, the debt ratios show the least sensitivity. When considered on a country-by-country basis, the most significant differences appear in the results ratios, with Spain being the country that is most sensitive to external shocks, and Denmark and Germany being least sensitive to all types of shocks.     

Modelling stock price behaviour by financial ratios

The main purpose of this study is to find out which economic dimensions of the firm are reflected in stock price behaviour in the Finnish stock market. Based on the previous theoretical articles, four economic dimensions are chosen: profitability, financial leverage, operating leverage and corporate growth. Twelve (12) financial ratios are then selected to represent these four dimensions. All the Finnish firms common series listed for the whole 1974–1986 period are included in the empirical analysis.All of the four expected dimensions above are found in the empirical classification pattern of ratios. On the cross-sectional level, profitability and financial leverate are reported as determinants of stock price behaviour. Corporation growth is merely connected to the risk of the common stock. Somewhat weaker results concerning the association between stock price behaviour and operating leverage factor may be due to difficulties measuring operating leverage on an empirical level.When studying the intra-year explanatory power of financial ratios, it is reported that the explanatory power of financial ratios tends to increase when the reporting day approaches, and starts to decrease after that releasing day of financial statement numbers. Empirical evidence strongly indicates that financial ratios represent pricing relationships in a substantive manner.The financial support by the Academy of Finland as well as the helpful comments and suggestions of an anonymous referee are gratefully acknowledged.     

彩票文化能够影响企业财务违规行为吗？——来自地区彩票消费的证据

文化作为非正式制度的核心组成,是影响企业行为的重要因素。基于彩票文化视角,考察了地区文化对企业财务违规的影响,发现地区彩票文化越盛行,个体的冒险倾向和风险容忍度越强,企业财务违规的可能性越大。异质性分析结果表明:当企业面临的业绩压力较大时,彩票文化对企业违规的正向影响更加明显,而良好的治理水平有利于缓解两者之间的关系;彩票文化浓厚的地区,企业财务决策偏于激进,财务信息质量较低。研究成果为规范企业行为、促进资本市场健康发展提供了一定的理论借鉴和实践启示。     

Incentives,Capital Budgeting,and Organizational Structure

Divisional managers compete for financial resources in what is often referred to as an internal capital market. They also have a common interest in maximizing corporate profits, as this determines the resources available to the firm as a whole. Both goals are powerful motivators but can at times conflict: while the amount of resources available to the firm depends on corporate performance, divisional funding depends upon the division's performance relative to the rest. We propose a model in which organizational form is endogenous, divisions compete for corporate resources, and managers have implicit incentives. We show that organizational design can help companies influence their divisional managers' potentially conflicting goals. Our analysis relates the firm's organizational structure to the source of incentives (external vs. internal), the nature of the incentives (competition vs. cooperation), the level of corporate diversification, the development of the capital market, and to industry and firm characteristics.     

Carbon disclosure and financial performance: UK environmental policy

The outcome of carbon disclosure, the importance of which has grown remarkably in recent years to become a strategic decision‐making issue for organisations in today's competitive environment, is a subject of lively debate but remains under‐researched in the environmental accounting literature. This study is motivated by this research gap and the growing interest in assessing the financial consequences of corporate involvement in climate change beyond regulatory compliance, as evidenced by firms' voluntary participation in the Carbon Disclosure Project. Using the resource‐based view of the firm as a theoretical framework and linking it to carbon disclosure through Carbon Disclosure Project, we conceptualise and empirically investigate the impact of adopting proactive carbon management policies and communicating them to stakeholders, focusing on the financial performance of the top FTSE350 companies between 2007 and 2015. By developing a comprehensive financial performance index and controlling for several firm characteristics, we find strong evidence that voluntary carbon disclosure is positively associated with firm financial performance. The findings in this paper provide new insights and policy implications for managers, financial stakeholders, and regulators.     

The dynamic operation of the market for partnership deeds in a duopolistic industry of a profit-maximizing firm and workers' enterprise

This paper analyses a model of the dynamic interaction of a profit-maximizing firm and a workers' enterprise (in the sense of Sertel, 1982) in an industry in which each acts as a duopolist. The framework is similar to that of Chiarella (1992). In that study labour was the only factor of production and workers were allowed to trade-off work and leisure. Here we wish to analyse the effect of the capital accumulation decision on the outcome of the duopolistic competition. In order to obtain a tractable model we drop the work-leisure trade-off. We assume dynamic adjustment in the market for partnership deeds along the lines suggested by Okuguchi (1992a, b) and analyse the equilibrium of the duopoly, its comparative statics and stability with respect to key variables.     

Labour Demand Adjustment: Does Foreign Ownership Matter?

This paper examines whether multinationals differ in their employment adjustment from domestic companies, using a panel of 5,544 Belgian firms observed between 1998 and 2005. More precisely, we estimate labour adjustment costs by worker and firm types. We propose a new flexible specification that takes into account the role of firm size in adjustment costs. Our results indicate that adjusting white‐collar employment is around half as costly for multinational firms (MNFs) as for domestic firms of the same size. The remaining differential in adjustment costs between MNFs and domestic firms might result, among other things, from multinationals' stronger bargaining power.     

Sustaining Competitive Advantage Through Corporate Environmental Performance

This research investigates the relationship between a firm's environmental efforts and the sustainability of its competitive advantage by analyzing the effects of change in firm environmental performance on the persistence of profitability growth. We find that environmental resources allow a firm with superior financial performance to sustain its competitive advantage, and also complement the efforts of a poorly performing firm to hasten recovery from inferior financial performance. Our findings further indicate that firms attain such positive effects through enhanced profit margins resulting from improved environmental performance. Additionally, we observe that a corporate strategy of improving environmental performance demonstrates management's responsibility to maximize the shareholder wealth of a well‐performing firm. The results provide valuable insights to align environmental activities towards developing unique resources for sustaining the competitive advantage. The study provides an empirical support for creating economic value by benefiting the environment. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment     

Cournot duopoly and insider trading with two insiders

We study the effect of competition among insiders in an extension of the static Kyle [Kyle, A. (1985). Continuous auctions and insider trading. Econometrica, 53, 1315–1335] model of insider trading introduced by Jain and Mirman (JMC) [Jain, N., & Mirman, L.J. (2002). Effects of insider trading under different market structures. The Quarterly Review of Economics and Finance, 42, 19–39]. In the JMC model competition in the real sector is introduced. In this paper we introduce competition in the stock sector in the JMC model by assuming that there is a manager who is responsible for making the real decisions of the firm as well as an ‘owner’ who has the same information as the manager but has no managerial responsibilities. In this way we can study the interaction between competition in the real sector and competition in the financial sector. We show that the stock price set by the market makers reveals more information than in the JMC model and that the expected equilibrium values of the manager’s profits sometimes decline and sometimes increase depending on the exogenous parameters of the model. Moreover, we prove that due to the competition in the financial sector, the level of output produced by the firm is less than in JMC. Finally, we also study the effect of financial competition in the case in which the market makers receive only one signal and analyze the comparative statics in this case.     

Value Relevance of Multinationality: Evidence from Korean Firms

The purpose of this study is to examine the valuation effects of multinationality in Korean firms and to identify the role of multinationality in internalization theory. We hypothesize that the market positively values the multinational activities of Korean firms, which are operating in a small open economy in which firms have strong motivations for internationalization. We use Ohlson's (1995, Contemporary Accounting Research, 11, 661) value model and document the positive effect for multinational firms compared to domestic firms, as well as the positive effect of multinationality on firm value. These results are robust across studies, as indicated by Tobin's q measure, as well as across years. We also hypothesize that multinationality mediates or moderates the relationship between intangibility and firm value that is proposed in internalization theory. We do not find supporting evidence for a mediated influence of intangibility through multinationality on firm value nor for a moderated influence of intangibility on firm value. We find that multinationality and intangibility directly and independently influence firm value, without any interference from each other. These results are also robust across studies, as indicated by Tobin's q measure. Finally, we find that multinationality in Korean firms has never lost its importance, even during the global financial crisis in the year 2008.     

The role of debt and bankruptcy statutes in facilitating tacit collusion

Using a two‐period model this paper examines the quantity decisions of leveraged duopolists that are vulnerable to bankruptcy in the first period. When the firms have symmetric costs, a bankrupt firm reorganizes under Chapter 11. If a Chapter 11 firm experiences marginal cost relief, each firm produces a collusive output in period one in order to prevent its rival's financial demise. When the firms have asymmetric costs, the less efficient firm is liquidated under Chapter 7 upon bankruptcy. A predatory equilibrium exists, whereby the inefficient firm is driven from the market. Copyright © 1999 John Wiley & Sons, Ltd.     

Financing flexibility: The case of outsourcing

We investigate the relationship between the extent and timing of vertical flexibility and the financial choices of a firm. By vertical flexibility we mean partial/total and reversible outsourcing of a necessary input. A firm simultaneously selects the vertical setting and the financial sources of investment in flexibility, in particular debt and venture capital. A loan may come from a lender that requires the payment of a fixed coupon over time and an option to buy out the firm in certain circumstances. Debt leads to the same level of flexibility of an unlevered firm. Yet investment occurs earlier. The injection of venture capital reduces the quest for vertical flexibility and speeds up investment. Then, there arises a fresh substitutability between a financial (venture capital) and a real variable (vertical flexibility).     

Assessment of rapid growth ventures,an extension of Schwartz and Moon model

It is a challenge to incorporate randomness into financial projections that are at the core of new venture assessment. We present a model based on Schwartz and Moon ( 2001 ) and apply it to a real firm data. We find that our 10‐year projections conform to the actual realized values. The model allows addressing crucial questions regarding the venture survival, its extreme potential outcomes, and its sensitivity to its parameters. It facilitates identifying risk drivers and assessing potential remedies. To our knowledge, we are the first to propose such a comprehensive stochastic model for risky ventures' simulation and analysis.     

Strategic compensation in South Korea's publicly traded firms

This strategic compensation model based on contingency theory of organizations proposes that a fit between the organization's business environment and compensation system will affect the firm's performance (Rockmore, 1991; Rockmore and Scarpello, 1994). This proposition was tested with a set of Korean sample data of seventy-five publicly traded companies within thirty-four three-digit Standard Industrial Classification codes.

The cluster analysis applied to the 7-item task environment uncertainty components resulted in two group classifications that face relatively ‘more certain’ and ‘more uncertain’ environments. Principal component factor analysis of the 8-item compensation system components resulted in three compensation system factors and subsequent cluster analysis classified firm pay plans into two clusters, which we labelled ‘more traditional’ and ‘more innovative’. Discriminant analysis confirmed the resulting classifications of both task environment and compensation system types. With both ROA and EPS measures, significantly more ‘fits’ (firms in stable environment that use traditional compensation system or firms in uncertain environment that use innovative compensation system) showed financial gains compared with ‘nonfits’. This financial impact of the contingency was more salient for those firms that face uncertain environment. The same results were obtained when ANOVA was performed.     

The link between supply chain fit and financial performance of the firm

The bottom-line financial impact of supply chain management has been of continuing interest. Building on the operations strategy literature, Fisher's (1997) conceptual framework, a survey of 259 U.S. and European manufacturing firms, and secondary financial data, we investigate the relationship between supply chain fit (i.e., strategic consistencies between the products’ supply and demand uncertainty and the underlying supply chain design) and the financial performance of the firm. The findings indicate that the higher the supply chain fit, the higher the Return on Assets (ROA) of the firm, and that firms with a negative misfit show a lower performance than firms with a positive misfit.     

Human resource management control system and firm performance: a contingency model of corporate control

This study explores how corporate controls used by the parent company of a conglomerate affect subsidiaries' human resource management (HRM) control–performance relationship. Empirical results from 93 firms reveal that the appropriate use of HRM control systems was a contributing factor to firm performance. When a subsidiary's approach to HRM was based on behavior control, performance was lower when the parent company emphasized financial control. When a subsidiary's approach to HRM was based on output control, performance was higher when the parent company emphasized either strategic or financial control. When a subsidiary's approach to HRM was based on input control, performance was higher when the parent company emphasized strategic control.     

Sharing Wealth: Evidence from Financial Ratios in Spain

Firms are managed on the basis of relationships between mutually involved groups, not only because of market forces, but also due to the influence that each group can exert over distribution decisions at a given moment in time. On the basis of a value added statement, it is possible to analyse the ability a firm has to reward all agents and to consider how the residual income is to be distributed. In this paper we set out to establish the tensions that arise between productive agents in the distribution of generated wealth. We carry out a time analysis of the movements between relationships that provide information on the distribution of that wealth, using data drawn from the Spanish Transport Equipment Manufacturing Industry. We propose a new multivariate dynamic linear model that is capable of analysing the joint evolution of the value added distribution ratios, with our particular objective being to throw light on the factors underlying this evolution. This analysis results in one single factor that explains 92.88 per cent of the total variation present in the residuals of the model.     

Enforcement Releases,Firm Characteristics,and Earnings Quality: Insights from Germany's Two‐tiered Enforcement System

The implementation of a two‐tier external enforcement mechanism in Germany in 2004 permits the examination of the interrelationship of enforcement releases, firm characteristics, and earnings quality in a unique institutional framework. A total of 151 cases are examined where the announcement of errors in prior disclosed and audited financial statements was mandatorily ordered by the enforcement authority. Prior literature documents the correlation between underperformance in financial ratios and the probability of erroneous disclosure of financial statements. Evidence is provided of differences in characteristics between firms with enforcement releases and control firms as well as all German publicly listed firms. The research affirms the connection of financial ratios to earnings quality metrics. Overall, the results document the underperformance in important financial ratios as well as indicate an inferior earnings quality of firms subject to enforcement releases vis‐à‐vis the control groups. These results hold with regard to both different earnings quality specifications and different periods observed. This study adds to the earnings quality discussion and contributes to the development of a comprehensive picture of accounting quality in the unique institutional settings of Germany. The findings show that a conjoint two‐tier public and private enforcement system is effective and could be a model for consideration by other countries.     

Exploring environmental,social, and governance disclosure effects on the S&P 500 financial performance

Much of the literature measuring the relationship between environmental, social, and governance (ESG) scores and firm performance treats the score as a measure of sustainability performance. In this study, we treat a firm's ESG score as a demonstration of strategic choice in the level of transparency that results in increased firm performance as measured by Tobin's Q and return on assets. Performance differences are a result of choice moderated by the size of the firm as measured by employees and sales. We analyze 467 firms in the S&P 500 from 2009 to 2015. Applying legitimacy and stakeholder theory, we find that there is significant difference between groups with respect to disclosure and performance. The results of quartile analysis by sales, capitalization, and Tobin's Q are relevant to understand the influence that the ESG score has on financial performance. ESG influences on Tobin's Q are greatest for large firms as measured by sales, as opposed to the ESG affects on Tobin's Q and return on asset for smallest firms as measured by market capitalization.     

Power of sustainable development: Does environmental management system certification affect a firm's access to finance?

Although prior research generated inconclusive findings between a firm's environmental management system and firm financial performance, attention to resolve this inconsistency by examining the internal channels is limited. Thus, this study focuses on a firm's access to finance and investigates whether a firm's environmental management system certification (EMS) leads to better access to finance. Based on the organizational legitimacy perspective, we hypothesize that this certification will benefit a firm with stakeholder approval and support and consequently alleviate its financial capital constraints. We further posit that the proposed relationship will be moderated by three types of legitimacy environments pertaining to how stakeholders and investors make the judgment on the environmental management system certification. We document that the proposed relationship, that is, the positive relationship between environmental management system certification and access to finance, will be stronger when the government attaches larger importance to environmental protection (regulative legitimacy), better environmental record (moral legitimacy), and better financial position (pragmatic legitimacy). Empirical analyses provide strong corroborating evidence for our predictions. These findings have important theoretical and managerial implications that are well discussed in this study.