The relationship between growth,profitability, and firm value

This research examined predictions drawn from value-based planning models. Results indicate that profitability and growth do influence shareholder value in the manner predicted; however, the relationships are conditional. This study also shows that, the market-to-book value of equity ratio and Tobin's q-ratio are theoretically and empirically, equivalent measures of value creation.     

The relative impact of actual and potential rivalry on firm profitability in the pharmaceutical industry

This paper estimates the effects of actual and potential rivalry on profitability of firms in the U.S. pharmaceutical industry during the 20‐year period 1963–82. The results show that during the 1960s actual rivalry among the sampled firms did not materially affect firm profitability, but that during the 1970s competition among incumbents had an increasingly adverse effect on their profitability. The results also show that potential competition significantly reduced drug firms’ profitability during the entire 20‐year period. Copyright © 1999 John Wiley & Sons, Ltd.     

Industrial services, product innovations, and firm profitability: A multiple-group latent growth curve analysis

Manufacturers in many industries seek service-led growth beyond their product core. Yet research on the link between service revenue growth and firm profitability is still at an early stage. To shed further light on this complex relationship, we report the results of a longitudinal study based on panel data of 414 companies in the German mechanical engineering industry collected over a five-year period. Employing latent growth curve modeling and using multiple group analysis, the study provides empirical evidence for the causality between service infusion strategies and manufacturers' profit trajectories. The results also reveal differential effects of service categories and the moderating role of manufacturers' product innovation efforts. For companies with high product innovation activity, services supporting the product (SSPs) directly increase firm profitability, while services supporting the clients' actions (SSCs) do not display any link with long-term profitability. Conversely, for companies with low product innovation activity, SSCs have a significant, positive effect on firm profitability, while SSPs have only an indirect effect. In sum, our findings caution managers that service offerings do not automatically improve company profits. Manufacturers must carefully consider the fit between their service offerings and product innovation activities to grow bottom line results.     

Entrepreneurship,strategy, and organization: Individual and organization in the behaviour of the firm

The main purpose of this paper is to set out a number of ideas on business policy and corporate strategy which underlie a larger research project. It arises in part from a University Seminar in Industrial Economics which for many years provided a forum for academics and businessmen to discuss the growth and organization of particular firms: in part from the upsurge of interest in teaching business policy: and in part from a growing preoccupation, especially among business historians, with the decision-making processes within firms. These have wide implications for the understanding of the nature of entrepreneurship and strategy in the modern business corporation.     

Capital market evaluation of M-form implementation and diversification strategy

Firm announcements of adoption of the multidivisional (M-form) structure are evaluated using stock market data and event methodology. Results indicate that investors positively value M-form adoption. Furthermore, some support is found for the hypothesis that firm diversification strategy (related versus unrelated) is contingently related to investors' valuation of M-form implementation.     

Interpenetration of organization and market : Japan's firm and market in comparison with the U.S.

Resource allocation mechanisms used in the market and within the firm are quite often a mixture of the pure market principle and the pure organization principle. Market principles penetrate into the firm's resource allocation and organization principles creep into the market allocation. Interpenetration occurs to remedy the failure of pure principles other in the market or in the organization. After presenting this new perspective, we analyze resource allocation mechanisms in Japan and the U.S. One conclusion is that interpenetration patterns are rather different between the two countries due to institutional, economic and societal differences. We also analyze the ways in which these differences affect Japanese and American corporate behavior in such areas as diversification strategy, corporate financing, and innovation and venture business activity.     

Product profitability: Causes and effects

The aim of this study was to determine the extent and the reasons for variation in the profitability of a product. The underlying hypothesis was that all products are not profitable. Furthermore, it was assumed that activity-based costing (ABC) would indicate greater differences in the profitability of products than the previously used marginal costing system. The case study was conducted in a company in the metal industry that manufactures and assembles industrial goods. First, the activity chains were modeled and the activity-based costs were calculated. Second, the activity-based cost of the final products was compared with the selling prices to determine the profitability. The results show that the profitability varies significantly. The most profitable 20% of the products generate more than 150% of the profits and 50% of the net sales. Finally, the study identifies the characteristics of the most profitable products and discusses the reasons for the profitability.     

Learning orientation, firm innovation capability, and firm performance

Contemporary organizations require a strong learning orientation to gain competitive advantage. Based on in-depth interviews with senior executives and a review of the literature, the present investigation delineates four components of learning orientation: commitment to learning, shared vision, open-mindedness, and intraorganizational knowledge sharing. A framework is tested using data from a broad spectrum of US industries. Learning orientation is conceptualized as a second-order construct. Its effect on firm innovativeness, which in turn affects firm performance, is examined. The results generally support theoretical predictions, and some interesting findings emerge.     

Firm profitability,growth, and innovation

A new data base measuring company-level innovative activity is used to test how firm growth, profitability, size, and R&D intensity influence subsequent innovative activity. While R&D intensity is found to promote subsequent innovations, and smaller firms are identified as being more conducive to innovation activity than are larger firms, we find that the effect of company growth and profitability on subsequent innovation depends on the technological-opportunity environment. Profitability is found to promote subsequent innovative activity for firms in high-technological-opportunity industries but not in low-technological-opportunity industries. By contrast, high growth generates more innovative activity for firms in low-technological-opportunity industries, but not in high-technological-opportunity environments.     

Alternative profitability measures and tests of the structure-performance relationship

This paper compares the inferences gained when alternatively specifying Census-based price-cost margin and IRS-based accounting rate of return as the dependent variable in conventional structure-performance models. We find important differences between the structure-performance inferences of the alternative specifications of the profit measure. Further, the alternative profit measures are not highly correlated.The authors acknowledge the constructive comments of an anonymous referee.     

Financial constraints and firm post-entry performance

Firms finance production by internally generated funds and external loans. The benefits of leverage, however, come with a cost. This cost is related to the uncertainty banks face about the firm's quality and output price. As time evolves banks learn about the firm and adjust the terms of the loan contract. Because of this, firms do not have equal access to credit: small, young firms face greater binding debt constraints than more mature firms with well-known prospects. The firm survival rate, as well as the firm rate of growth, are, therefore, important issues in analyzing firm post-entry performance.     

Managing B2B customer churn,retention and profitability

It is now widely accepted that firms should direct more effort into retaining existing customers than to attracting new ones. To achieve this, customers likely to defect need to be identified so that they can be approached with tailored incentives or other bespoke retention offers. Such strategies call for predictive models capable of identifying customers with higher probabilities of defecting in the relatively near future. A review of the extant literature on customer churn models reveals that although several predictive models have been developed to model churn in B2C contexts, the B2B context in general, and non-contractual settings in particular, have received less attention in this regard. Therefore, to address these gaps, this study proposes a data-mining approach to model non-contractual customer churn in B2B contexts. Several modeling techniques are compared in terms of their ability to predict true churners. The best performing data-mining technique (boosting) is then applied to develop a profit maximizing retention campaign. Results confirm that the model driven approach to churn prediction and developing retention strategies outperforms commonly used managerial heuristics.     

Family ownership and firm performance: Influence of family management,family control,and firm size

This study examines the relationship between family ownership and firm performance by considering the influence of family management, family control, and firm size. Using proxy data of 786 public family firms in Taiwan during 2002–2007, this study found that family ownership is positively associated with firm performance. The positive association is strong particularly when family members serve as CEOs, top managers, chairpersons, or directors of the firms; however, the association becomes weak when family members are not involved in firm management or control. The findings suggest that the potential family-ownership effects are more likely to be realized when family ownership is combined with active family management and control. In addition, the association between family ownership and firm performance is stronger in small- and medium-sized enterprises (SMEs) than in large companies.     

Corporate social responsibility,firm reputation,and firm performance: The role of ethical leadership

This study investigated the antecedents and outcomes of corporate social responsibility (CSR) and the moderating effects of ethical leadership. We collected two-wave, temporally lagged data from two sources (general and vice-general managers) in 199 tourism firms (hotels and travel agencies) in southeast China. We have two major findings. First, ethical leadership moderated its own indirect effect on firm reputation via CSR. It had an indirect and positive effect on firm reputation through CSR when ethical leadership was strong but not when it was weak. Second, ethical leadership also moderated the indirect effect of CSR on firm performance via firm reputation. There was an indirect and positive effect of CSR when ethical leadership was strong but not when ethical leadership was weak. This study highlights the role of ethical leadership in linking the antecedents and outcomes of CSR, and provides support for the stakeholder theory.     

Economic viability of private commons: Framework and guidelines for profitability

Ongoing regulatory reforms have led to several novel spectrum sharing models under the general umbrella of dynamic spectrum sharing. The private commons model introduced by FCC in 2004 allows spectrum licensees to provide secondary access to spectrum on an opportunistic basis while retaining ownership. Since wireless communication systems are typically overprovisioned in order to deliver service-level guarantees to (primary) users under short-term load variations, this model bears significant potential by facilitating utilization of temporal and spatial surplus of capacity through serving secondary users at possibly different service levels. A potential barrier to adoption of the private commons model is the uncertainty about secondary price–demand relationship which is difficult to predict in an emerging market: A selected price for secondary access may be profitable for some values of secondary demand but not for others, leading to a profound uncertainty about ultimate benefit of spectrum sharing. This paper aims to eliminate such an uncertainty by devising concrete guidelines and methods for profitability. The paper establishes that the price of secondary spectrum access can be chosen to guarantee profitability for any value of secondary demand: It is shown that for both the coordinated and uncoordinated commons regimes a profitable price should exceed a threshold value, which can be calculated. Hence profitability of private commons is insensitive to the demand function. This observation has two complementary interpretations: From a business perspective it provides a constructive approach to profitability; and from a regulatory perspective it provides reassurance that private commons is a healthy model. The paper also leverages the insensitivity property and outlines a technique to further enhance revenue via iterative spectrum offerings.     

Internationalization, resource allocation and firm performance

In this paper, we examine the effects of internationalization and resource allocation on firm performance. We argue that resource allocation plays a pivotal role in determining a firm's international growth. Using a sample of Taiwanese firms, we find an optimal level of internationalization, in terms of the number of countries, as well as the level of investment towards value appropriation that is necessary to start creating a positive impact on firm performance. As a result of our study, we propose that Taiwanese firms would likely benefit by shifting their focus of resource allocation from R&D to marketing.