The Validity of Gibrat’s Law: Evidence from Ecuadorian Service SMEs

The objective of this research is to analyze the relationship between size and growth through the validation of Gibrat's law. A sample of 17,082 Ecuadorian companies in the service sector is used for the period 2010–2015. The estimation method used is that of quantile regression for panel data; the results suggest that small companies grow faster than their larger counterparts. The results show that the growth, measured through sales and employment, of SMEs in the service sector in Ecuador is not independent of firm size and therefore does not correspond to a random process.     

Analysts’ role in shaping non-GAAP reporting: evidence from a natural experiment

Review of Accounting Studies - We examine how exogenous changes in analyst coverage influence (1) the likelihood that managers will voluntarily disclose customized (non-GAAP) performance metrics...     

Innovation in foreign enterprises: the influence exerted by location and absorptive capacity

ABSTRACT

This paper has as its aim to analyse multinational enterprises’ location decisions from the perspective of the knowledge-based firm in an attempt to answer the following questions: Are innovative MNEs more likely to be located in areas with a higher degree of agglomeration? Who benefits to a greater extent ? in terms of innovation ? from geographical proximity with other agents: national or foreign enterprises? What role does absorptive capacity play in the relationship between agglomeration and innovation? According to this research work, agglomeration differently influences the innovation of MNE subsidiaries – through knowledge spillovers – depending on the types of agglomerated companies. The analysis performed with a sample of firms located in Spain includes local and foreign companies and uses data from a survey conducted by the National Statistics Institute (INE for its Spanish initials) in 2016. The results show that the agglomeration of similar enterprises favours innovation amongst foreign firms, as opposed to local ones, which absorb both positive and negative effects.     

Managerial ability and bond rating changes

This study examines the relation between managerial ability and bond credit rating changes. We attempt to add to the credit rating agency literature by exploring the role managerial ability plays in the initial bond rating assignments and in rating changes. We predict firms with more‐able managers are more likely to have higher bond ratings and to be more able to have a positive influence on rating changes. We find a significant and positive relation between managerial ability and change in credit ratings, suggesting that more‐able managers can take effective actions to improve their credit ratings.     

A Look Back at the Beginnings of EVA and Value‐Based Management

In this interview conducted five years ago, one of the pioneers of value‐based management discusses his life's work in converting principles of modern finance theory into performance evaluation and incentive compensation plans that have been adopted by many of the world's largest and most successful companies, including Coca‐Cola, SABMiller in London, Siemens in Germany, and the Godrej Group in India. The issues covered include the significance of dividend payouts (are dividends really necessary to support a company's stock price and, if so, why?) as well as the question of optimal capital structure (whether and why debt might be cheaper than equity). But the most important focus of the interview is corporate performance measurement and the use of executive pay to strengthen management incentives to increase efficiency and value. As Stern never tired of arguing, the widespread tendency of public companies to manage “for earnings”—or in accordance with what he refers to as “the accounting model of the firm”—often leads to value‐destroying decisions. As one example, the GAAP accounting principle that requires intangible investments like R&D and training to be written off in the year the money is spent is likely to cause significant underinvestment in such intangibles. At the same time, the failure of conventional income statements to reflect the cost of equity almost certainly encourages corporate overinvestment. Stern's solution to this problem was an executive incentive compensation plan whose rewards were tied to increases in a measure of economic profit called economic value added, or EVA, which research has shown to have a significance relation to changes both in share value and the premium of market value over book value. Moreover, by combining such a plan with a “bonus bank” that pays out annual awards over a multiyear period, boards could ensure that management will be rewarded not for good luck but for sustainable improvements in performance.     

Fiscal response to the COVID-19 crisis in advanced and emerging market economies†

The fiscal policy response to the COVID-19 crisis was swift and strong, in tandem with monetary policy. Advanced economies (AEs) deployed a much larger fiscal response than emerging market economies (EMEs) throughout the pandemic. This study focuses on the drivers of this divergent fiscal response in the first months of the pandemic. Apart from the fact that EMEs entered the crisis later than AEs, narrower fiscal policy space in EMEs, further reduced by the tightening of their financing conditions in the early stages of the pandemic, constrained their fiscal response. The size and composition of the fiscal response also depended on some structural factors, such as the level of income, the strength of the social safety nets and automatic stabilisers.     

External stakeholder engagement: Complementary and substitutive effects on firms' eco-innovation

In this paper, we investigate whether firms' engagements in collaboration agreements with different types of external stakeholders produce complementary effects on the likelihood of eco-innovation. Although collaboration network and open eco-innovation theories affirm that the combination of external partners such as scientific partners, suppliers and customers produces complementary effects on the firm's likelihood of eco-innovation, several empirical studies found the existence of substitutive effects between them. To bridge this gap in the literature, we shape the nature of the interaction between different external partners, analysing an unbalanced panel sample of 10,918 innovative Spanish firms, covering the period 2008–2016. Consequently, we can show how firms benefit the most from collaboration with external partners. Our results show that firms that simultaneously collaborate with scientific partners, suppliers and customers generate partial complementary effects, which increase the firm's likelihood to eco-innovate the most, and that the combination of customer-collaboration with scientific partners, or supplier-collaboration, produces partial substitutive effects. Taking this in account, our results also confirm that engaging with scientific partners, suppliers or customers, independent of one another, increases firms' likelihood of eco-innovation more than noncollaboration. These results have important implications for managers, researchers and policy designers. For managers, this study provides a correct understanding of the benefits that they can expect to obtain from multi-partner external collaboration. For researchers, it introduces the marginal analysis to estimate interaction on nonlinear models. Finally, for policy designers, it shows the need for sponsored R&D collaboration to encourage coordinated ecosystems in which sustainability goals are pursued together.     

On the Non-Linear Relationship between Fiscal Deficit and Inflation: The Nigeria Experience

International Advances in Economic Research - Based on linear models, the bulk of empirical studies have confirmed that large and persistent fiscal deficits are inflationary in most developing...     

New policy uncertainties in the economic outlook

There are a lot of new policy uncertainties, though there is some room, even off a baseline starting near full employment, for the Administration’s policies on taxes, infrastructure, and regulation, to lift economic growth. However, the downside risks from the Administration’s proposals on trade and immigration are significant.