Effects of unexpected financial slack on SMEs’ diversification and growth: evidence from China

2018 ◽  
Vol 9 (4) ◽  
pp. 500-518
Author(s):  
Xing Liu ◽  
Zhanming Jin
Keyword(s):  
Growth Performance ◽  
Cognitive Biases ◽  
Curvilinear Relationship ◽  
Geographic Diversification ◽  
Firm Level ◽  
Content Type ◽  
Financial Slack ◽  
Regulatory Policies ◽  
Managerial Behaviors ◽  
Industry Diversification

Purpose The purpose of this study is to investigate the relationship between unexpected financial slack and small- and medium-sized enterprises’ (SMEs) diversification and growth performance. Design/methodology/approach Using the phenomenon of IPO over-financed in China as the empirical context, the authors constructed a firm-level measure of unexpected financial slack based on over-financed capital resources and extended the nascent inquiry on unexpected slack. Findings The authors proposed and tested that, with unexpected slack obtained from IPO over-financed, SMEs did not engage in diversification until slack was extraordinarily high (a curvilinear relationship). And in such cases, SMEs preferred geographic diversification rather than industry diversification. Moreover, SMEs were able to sustain growth performance both in the short term and in the long term. Practical implications This study had important implications for regulators and managers. The findings of this study suggested that proper regulations on usage of over-financed capital helped SMEs’ sustain their growth performance. Regulatory policies could curb managers from cognitive biases to behave more prudently and deploy the resources more consciously. However, with sufficient resources, managers should also consider more explorative growth drivers such as diversification. Originality/value This study joined the efforts of extending the antecedents of slack formation from internal managerial behaviors to external uncertain factors. As the first study to explore the role of unexpected slack at firm level, the results of this study shed more light on the effects of unexpected slack resources.

Corporate strategic responses to foreign entry: insights from prospect theory

2014 ◽  
Vol 22 (3) ◽  
pp. 294-323 ◽  
Author(s):  
Thomas Hutzschenreuter ◽  
Ingo Kleindienst ◽  
Florian Groene ◽  
Alain Verbeke
Keyword(s):  
Prospect Theory ◽  
Business Strategy ◽  
Foreign Firms ◽  
Geographic Diversification ◽  
Import Penetration ◽  
Strategic Responses ◽  
Firm Level ◽  
Corporate Response ◽  
Content Type ◽  
Foreign Entry

Purpose – The purpose of this paper is to address how firms adapt their product and geographic diversification as a response to foreign rivals penetrating their domestic market by adopting a behavioral perspective to understand firm-level strategic responses to foreign entry. Design/methodology/approach – The study proposes that strategic responses to foreign entry selected by domestic incumbents have both a framing component and a related, strategic choice component, with the latter including changes in product and geographic market diversification (though other more business strategy-related responses are also possible, e.g. in product pricing and marketing). This study tests a set of hypotheses building on panel data of large US firms. Findings – The study finds, in accordance with our predictions, that domestic incumbents reduce their product and geographic diversification when facing an increase in import penetration. However, when increased market penetration by foreign firms takes the form of FDI rather than imports, the corporate response appears to be an increase in product and geographic diversification, again in line with our predictions. Originality/value – The study develops a new conceptual framework that is grounded in prospect theory, but builds on recent insights from mainstream international strategic management studies (Bowen and Wiersema, 2005; Wiersema and Bowen, 2008).

The relationship between organizational slack and innovation: revisited

2014 ◽  
Vol 29 (1) ◽  
pp. 26-42 ◽  
Author(s):  
Fariss Terry Mousa ◽  
Jaideep Chowdhury
Keyword(s):  
Fixed Effect ◽  
Publicly Traded ◽  
Firm Level ◽  
Firm Innovation ◽  
Content Type ◽  
Financial Slack ◽  
Level Data ◽  
Economic Downturns ◽  
The Impact ◽  
The Relationship

Purpose – The slack-innovation relationship has interested scholars for years. The authors aim to delve into the impact of financial slack on firm innovation by replicating a classic study arguing that this relationship has an inverse U-shape. Design/methodology/approach – The sample consists of all US firms that were publicly traded between 1993 and 2011. The authors employ the standard econometrics methodology of panel regression with firm-fixed effect and time-fixed effect to estimate the regression equation of firm innovation on financial slack. Findings – The authors find that the relationship between financial slack and R&D investments is similar to that suggested by earlier authors, thus enhancing the generalizability of this important finding in management research. The authors also find that this relationship holds even during economic downturns. Originality/value – The authors replicate Nohria and Gulati's classic study by considering the impact of slack on innovation. The authors also move away from survey data, as used by Nohria and Gulati. The authors utilize actual firm-level data for a large sample of US publicly traded firms from 1993 to 2011, thus enhancing the generalizability of these findings.

Understanding decoupling in response to corporate governance reform pressures

2015 ◽  
Vol 23 (4) ◽  
pp. 369-382 ◽  
Author(s):  
Mario Krenn
Keyword(s):  
Corporate Governance ◽  
Design Methodology ◽  
Good Governance ◽  
Regulatory Change ◽  
Compliance Monitoring ◽  
Governance Reform ◽  
Firm Level ◽  
Content Type ◽  
Good Corporate Governance ◽  
Actual Use

Purpose – The purpose of this article is to explain under what circumstances firm-level adoption of codes of good corporate governance will more likely be superficial rather than substantive in nature. The article contains lessons for any agency or country that attempts to implement deep and lasting changes in corporate governance via codes of good corporate governance. Design/methodology/approach – The article reviews the literature on compliance with codes of good corporate governance and develops a conceptual model to explain why some firms that have formally adopted a code of good governance decouple this policy from its actual use. Findings – Decoupling in response to the issuance of codes of good corporate governance will be more attractive to firms and also more sustainable under the following conditions: firms’ compliance costs are relatively high firms’ costs of outright and visible non-compliance are relatively high and outsiders’ compliance monitoring costs are relatively high. Originality/value – The article contributes to the debate on compliance and convergence and provides policymakers with a conceptual framework for assessing the likelihood of successful regulatory change in corporate governance.

Determining the structure of pharmaceutical industry in Iran

2019 ◽  
Vol 13 (1) ◽  
pp. 101-115
Author(s):  
Sara Emamgholipour ◽  
Lotfali Agheli
Keyword(s):  
Pharmaceutical Industry ◽  
Economies Of Scale ◽  
Monopolistic Competition ◽  
Pharmaceutical Market ◽  
Data Availability ◽  
Market Demand ◽  
Firm Level ◽  
Content Type ◽  
Measure Concentration ◽  
Pharmaceutical Industries

Purpose As the pharmaceutical industry is one of the key sectors of the health-care system, the identification of its structure is of particular importance. This paper aims to determine the structure of the pharmaceutical industry in Iran to provide appropriate solutions for pricing and regulation by policymakers. Iran is a growing pharmaceutical market with over $4bn in sales, so the supply side needs to be examined to meet the domestic consumption. Design/methodology/approach This research is a descriptive and retrospective analytical study which examines the Iranian pharmaceutical industry through library studies and using pharmaceutical data of the country’s Food and Drug Administration during 1992-2016. Due to data availability in firm level, the concentration ratio of N leading firms and the Herfindahl–Hirschman index are used to measure the concentration of the pharmaceutical market in 2014 and 2016. Findings The results show that pharmaceutical manufacturing, importing companies and distributing companies play roles in monopolistic competition market, loose oligopoly market and oligopoly market, respectively. For all companies, the magnitudes of Herfindahl–Hirschman indices indicate non-competitive settings. As a result, these companies set their own prices, and market demand affects their sales. In addition, demand for medicines is shaped in the form of supply-induced demand. Research limitations/implications This research was accomplished with no computational limitation. However, it was confined to only one country, one industry and the mentioned period of study. Practical implications The pharmaceutical manufacturers have no influence on medicine prices, and government pricing regulations lessen the market power of such market agents. However, the easy entry to and exit from market stimulate producers to participate in manufacturing activities. The pharmaceutical importers may expand their imports in response to entry new actors; however, the new entrants weaken the coordination on pricing decisions. Social implications As pharmaceutical distributers act in an oligopoly market, they can collude, reduce competition and lower the welfare of pharmaceutical consumers. In such conditions, high investment requirements and economies of scale may discourage the entry of new firms. Originality/value Although there are various studies on market structure in non-pharmaceutical industries, this study is a new effort to measure concentration in the Iranian pharmaceutical market and to determine its structure.

Information risk, stock returns, and asset pricing: Evidence from China

2017 ◽  
Vol 30 (4) ◽  
pp. 379-394 ◽  
Author(s):  
Raheel Safdar ◽  
Chen Yan
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Empirical Literature ◽  
Firm Level ◽  
Cross Sectional ◽  
Market Pricing ◽  
Content Type ◽  
Information Risk ◽  
Accruals Quality ◽  
Three Factor

Purpose This study aims to investigate information risk in relation to stock returns of a firm and whether information risk is priced in China. Design/methodology/approach The authors used accruals quality (AQ) as their measure of information risk and performed Fama-Macbeth regressions to investigate association of AQ with future realized stock returns. Moreover, two-stage cross-sectional regression analysis was performed, both at firm level and at portfolio level, to test if the AQ factor is priced in China in addition to existing factors in the Fama French three-factor model. Findings The authors found poor AQ being associated with higher future realized stock returns. Moreover, they found evidence of market pricing of AQ in addition to existing factors in the Fama French three-factor model. Further, subsample analysis revealed that investors value AQ more in non-state owned enterprises than in state owned enterprises. Research limitations/implications The study sample comprises A-shares only and the generalization of the findings is limited by the peculiar institutional and economic setup in China. Originality/value This study contributes to market-based accounting literature by providing further insight into how and if investors value information risk, and it seeks to fill gap in empirical literature by providing evidence from the Chinese capital market.

Conflict and creativity in inter-organizational teams

2017 ◽  
Vol 28 (1) ◽  
pp. 74-102 ◽  
Author(s):  
Nan Hu ◽  
Zhi Chen ◽  
Jibao Gu ◽  
Shenglan Huang ◽  
Hefu Liu
Keyword(s):  
Shared Leadership ◽  
Negative Relationship ◽  
Task Conflict ◽  
Relationship Conflict ◽  
Curvilinear Relationship ◽  
Team Creativity ◽  
Content Type ◽  
Conflict Situations ◽  
Organizational Teams ◽  
Study Offer

Purpose This paper aims to examine the effects of task and relationship conflicts on team creativity, and the moderating role of shared leadership in inter-organizational teams. An inter-organizational team normally comprises employees from collaborated organizations brought together to conduct an initiative, such as product development. Practitioners and researchers have witnessed the prevalence of conflict in inter-organizational teams. Despite significant scholarly investigation into the importance of conflict in creativity, a deep theoretical understanding of conflict framework remains elusive. Design/methodology/approach A questionnaire survey was conducted in China to collect data. Consequently, 54 teams, which comprised 54 team managers and 276 team members, were deemed useful for the study. Findings By testing our hypotheses on 54 inter-organizational teams, we found that relationship conflict has a negative relationship with team creativity, whereas task conflict has an inverted U-shaped (curvilinear) relationship with team creativity. Furthermore, when shared leadership is stronger, the negative relationship with team creativity is weaker for relationship conflict, whereas the inverted U-shaped relationship with team creativity is stronger for task conflict. Research limitations/implications The main limitation is cross-sectional, which cannot establish causality in relationships. Despite this potential weakness, the present research provides insights into conflict, leadership and inter-organizational collaboration literature. Practical implications The findings of this study offer some guidance on how managers can intervene in the conflict situations of inter-organizational teams. Social implications Managers are struggling to identify ways to effectively manage team conflict when a team of diverse individuals across organizational boundaries are brought together to solve a problem. The findings of this study offer some guidance on how managers can intervene in the conflict situations of inter-organizational teams. Originality/value This paper provides understandings about how relationship and task conflicts affect team creativity in inter-organizational teams.

A long life after exploitation and exploration

2014 ◽  
Vol 17 (2) ◽  
pp. 209-228 ◽  
Author(s):  
Ming Piao
Keyword(s):  
Positive Impact ◽  
Product Market ◽  
Disk Drive ◽  
Curvilinear Relationship ◽  
Content Type ◽  
Cox Proportional Hazard ◽  
Main Effect ◽  
Future Viability ◽  
Exploitation And Exploration ◽  
Organizational Longevity

Purpose – The purpose of this paper is to investigate the longevity implications of exploitation and exploration. It examines the main effect of exploitation, the main effect of exploration, and the interaction effect of exploitation and exploration on organizational longevity. Design/methodology/approach – This study employs Cox Proportional Hazard Model in analyzing 20-year data from the hard disk drive industry. Findings – Exploitation, independent of exploration, has a positive impact on organizational longevity. Exploration, independent of exploitation, has a curvilinear impact on organizational longevity. Jointly, exploitation weakens the curvilinear relationship between exploration and organizational longevity. Research limitations/implications – This study challenges the dualistic view that exploitation is for “current viability” and exploration is for “future viability.” It suggests that firms need to actively engage in (instead of compromise) both exploitation and exploration in order to prolong their lifespan despite the counter force triggered by the negative dynamics between exploitation and exploration. Practical implications – In order to prolong organizational longevity, firms need to fully engage in (but not compromise) their existing product-market domains, actively explore (but not over-explore) their new product-market domain, and to embrace (but not avoid) the tension between exploitation and exploration. Originality/value – This study is one of the few that systematically and empirically examined the longevity implications of exploitation and exploration. It adds specificity and precision to the understanding of how exploitation and exploration, independently and jointly, affect organizational longevity.

scholarly journals Does graphical reporting improve risk disclosure? Evidence from European banks

2018 ◽  
Vol 19 (1) ◽  
pp. 161-180 ◽  
Author(s):  
Michael Jones ◽  
Andrea Melis ◽  
Silvia Gaia ◽  
Simone Aresu
Keyword(s):  
Credit Risk ◽  
Impression Management ◽  
Perspective Taking ◽  
Voluntary Disclosure ◽  
Cognitive Biases ◽  
Annual Reports ◽  
Theory Approach ◽  
Risk Disclosure ◽  
Content Type ◽  
Incremental Information

Purpose The purpose of this paper is to examine the voluntary disclosure of risk-related issues, with a focus on credit risk, in graphical reporting for listed banks in the major European economies. It aims to understand if banks portray credit risk-related information in graphs accurately and whether these graphs provide incremental, rather than replicative, information. It also investigates whether credit risk-related graphs provide a fair representation of risk performance or a more favourable impression than is warranted. Design/methodology/approach A graphical accuracy index was constructed. Incremental information was measured. A multi-level linear model investigated whether credit risk affects the quantity and quality of graphical credit risk disclosure. Findings Banks used credit risk graphs to provide incremental information. They were also selective, with riskier banks less likely to use risk graphs. Banks were accurate in their graphical reporting, particularly those with high levels of credit risk. These findings can be explained within an impression management perspective taking human cognitive biases into account. Preparers of risk graphs seem to prefer selective omission over obfuscation via inaccuracy. This probably reflects the fact that individuals, and by implication annual report’s users, generally judge the provision of inaccurate information more harshly than the omission of unfavourable information. Research limitations/implications This study provides theoretical insights by pointing out the limitations of a purely economics-based agency theory approach to impression management. Practical implications The study suggests annual reports’ readers need to be careful about subtle forms of impression management, such as those exploiting their cognitive bias. Regulatory and professional bodies should develop guidelines to ensure neutral and comparable graphical disclosure. Originality/value This study provides a substantive alternative to the predominant economic perspective on impression management in corporate reporting, by incorporating a psychological perspective taking human cognitive biases into account.

scholarly journals Emergence of cultural intelligence and global mindset capital: a multilevel model

2016 ◽  
Vol 24 (2) ◽  
pp. 106-122 ◽  
Author(s):  
Jase R. Ramsey ◽  
Amine Abi Aad ◽  
Chuandi Jiang ◽  
Livia Barakat ◽  
Virginia Drummond
Keyword(s):  
Multilevel Model ◽  
Cultural Intelligence ◽  
The Other ◽  
Global Mindset ◽  
Firm Level ◽  
Content Type ◽  
Individual Level ◽  
Other Hand ◽  
Underlying Mechanisms ◽  
Conceptual Study

Purpose The purpose of this paper is to establish under which conditions researchers should use the constructs cultural intelligence (CQ) and global mindset (GM). The authors further seek to understand the process through which these constructs emerge to a higher level and link unit-level knowledge, skills and abilities (KSAs) capital to pertinent firm-level outcomes. Design/methodology/approach This paper is a conceptual study with a multilevel model. Findings This paper differentiates two similar lines of research occurring concordantly on the CQ and GM constructs. Next, the authors develop a multilevel model to better understand the process through which CQ and GM emerge at higher levels and their underlying mechanisms. Finally, this paper adds meaning to the firm-level KSAs by linking firm-level KSAs capital to pertinent firm-level outcomes. Research limitations/implications The conclusion implies that researchers should use CQ when the context is focused on interpersonal outcomes and GM when focused on strategic outcomes. The multilevel model is a useful tool for scholars to select which rubric to use in future studies that have international managers as the subjects. The authors argue that if the scholar is interested in an individual’s ability to craft policy and implement strategy, then GM may be more parsimonious than CQ. On the other hand, if the focus is on leadership, human resources or any other relationship dependent outcome, then CQ will provide a more robust measure. Practical implications For practitioners, this study provides a useful tool for managers to improve individual-level commitment by selecting and training individuals high in CQ. On the other hand, if the desired outcome is firm-level sales or performance, the focus should be on targeting individuals high in GM. Originality/value This is the first theoretical paper to examine how CQ and GM emerge to the firm level and describe when to use each measure.

Political embeddedness and multi-layered interaction effects on the performance of private enterprises: lessons from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Eli Gimmon ◽  
Ying Teng ◽  
Xiaobin He
Keyword(s):  
Transition Economy ◽  
Economic Transition ◽  
Secondary Data ◽  
Interaction Effects ◽  
Positive Influence ◽  
Business Owners ◽  
Private Enterprises ◽  
Firm Level ◽  
Content Type ◽  
Personal Level

Purpose This study aims to present multi-layered embeddedness and explore the main and interaction effects of political embeddedness on the performance of private enterprises in China. This study tests multi-layered embeddedness through interaction effects between three layers, namely, political, territorial and inter-firm embeddedness. Political embeddedness is related at the personal and the firm levels. Design/methodology/approach The authors used secondary data of four non-panel waves (2002, 2008, 2010 and 2016) of large samples having identical questions based on the Chinese private enterprises’ survey. The accumulated number of business owners’ responses is a total of 10,686. Findings The main effects of each of the layers of embeddedness showed a positive influence on enterprise performance consistently and unchanged over time which fits the Chinese Guanxi regardless of the immense macro-economic transition. However, unexpectedly some interactions showed negative significant effects on performance. Practical implications First, business owners should be aware of the specific contribution to the performance of political embeddedness at both the firm level and the personal level. Second, the pursuit of exercising simultaneously several layers of embeddedness may be detrimental to company performance. This study provides generalizable lessons regarding different embeddedness layers beyond the context of China’s transition economy. Originality/value First, the authors extend political embeddedness to the firm level whilst in previous research this construct had been mostly related to the personal level. Second, building on the resource-based view and redundant resources the authors present the disadvantage of “over-embeddedness” as related to multi-layered embeddedness which has been understudied.

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