scholarly journals An Examination Of The Economic Impact Of Pension Rate Reductions On Future Pension Expense, Earnings, And Cash Flows: A Simulation

2011 ◽  
Vol 1 (7) ◽  
Author(s):  
Alan I. Blankley ◽  
Philip G. Cottell ◽  
Richard H. McClure
Keyword(s):  
Small Firms ◽  
Pension Plan ◽  
Cash Flows ◽  
Pension Plans ◽  
Large Firms ◽  
Asset Return ◽  
Future Earnings ◽  
Economic Climate ◽  
The Future ◽  
The Impact

In this paper, we develop a two-period analytical model of pension cost, which allows us to simulate pension expense and the associated earnings impact. These estimates are important because they provide information to the market, and because they are useful in estimating future cash flows or for other analytical purposes. This is especially true now, because the economic environment has deteriorated to a point that many investors perceive increased uncertainty with respect to pension plans and the effect they have on future income. Some plan sponsors have not been faced with pension plan losses for over a decade or longer, having enjoyed reduced or eliminated funding holidays as a result of high returns to pension plan assets. Given the current economic climate, however, these results (boosts to earnings due to pension credits and reduced or eliminated funding requirements) may change abruptly. In fact, several authors in the popular financial press have speculated on the impact of such fundamental changes in pension assets, liabilities and estimates. We simulate the potential results for two periods in the future based upon percentiles drawn from a sample of 1,116 firms taken from Compustat. We compute projected pension expense for the 25th percentile firm, the median firm, and the 75th percentile firm by varying the discount rates, expected rates of return, and actual asset return assumptions. Our results indicate that while the pension expense effect is large in both periods across small, mid-sized and large firms, large firms show the greatest increase in pension expense. Interestingly, however, the earnings impact is the smallest for large firms in both periods, and is not material in period one for both large and mid-sized firms. It is material for small firms. Firms with small pension plans appear to have the greatest earnings drag both one and two years into the future. In period two, all firms face significantly greater expense and earnings reductions, although again, smaller firms face the greatest impact. In addition, all firms face significantly increased cash funding requirements in order to prevent funding ratios (plan assets scaled by pension liabilities) from deteriorating. These results suggest not only future earnings reductions form pension rate changes, but also a potential cash flow impact as well.

Industrial Research and Firm Size, Survival, and Growth in American Manufacturing, 1921–1946: An Assessment

1983 ◽  
Vol 43 (4) ◽  
pp. 953-980 ◽  
Author(s):  
David C. Mowery
Keyword(s):  
Firm Size ◽  
Small Firms ◽  
Firm Growth ◽  
Industrial Research ◽  
Large Firms ◽  
Research Activity ◽  
Growth And Survival ◽  
Survival And Growth ◽  
The Impact ◽  
The Relationship

The literature on the development of American industrial research suggests that during the twentieth century large firms “dominated” industrial research, and reaped the majority of the benefits from such activity. This paper utilizes new data to analyze both the relationship between firm size and research employment and the impact of research activity on firm growth and survival during 1921–1946. The results suggest that large firms were no more research-intensive than were small firms during the 1921–1946 period. Research activity significantly enhanced the probability of firms' survival among the ranks of the 200 largest manufacturing firms during 1921–1946. Research employment also improved the growth performance of both large and small firms during 1933–1946.

A Perceptual Measure of Innovation Performance: Firm-Level Evidence from Turkey

2017 ◽  
Vol 14 (06) ◽  
pp. 1750038 ◽  
Author(s):  
Derya Findik ◽  
Berna Beyhan
Keyword(s):  
Factor Analysis ◽  
Small Firms ◽  
Innovation Performance ◽  
Large Firms ◽  
Firm Level ◽  
Process Innovations ◽  
Significant Difference ◽  
Process Oriented ◽  
Product And Process ◽  
The Impact

This paper aims to introduce a qualitative indicator to measure innovation performance of Turkish firms by using firm-level data collected by Turkish Statistical Institute (TURKSTAT) in 2008 and 2009. We propose a new indicator to measure the innovation performance which is simply based on the perception of firms regarding to the impacts of innovation. In order to create performance indicators, we conduct a factor analysis to group the firms’ perceptions on the impacts of innovation. Factor analysis gives us product and process-oriented impacts of innovation. There are significant differences among product innovators, process innovators and firms engaged in both product and process innovations with respect to their perceptions on product and process-oriented impacts of innovation. Among these three groups, product- and process-oriented impacts provide a highest value for the firms that perform both product and process innovations. As far as the link between firm characteristics and the impact of innovation is considered, there is a significant difference between small and large firms with respect to their perceptions on product-oriented impact of innovation. While product-oriented impact is larger for small firms, large firms focus more on process-oriented impact. Anova results also indicate that perceptions on process-oriented impact significantly differ among exporter firms, domestic market-oriented firms and firms being active in internal and external markets. Process-oriented impact generates results in favor of exporting firms.

Market power and R&D investment: the case of China

2021 ◽  
Author(s):  
Xiaohua Sun ◽  
Fang Yuan ◽  
Yun Wang
Keyword(s):  
Market Power ◽  
Small Firms ◽  
Market Competition ◽  
Industry Concentration ◽  
Alternative View ◽  
Large Firms ◽  
Industry Level ◽  
Depth Analysis ◽  
The Impact ◽  
D Investment

Abstract This article presents an in-depth analysis of market power and its impact on firm research and development (R&D) investment in China. Two opposing theories have been proposed in the literature. The first, due to Schumpeter, suggests that monopoly power has a positive effect on firms’ propensity to innovate hence their investment in R&D. The alternative view, first proposed by Arrow, suggests that firms invest in R&D in order to escape competition, and thus market competition stimulates innovation. In testing these theories, prior studies have measured market power in different ways. Some use the so-called Lerner index, which measures the profit margin of a particular firm. Others use measures of industry concentration, for example, the Herfindahl index. This article tests the competing theories using a sample of 300,095 Chinese manufacturing firms in 29 two-digit manufacturing industries. We unify the two measures of market power, using a hierarchical linear model, to determine whether industry-level measures add power to specifications based on firm-level markups alone. We find, first, that firms are less likely to carry out R&D activities as their market power intensifies. The effect is nonlinear: firms with higher markups spend even less on R&D than a linear specification predicts. This finding supports Arrow’s theory and contradicts Schumpeter’s theory. Second, for the sample as a whole, the impact of industry-level concentration is negligible. However, when we break the sample into large, medium, and small firms, industry concentration has a significant effect on large and medium-sized firms but no impact on small firms. Thus, large firms with high markups in concentrated industries spend less on R&D than large firms with high markups in less concentrated industries. We interpret this as further evidence in support of the escape competition theory: less concentrated industries are more competitive, forcing the leaders to invest more heavily on R&D.

scholarly journals Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market

2008 ◽  
Vol 98 (4) ◽  
pp. 1413-1442 ◽  
Author(s):  
Asim Ijaz Khwaja ◽  
Atif Mian
Keyword(s):  
Financial Distress ◽  
Small Firms ◽  
Emerging Market ◽  
Credit Market ◽  
Large Firms ◽  
Liquidity Shocks ◽  
Political Ties ◽  
Nuclear Tests ◽  
The Impact ◽  
Do So

We examine the impact of liquidity shocks by exploiting cross-bank liquidity variation induced by unanticipated nuclear tests in Pakistan. We show that for the same firm borrowing from two different banks, its loan from the bank experiencing a 1 percent larger decline in liquidity drops by an additional 0.6 percent. While banks pass their liquidity shocks on to firms, large firms—particularly those with strong business or political ties—completely compensate this loss by additional borrowing through the credit market. Small firms are unable to do so and face large drops in overall borrowing and increased financial distress. (JEL E44, G21, G32, L25)

The outlook for pension contributions and profits in the US

2004 ◽  
Vol 3 (1) ◽  
pp. 77-97 ◽  
Author(s):  
ALICIA H. MUNNELL ◽  
MAURICIO SOTO
Keyword(s):  
Stock Market ◽  
Pension Plan ◽  
Pension Plans ◽  
Ageing Population ◽  
Defined Benefit ◽  
Bear Market ◽  
Defined Benefit Plans ◽  
Legislative Changes ◽  
Corporate Profits ◽  
The Impact

The bear market that began in 2000 focused attention on two issues – pensions and profits. The initial pension problem was the big decline in value of individual 401(k) accounts. The profit issue was misconduct and stock options. In fact, there is another compelling issue involving both pensions and profits – the impact of the bear market on defined benefit pension plans.Plan sponsors have a projected benefit liability, which until recently was covered by the rise in asset values during the extended bull market. When stock values fell by 50 percent, sponsors for the first time in decades had to contribute to their pensions. But even without the decline in the stock market, sponsors of defined benefit plans were going to face increased pension contributions in the coming decade. The reason is a host of regulatory and legislative changes in the late 1980s that slowed or limited pension contributions.Our analysis suggests that in the absence of the stock market boom and the regulatory and legislative changes that reduced funding, the average firm's contribution to its pension plan would have been 50 percent higher during the 1982–2001 period; corporate profits would have been roughly 5 percent lower.The deferred contributions are coming due. The decline in the stock market and an ageing population imply that contributions would double from their current level. As the economy emerges from recession and the bear market draws to a close, firms and investors must be prepared to contend with a strong headwind from pension funding obligations that could slow the recover.

scholarly journals Credit ratings and firm value

2020 ◽  
Vol 17 (2) ◽  
pp. 157-168 ◽  
Author(s):  
Robert M. Hull
Keyword(s):  
Firm Value ◽  
Small Firms ◽  
Credit Rating ◽  
Credit Ratings ◽  
Cash Flows ◽  
Sustainable Growth ◽  
Large Firms ◽  
Specific Objective ◽  
Second Growth ◽  
Growth Firms

A topic of relevance to financial managers is the relation between a credit rating and firm value (VL). The general aim of this paper is to elucidate this relation with a specific objective of helping C corp managers choose an optimal target rating (OTR). To achieve these goals, we use the Capital Structure Model (CSM) to compute a series of firm value (VL) outcomes matched to credit ratings. The maximum VL (max VL), among all VL outcomes, identifies OTR. This identification begins with the matching of credit spreads and ratings by Damodaran (2019) for three firm categories: small, large, and financial service (FS). Given these spreads, we can compute costs of borrowing with these costs needed to compute VL and other numerical outcomes. Besides costs of borrowing, our numerical outcomes are based on other key inputs including US $1,000,000 in before-tax cash flows, C corp tax rates, and a sustainable growth rate. Major findings that guide managers include the following. First, Moody’s A3 is the most common OTR. Second, growth firms generally require higher ranked OTRs. Third, compared to small and large firms, FS firms attain greater max VL values, higher optimal debt-to-firm value ratios (ODVs), and generally lower ranked OTRs. Fourth, relative to small firms, large firms gain less from growth even though they attain greater max VL outcomes. Fifth, only for FS firms can we find outcomes where operational cash flows are better spent on interest payments than retained internally for growth.

Internationalization and performance: evidence from Chinese firms

2018 ◽  
Vol 12 (1) ◽  
pp. 19-34 ◽  
Author(s):  
Chao Zhou
Keyword(s):  
Firm Size ◽  
Small Firms ◽  
Manufacturing Firms ◽  
Research Database ◽  
Large Firms ◽  
Chinese Firms ◽  
Content Type ◽  
The Impact ◽  
Overseas Subsidiaries ◽  
A Share

Purpose This paper aims to test the internationalization–performance relationship based on data of Chinese firms and the impact of firm size on the internationalization–performance relationship. Design/methodology/approach This paper uses overseas subsidiaries as a percentage of total subsidiaries to measure the degree of internationalization. As the overseas subsidiaries and total subsidiaries data of Chinese A-share listed firms are not available in any existing databases, the author hand-collected information on subsidiaries of Chinese A-share listed manufacturing firms from their annual financial reports during 2001-2014. The basic accounting and market information is collected from the China Stock Market and Accounting Research Database. This paper finally gets 535 manufacturing firms. Findings The empirical results suggest that the internationalization–performance relationship is W-shaped in overall samples, but varies with firm size. Specifically, the internationalization–performance relationship is W-shaped in small firms and U-shaped in large firms. Research limitations/implications Future studies based on unlisted Chinese firms or other measurement of internationalization may provide further understanding of the internationalization–performance relationship. Practical implications Policymakers should help small firms prepare a long-term internationalization strategy, giving more support for small firms in the first and third phases of internationalization and helping them to reach the second and fourth phases. Policymakers should also pay more attention to limit the aggressive internationalization behavior of large firms. Originality/value This study provides new evidence for the internationalization–performance relationship by using the unique longitude sample from China and the unique measurement of internationalization. We also highlight the importance of firm characteristics in the examination of internationalization–performance relationship, which provides a potential explanation for previous mixed evidence.

scholarly journals IMPLEMENTATION OF CASH FLOW AS A MEASURING TOOL IN PREDICTING FUTURE NET INCOME

2021 ◽  
Vol 1 (1) ◽  
pp. 16-24
Author(s):  
Nurhana Dhea Parlina ◽  
Erwin Budianto
Keyword(s):  
Cash Flow ◽  
Large Scale ◽  
Total Sample ◽  
Cash Flows ◽  
Present Moment ◽  
Net Income ◽  
Future Earnings ◽  
The Future ◽  
Operational Activities

In Indonesia, MSMEs are protected and have a legal shield such as the Presidential Decree No. 19 of 1998 and several other regulations. Where at this time, many MSME businesses are starting to grow both on a household and large scale, this includes Culinary Business. Culinary businesses are one of the many MSME that are starting to flourish, both on a domestic and big scale, at present moment. This business is in high demand among teenagers and adults. With a limited budget, this business may be launched at home, and it has a potential future. Therefore, the background behind the realization of Kedai Nyobian 8 which is used as a case study of problems that occur in the operational activities of Kedai Nyobian 8. The purpose of this study is to analyze net income in predicting operating cash flows in the future. The research method used is quantitative method. The population in this study is a case study at Kedai Nyobian 8 with a number of samples in the form of financial statements for September for 30 days. While October for 26 days, hence the total sample is 56 observations. The sampling measurement technique is a case study at Kedai Nyobian 8 using Saturated Sample. Therefore, Kedai Nyobian 8 will be more effective and achieve better results in the future by reducing unnecessary costs and anticipating future earnings in cash flow.    

Optimal Asset Allocation of Assets in an Open Pension Plan

2015 ◽  
Vol 5 (1) ◽  
Author(s):  
Maneesh Sharma ◽  
Tom Totten ◽  
John Cierzniak
Keyword(s):  
Asset Allocation ◽  
Market Performance ◽  
Pension Plan ◽  
Pension Plans ◽  
Research Committee ◽  
Allocation System ◽  
Time Horizons ◽  
The Impact ◽  
Allocation Strategies

Given the generally long term nature of pension plans, the behavior of the market plays a crucial role in making a pension plan able to meet its obligations. Regardless of the market performance, the structure of the benefits remains the same, unless they are negotiated to be at a different level. In this paper, we studied primarily the impact of market performance on a pension plans ability to meet its obligations. We studied the period from 1974 to 2010 and included asset allocation strategies that varied from allocating 25% to 100% weight assigned to equity portfolios. The goals were to determine which type of asset allocation system is the most efficient across all time horizons. Our results show that it is not necessary to have an overly aggressive posture to equities. Indeed, as assets become more exposed to equities, the efficiency of a portfolio (as measured by Sharpe ratio) declines. We found that an exposure to equity in the range of 35%-50% is sufficient to meet most pension obligations, provided that the plans are fully funded at the outset. We acknowledge and thank the support of all members of the research committee of SOA for their valuable comments.

An Analysis of Critical Accounting Estimate Disclosures of Pension Assumptions

2014 ◽  
Vol 28 (4) ◽  
pp. 819-845 ◽  
Author(s):  
Mark P. Bauman ◽  
Kenneth W. Shaw
Keyword(s):  
Discount Rate ◽  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
Asset Return ◽  
Big 4 ◽  
Accounting Estimates ◽  
Regulated Industries ◽  
Funded Status ◽  
Defined Benefit Pension Plans

SYNOPSIS Accounting for defined-benefit pension plans is complex, and reported financial statement amounts are significantly impacted by a myriad of assumptions. In its interpretative release FR-72 (SEC 2003), the SEC called for more informative and transparent Management Discussion and Analysis (MD&A) disclosure of critical accounting estimates (CAE), including those regarding pension plans. This paper uses a random sample of 147 firms with relatively large defined-benefit pension plans to analyze firms' MD&A pension-related critical accounting estimate disclosures. We find that 60 (61) percent of our sample firms quantify the effect on pension measurements—primarily pension expense—of a given change in discount rates (expected asset returns). The median effect on earnings per share of these CAE-disclosing firms is between two and three cents. Firms rarely disclose the effects of potential changes in future salary assumptions or other estimates on pension measurements. While FR-72 encourages MD&A disclosure of information to assess the past accuracy of or predict future changes in critical accounting estimates, few firms provide such information with respect to their pension plans, suggesting avenues for improvement in disclosures. Finally, we use logistic regression to analyze the determinants of firms' decisions to disclose the sensitivity of pension expense to pension discount rate or expected asset return assumptions. Results indicate that the likelihood of providing a discount rate or expected asset return CAE is positively related to firm size, having a Big 4 auditor, and the variability of pension plan funded status, and is lower for firms operating in regulated industries and for firms with better-funded pension plans.

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