Portfolio Interrelationships and Financial Performance in the Context of European Firms

The linkage between the interrelationships of a firm’s lines of business and corporate financial performance has been the subject of extensive research in the strategy field. Yet very little research has examined this key relationship within firms operating in Continental Europe. This study investigates firm relatedness and its further relationship to accounting and market-based performance measures within a sample of European firms. The results confirm a positive and significant relationship between resource-based relatedness and firm performance for German, Swiss and Austrian multi-business firms. Thus, this study provides further evidence that resource-based relatedness of large diversified manufacturing companies can help explain variability in corporate financial performance across different institutional environments.     

Does Outsourcing Really Improve Firm Performance? Empirical Evidence and Research Agenda

The phenomenon of outsourcing has spawned a rich body of scholarly work in the last two decades. Yet, the answer to one important question has remained elusive: Does outsourcing really improve firm performance? Addressing this question is important as firms across nations continue to embark on the practice of outsourcing to save operating costs and remain competitive. Scholars, practitioners and policy‐makers need to understand whether and how outsourcing benefits the firm. However, no comprehensive review of empirical evidence has been published so far that can address this question. This study reviews 57 empirical research articles that investigated the outsourcing–firm performance relationship in 47 peer‐reviewed scholarly journals over a 20‐year time‐span (1996–2015). The articles differ widely in research scope, context, level of analysis, data source, time‐span, industry sector, extent of outsourcing and measure of performance. The findings suggest that outsourcing can produce positive, negative, mixed, moderated or no significant impact on the firm. This study also provides useful directions for future research on outsourcing and firm performance.     

Collusion With Persistent Cost Shocks

We consider a dynamic Bertrand game in which prices are publicly observed and each firm receives a privately observed cost shock in each period. Although cost shocks are independent across firms, within a firm costs follow a first‐order Markov process. We analyze the set of collusive equilibria available to firms, emphasizing the best collusive scheme for the firms at the start of the game. In general, there is a trade‐off between productive efficiency, whereby the low‐cost firm serves the market in a given period, and high prices. We show that when costs are perfectly correlated over time within a firm, if the distribution of costs is log‐concave and firms are sufficiently patient, then the optimal collusive scheme entails price rigidity: firms set the same price and share the market equally, regardless of their respective costs. When serial correlation of costs is imperfect, partial productive efficiency is optimal. For the case of two cost types, first‐best collusion is possible if the firms are patient relative to the persistence of cost shocks, but not otherwise. We present numerical examples of first‐best collusive schemes.     

Success Traps,Dynamic Capabilities and Firm Performance

Dynamic capabilities (DCs) are fundamental to the understanding of differential firm performance. However, the question remains why some firms are better at developing and applying DCs than others. In particular, successful firms have been warned against the tendency to fall into a success or competence trap, where success reinforces exploitation of existing competences and crowds out exploration of new competences, hindering the development of DCs. Therefore, this study examines the effects of success traps on DCs and consequently firm performance, taking into account firm strategy and market dynamism. To facilitate this, our study also identifies the commonalities of DCs across firms. Drawing on survey data from 113 UK high‐tech small and medium‐sized firms, we find that success traps have a significant, strong negative effect on DCs, which in turn have a weak positive effect on firm performance; DCs are manifested through absorptive and transformative capabilities as two common features across firms. We also find that the development and application of DCs is related to internal factors (such as success traps) rather than external factors (such as market dynamism).     

MEASURING AND COMPARING VOLUME FLEXIBILITY IN THE CAPITAL GOODS INDUSTRY

This paper presents a theoretical framework for measuring volume flexibility and relating these measures to firm performance. We develop four metrics using the principle that a volume flexible firm can handle similar levels of uncertainty (as measured by sales variability) with smaller fluctuations in inputs (as measured by variability in cost of goods sold and variability in inventory levels). Then, using 20 years of Compustat data on 550 firms in the capital goods industry, we find that on three of four process‐based measures, small firms are more volume flexible. However, when we incorporate financial performance into our fourth metric, we find that large firms are more volume flexible. We conclude that, to be volume flexible is one thing, but to benefit from this flexibility, firms need to focus on the cost of being flexible.     

Determinanten der Vorstandsvergütung

Using a novel, hand-collected data set covering all German non-financial firms listed in the Prime Standard of FWB (Frankfurt Stock Exchange), we examine determinants of executive compensation in German listed firms. We distinguish three potential determinants: firm characteristics, firm performance, and corporate governance characteristics. While we find that simple firm characteristics like size and industry affiliation together with time effects explain more than 60 % of variation in overall compensation, performance characteristics are economically inconsequential for the explanation of compensation levels. When we distinguish between widely held firms and firms with a large blockholder, we find that the latter grant compensation packages that are smaller, less sensitive to the firm’s stock market performance but more sensitive to the firm’s operating performance. Finally, we confirm that supervisory board characteristics also affect the level of executive compensation in German firms. Overall, our findings suggest that although the corporate governance environment in Germany has changed dramatically during the last decade, German listed firms are still exposed to high agency costs.     

An Empirical Analysis of the Decision to Train Apprentices

Abstract. It is a widely held belief that apprenticeship training represents a net investment for training firms, the cost of which needs to be recouped after the training period. A new firm‐level data set for Switzerland reveals large variation in net costs across firms and, remarkably, negative net costs for 60 per cent of all firms. We use these data to estimate the effect of net costs on the number of apprentices hired by a firm. The results show that the costs have a significant impact on the training decision but no significant influence on the number of apprentices, once the firm has decided to train. For policy purposes, these results indicate that subsidies for firms that already train apprentices would not boost the number of available training places.     

Executive Compensation,Sustainable Compensation Policy,Carbon Performance and Market Value

We examine the interrelationships among executive compensation, environmental‐social‐governance‐based (ESG) sustainable compensation policy, carbon performance and market value. Using one of the largest datasets to date, consisting of 4379 firm‐year observations, covering a period of 15 years (2002–2016) from 13 industrialized European countries and insights from neo‐institutional theory (NIT), our findings are fourfold. First, our results suggest that process‐oriented carbon performance is positively associated with market value, whereas actual carbon performance has no effect on market value. Second, we show that the market value–process‐oriented carbon performance nexus is moderated by executive compensation. Third, our results indicate that executive compensation has a positive effect on process‐oriented carbon performance, but has no similar effect on actual carbon performance. Fourth, we show that the process‐oriented carbon performance–executive compensation nexus is reinforced for companies that adopt ESG‐based sustainable compensation policy. Our results are generally robust to controlling for governance mechanisms, alternative measures/estimations and endogeneities. Overall, our evidence supports the legitimization aspect of NIT and suggests that the market tends to reward firms with superior process‐oriented carbon performance instead of undervaluing firms with excessive actual carbon emissions. This implies that firms appear to use incentive‐based mechanisms to symbolically improve their process‐oriented carbon performance without substantively improving their actual carbon performance.     

The Effect of Socialization Mechanisms and Performance Measurement on Supplier Integration in New Product Development

This article examines the effect of socialization mechanisms and supplier performance measurement on the level of supplier integration in new product development and subsequent firm performance outcomes. Prior research has found socialization mechanisms and performance measures to be effective in managing supplier relationships, though research examining their impact within a product development context has been limited. Socialization mechanisms, such as supplier conferences and on‐site visits, help establish communication and information‐sharing routines necessary to achieve supplier integration in the product development process. Using performance measures to evaluate a supplier helps focus managerial attention on areas such as innovation and communication that are important to integration success. A structural equation model, using a sample of 142 manufacturing firms based in the United Kingdom, indicates that the level of supplier integration in new product development is positively influenced by socialization mechanisms and innovation‐focused measures of supplier performance, but not significantly associated with the use of communication measures. In turn, increased levels of supplier integration led to improvements in both collaboration outcomes and business performance. Socialization mechanisms were also found to have a direct effect on collaboration outcomes achieved by the firm. Managerial implications and future research directions are discussed.     

The Payback of Effective Innovation Programs: Empirical Evidence from Firms that Have Won Innovation Awards

Despite the widely held belief of the importance of innovation, the connection between innovation and firm performance is empirically inconclusive, partially owing to the limitations of existing innovation measures, which tend to ignore the effectiveness of innovation programs. In this study, we use the winning of innovation awards as a proxy for the effective execution of innovation. We conducted event‐study analyses based on data from more than 1000 publicly traded firms that won innovation awards between 1998 and 2003. Our statistical tests provide strong evidence that the performance of award‐winning firms is significantly higher as compared with several sets of control firms. Over an 8‐year period, starting from 4 years before to 3 years after the year of winning the first innovation award, the test sample's mean (median) change in return on assets is nearly 33% (24%) higher than that of a control sample. The evidence also suggests that effective innovation programs can increase firms' revenue, cost efficiency, and market valuation. Over the period, the control‐adjusted mean (median) change in sales, cost per dollar of sales, and Tobin's Q are 39.28% (20.71%), −5.52% (−3.80%), and 23.70% (3.16%), respectively. Panel data regression analysis provides additional insights on the performance impact of effective innovation programs. The results show that award winners are not only financially more successful but also enjoy an indirect benefit through better R&D execution, which increases firm profitability in both the short term and long term.     

Investigating Institutional,Economic and Social Determinants of European Regions for Firm Growth Through Employment Generation

This paper examines the influence of the institutional, economic and social characteristics of a region on firm growth through employment generation across 14 European countries for the time period 2010–2013. Theoretically, we utilize the resource‐based view alongside insights from institutional theory to develop a conceptual framework that captures the influence of regional characteristics on firm employment growth. Based on this framework, our empirical results indicate that not only does firm growth depend on the firm‐specific characteristics found in the literature, but regional attributes also significantly impact firm growth in a heterogeneous way for different firm types. In line with the heterogeneous nature of firm growth, our results point to significant differences in the influence of institutional, economic and social characteristics on firm growth in different‐sized groups and across different rates of growth distribution. The implications of our study suggest the importance of managers and policy‐makers realizing which firms are mostly expected to benefit from the external environment, and which in turn can be planned via tailored policy reform by regional governments and firm‐level strategy‐making by managers.     

Single‐ and Multiple‐Informant Research Designs to Examine the Human Resource Management−Performance Relationship

During the last decades, many empirical studies have analysed the relationship between human resource management and firm performance. Despite the call for multiple‐rater designs, a relatively large number of researchers still rely on survey responses provided by a single informant in each organization. Single‐informant designs suffer from a number of problems, especially when the responses provided by different types of raters across firms are pooled into a single dataset prior to assessing their equivalence across raters. Using an illustration of the relationship between high performance work systems and firm performance, in this paper we observe that responses provided by managers holding different positions (human resource managers and sales managers) differ significantly and therefore pooling their responses into a single dataset may result in confusing conclusions. Furthermore, we demonstrate that differences arise in the estimated parameters when a multiple‐key‐informant approach, compared to a single‐informant design, is adopted. For these reasons, data collection using multiple key informants is recommended, based on the assumption that some raters in the firm will be more knowledgeable about the variables of interest than others.     

Economic Liberalization and the Antecedents of Top Management Teams: Evidence From Turkish ‘Big’ Business

There has been an increased interest in the last two decades in top management teams (TMTs) of business firms. Much of the research, however, has been US‐based and concerned primarily with TMT effects on organizational outcomes. The present study aims to expand this literature by examining the antecedents of top team composition in the context of macro‐level economic change in a late‐industrializing country. The post‐1980 trade and market reforms in Turkey provided the empirical setting. Drawing upon the literatures on TMT and chief executive characteristics together with punctuated equilibrium models of change and institutional theory, the article develops the argument that which firm‐level factors affect which attributes of TMT formations varies across the early and late stages of economic liberalization. Results of the empirical investigation of 71 of the largest industrial firms in Turkey broadly supported the hypotheses derived from this premise. In the early stages of economic liberalization the average age and average organizational tenure of TMTs were related to the export orientation of firms, whereas in later stages, firm performance became a major predictor of these team attributes. Educational background characteristics of teams appeared to be under stronger institutional pressures, altering in different ways in the face of macro‐level change.     

Prices,Markups, and Trade Reform

This paper examines how prices, markups, and marginal costs respond to trade liberalization. We develop a framework to estimate markups from production data with multi‐product firms. This approach does not require assumptions on the market structure or demand curves faced by firms, nor assumptions on how firms allocate their inputs across products. We exploit quantity and price information to disentangle markups from quantity‐based productivity, and then compute marginal costs by dividing observed prices by the estimated markups. We use India's trade liberalization episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalization lowers factory‐gate prices and that output tariff declines have the expected pro‐competitive effects. However, the price declines are small relative to the declines in marginal costs, which fall predominantly because of the input tariff liberalization. The reason for this incomplete cost pass‐through to prices is that firms offset their reductions in marginal costs by raising markups. Our results demonstrate substantial heterogeneity and variability in markups across firms and time and suggest that producers benefited relative to consumers, at least immediately after the reforms.     

How can David orchestrate resources to enhance firm performance? A dynamic approach to coping with resource constraints

Given that the possession of abundant resources does not always guarantee superior firm performance, this study proposes a dynamic approach to enhancing firm value. Building on the resource orchestration thesis, we investigate how firms facing resource constraints enhance their capabilities over time by orchestrating resources and how this resource orchestration can play a role in improving firm performance. Using the dynamic perspective, this study identifies four resource orchestration modes, which are specified based on how a given firm dynamically allocates its resources to technology (enacted by R&D activities) and marketing (enacted by advertising activities). Accordingly, we claim that firms with resource constraints can enhance their performance by escalating or altering their resources over time. To test our hypotheses, we used a sample of 4078 small and medium-sized enterprises in manufacturing industries between 1984 and 2018. We found that focus escalation for technology positively affects firm performance, captured by Tobin's q, and that focus alternation toward either technology or market is positively related to firm performance. Finally, we discuss the theoretical and practical implications of our findings.     

Linking inventory efficiency,productivity and responsiveness to retail firm outperformance: empirical insights from US retailing segments

This paper establishes an empirical model linking a retail firm’s inventory management effectiveness to superior competitive operational performance for specific product-line retail segments. Using 16?years of US retail firm financial data from the COMPUSTAT Fundamentals database across 12 distinct competitive retailing segments, we develop and test a time-series model that links several inventory management execution measures to the competitive operational outperformance of retail firms. The analysis presented provides strong evidence that measures of inventory management performance are not ‘one size fits all’ for the retail industry, and helps to explain why extant research has had difficulty linking inventory control policy effectiveness to operational performance advantages in retailing. We discuss the implications of these empirical findings on the study of inventory policy execution, and offer some guidance for further research.     

Business model diversification: Demand relatedness,entry sequencing,and curvilinearity in the diversification-performance relationship

This study integrates research on business model diversification (BMD) and demand-side theory to examine the relationship of BMD to performance and the sequencing of business model additions. We begin by explaining and demonstrating that the overall degree of BMD has an inverted U-shaped relationship with firm performance. We next highlight the particular role that demand relatedness plays in BMD. We first provide evidence that the inverted U-shaped relationship flattens in times of financial shocks, consistent with arguments that the benefits of BMD from consumers’ willingness-to-pay for simultaneous use of multiple business models may diminish during shocks. Second, we argue that firms tend to sequence the addition of new business models based on demand relatedness, and we provide evidence that the degree of demand relatedness between a core and a target business model enhances the likelihood of diversification into that target business model.     

Customer Learning Processes,Strategy Selection,and Performance in Business‐to‐Business Service Firms*

Learning about customers takes place through relevant dialogues with those customers, also known as customer relationship management (CRM). As relationships develop, information about the customer is gathered in the firm's customer information systems (CIS): the content, processes, and assets associated with gathering and moving customer information throughout the firm. This research develops a measure of CIS management capabilities based on learning organization theory and measured by the ability to get, store, move, and use information throughout the business unit. This measure is then used to analyze customer learning processes and associated performance in the context of marketing strategic decision making. This study of 209 business services firms finds that generic marketing strategy positioning (low‐cost and differentiation) and the marketing tactics of personalization and customization are related to CIS development. Customer information systems development in turn is associated with higher levels of customer‐based performance, which in turn is associated with increased business growth. Since the strongest association with customer‐based performance is strategy selection, the long‐term benefits of the knowledge gained from the CIS may be in the ability to assist in measuring customer‐based performance, rather than in the ability to immediately contribute to performance. Finally, for these firms, customization and personalization are not directly associated with performance and thus may not be necessary to support every firm's marketing strategy.     

基于资源观的企业IT能力与企业绩效研究

在企业广泛应用信息技术提高竞争能力之际,信息化如何给企业带来效益一直是国内外研究的热点问题.在回顾相关文献的基础上,利用基于资源观的概念框架分析企业IT资源,建立企业IT能力模型;采用配对样本比较和统计检验方法,对企业IT能力与企业绩效之间的关系进行实证分析.研究结果表明,具有卓越IT能力的企业会表现出更好的绩效,这些企业具有显著较高的营业净利率、总资产收益率、净资产收益率和人均净利润.企业不仅需要进行IT投资,更重要的是把IT投资内化为整个企业的IT能力,只有这样IT才会更好地给企业带来效益,这有助于指导中国企业信息化工程的建设和论证.     

Equilibrium Labor Turnover,Firm Growth,and Unemployment

This paper considers equilibrium quit turnover in a frictional labor market with costly hiring by firms, where large firms employ many workers and face both aggregate and firm specific productivity shocks. There is exogenous firm turnover as new (small) startups enter the market over time, while some existing firms fail and exit. Individual firm growth rates are disperse and evolve stochastically. The paper highlights how dynamic monopsony, where firms trade off lower wages against higher (endogenous) employee quit rates, yields excessive job‐to‐job quits. Such quits directly crowd out the reemployment prospects of the unemployed. With finite firm productivity states, stochastic equilibrium is fully tractable and can be computed using standard numerical techniques.